Micro wineries have often joined forces and partnered to share a tasting room. According to the San Francisco Chronicle, five new tasting rooms that are collectives of several micro wineries opened in Sonoma and Napa Counties in the last year. CLICK TO READ THE ARTICLE.

It’s a great way to share the cost of opening a tasting room. However, it is also a great way to make a mess. Of course, we love micro wineries, but they are the least likely to sit down and write procedures.

Here is a checklist of the things to figure out:

1. What is your goal? Is it Wine sales, Club signups, or Reservations for a vineyard tour? For example, if your goal is Club signups, you might be OK with running this program at a net-zero profit. However, it would be best if you had a goal to monitor whether the cost is worth your time and money.
2. How are you going to record the sales of the tastings and wines? The most common situation is for the tasting room to use one POS program and send reports to the partners. These should include a reconciliation of the funds collected.
3. How are you going to collect email addresses? Do you collect them yourself or through the tasting rooms POS program?
4. How are you going to track the wine sent to the tasting room? As we discuss in Step 5 of our Fundamental Five, “Track the samples and pours,” what is your procedure to track the bottles used for tastings and given out as freebies.
5. How are you going to track the other tasting room expenses, the rent, and other fees? First, you want to be able to review the total revenue against the total costs.
6. Do you have the cash flow to support this program until it gains momentum? We always recommend that you forecast your cash flow. This step is critical to micro and larger wineries.
7. Who is going to represent your wine? Do you need to hire someone? Are you going to be there, or will the crew from the collective handle this?

I don’t want to discourage you from joining a collective. However, be aware that you need procedures in place, and you need to monitor whether you are benefiting from the time and expense of joining the collective.

Learn more about the Fundamental Five Course and our Silver Club Winery Management Program

Good luck!!

In a recent blog post, Rob MacMillan wrote this headline “Wine Demand is Turning Negative, Defying Good News” READ ROB’S POST. The gist is that despite the pivot to the online sales channels last year and the expectation that with the economy doing well and restaurants opening back up, wine sales growth, continues to decline for the same reasons he listed in 2017 when he first reported on the declining sales trend.

This graph from SipSource shows wine depletions declining from January to April 2021.

Here’s the thing: this is a national trend across all wineries. However, the wineries that have the greatest impact on these numbers are less than 1% of all the wineries in the US. According to Wine and Vines, 300 wineries produce over 90% of the wine sold in the US. Thus only those 300 wineries out of 11,053 wineries have any impact on these figures. BUT THIS DOES NOT HAVE TO BE YOUR TREND. You and your friends and neighbors may actually have a very different result, but the combined impact of the small wineries doesn’t move the needle to change “the industry-wide” trend.

To understand the scale of those 300 wineries: the winery with the smallest production on that list bottles 6,250 cases of wine each week. Gallo at the top of the list bottles 8,000 cases every minute, 24/7.

These are the graphs from some of my clients.

Even though they both had negative growth in 2020, they both had their most profitable years ever. Growth and Profit are separate issues. Frankly, many small wineries don’t want to grow their case production. (However, they should still grow their gross profit.) Granted, not everyone had these results, and a few suffered from a lack of inventory due to fires 2 seasons in a row.

The point is: don’t take these reports about the industry as a fait accompli. Small wineries are nimble. Their customers are real people and not a demographic. Small wineries have true authenticity that the large wineries try to copy. Yes, pay attention to the fact that the boomers are “aging out”. And pay attention to how you are making the tasting experience inviting to the next generation.

I offer this challenge to the small wineries: Beat the industry trend.

And sign up with Silicon Valley Bank so you will receive an invitation to participate in their surveys. The small wineries are under-represented. Let’s show them what small wineries can accomplish. SVB WINE DIVISION

Sonoma State Wine Business Insitute posted a nice 10-minute video on digital marketing. The last year showed us that folks will buy wine through this type of marketing.

SSU Wine Biz – Digital Marketing in an Altered Landscape

So why should a bean counter, moi, care about sharing marketing ideas with you? It’s because your bottom line is directly related to your top line. I hate to break it to you, but your revenue is not directly related to the quality of your wine. This means: if you make better wine, you will not necessarily sell more wine. Sorry.

I am sure you can think of wineries that make mediocre wine (in your opinion) yet have a strong business, and at the same time, you can also list wineries that make dynamite wine (in your opinion) yet struggle to sell it. The successful wineries have a marketing and sales program that finds folks who will buy the wine that they make. Furthermore, the cost of those programs is such that the winery makes a net profit on the sale of the wine.

Are you able to make a connection between the cost of a marketing program and the sales that it generates? That’s where useful financial information comes into play. Over a hundred years ago, marketing pioneer John Wanamaker said, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” The main reason we recommend the DTC sales channels be split into different segments (tasting room, club, website, events, etc) is because you will use a different marketing program to stimulate sales in each segment.

If you can calculate the cost of your marketing program with the sales, you can start to identify which half of your marketing is working.

The team at Silicon Valley Bank released the annual Direct to Consumer Wine Survey Report.

Last year’s report was canceled because the surveys were due just as the pandemic hit and the shutdowns began.

Thus there was no surprise when this year they discussed the tectonic shift in the winery operations. I particularly enjoyed the comments by a VP of Marketing of a 10,000 case winery in Virginia. Of course, Rob McMillan, Paul Mabray, and a VP from The Family Coppola all had valuable insights.

To watch the replay and download the slides go to THIS PAGE

It’s a full hour and a half. So pour a glass of wine and relax. Yes, there are lots of graphs. Some of the topics I found interesting that are scattered throughout the discussion were:

• Reservations vs Walk-in and how the conversion rate for Club signups is almost double the rate for Walk-ins
• Reservations are a good Wine Club retention tool
• Finding qualified staff for the tasting room has been a challenge because so many people moved
• A key to a successful virtual tasting is collaboration with other wineries
• How to price a virtual tasting
• How to price shipping fees

The team at Silicon Valley Bank has called for folks to complete the survey for the annual Direct to Consumer Wine Survey Report.

The deadline to submit the survey is Friday, March 18th.

You can download the questions HERE.

When you are ready, enter your answers on the SVB SURVEY PORTAL

To help you complete the financial questions, in these videos I walk you through pulling the reports in QB Desktop & QB Online. If your file is set up using out Fundamental Five, pulling these reports will be quick and easy. But … I cannot guarantee if it is easy to pull the other reports from your POS program.

QB Desktop

 

QB Online

Remember the problems with Illinois a few years ago? … Michigan is now setting up stings.

According to the North Bay Business Journal, Michigan is suing three wineries because they didn’t have a “direct shipper” license.

Compliance issues are very complicated, and these issues at all levels. You might be compliant for one issue in a state but out of compliance for another issue.

• State & TTB Winemaking
• Distribution shipments
• DTC shipments
• Local and State sales tax
• State and Federal income tax
• And more ….

Do you have a Compliance Specialist on your team?

Read the entire article here

This credit was part of the March 2020 COVID Relief bill, but folks had to choose between the credit or the PPP loan. However, the December 2020 Economic Aid Act changed that restriction so that folks who received a PPP loan may take the credit too, but the earnings submitted on the PPP Forgiveness Application are excluded from this credit calculation.

This credit is significant for the wine industry because you qualify if your operations were fully or partially suspended due to government orders. Thus every winery in California was shut down beginning March 17th, and some were shut down on March 15th. It is also available for businesses with a 50% revenue decrease, but please check the IRS website for the details on those rules.

Recent updates are at the end of the post.

Here are the IRS rules

This is how I calculate the potential credit:

1. Create a report showing the earnings for each employee on a row and each pay run in separate columns.
2. Exclude any close relatives who are not owners (sorry, this is a thing … see the IRS rules)
3. Calculate the total wage earnings for March 17 to December 31, 2020
4. Map the dates the tasting room was fully open and not required to close or partially close. At this time we are counting outdoor only sales and limited indoor seating as partially closed. Calculate the total for the open dates (you might need to allocate days within a pay period, but it is likely that you were never fully open after March 17)
5. Calculate the earnings for the PPP covered period – this is the period you will include on your Forgiveness Application**
6. Take the total from Step #2 and subtract Steps #3 and #4
7. For each employee that earned over $10,000 calculate $5,000
8. For each employee that earned under $10,000 calculate half of their earnings
9. The total of Steps #7 and #8 is your total credit
10. Contact your payroll service and request an amended 941. This will need to be broken up for each quarter, but they can calculate that. Your payroll service with charge a fee for the amended forms, but it is well worth the aggravation.

Other notes

1. The earnings may include certain health plan costs, but I have found that most full time employees exceed the $10,000 limit. Go ahead and include it if needed.
2. Spouses are not on the list of “excluded relatives”. The owner has to own at least 50% of the business to have relatives excluded. This means that minority owners’ relatives are not excluded. And if, say 3 family members own an equal share of the business, then no one owns at least 50% so no family members are excluded.
3. In 2021, the credit is $7,000 max per employee, per quarter. (yes, per quarter!)
4. You might want to submit the maximum 40% of other expenses on your PPP Forgivingness application so that your payroll earnings are higher, BUT if you have a loan over $150k, this will likely create a lot more paperwork. If your loan is under $150k, the application is supposed to be a simple one-page submittal (but I haven’t seen this yet)
5. For 2021, you could apply to have the credit reduce your 941 payments, but I think this will cause a lot of extra time and effort, because you have to request it for each payrun. If you miss one payrun you will need to submit an amended 941 anyway, so might as well just plan on it.

3/21/21 Updates

1. The activity that was shut down had to have accounted for at least 10% of your total revenue. So even if you were able to pivot to online sales or continue your winemaking operations, if you sold me than 10% through the tasting room, then your entire payroll may be used towards this credit. Most of you were able to keep your key employees and your winery crew, and that is why this credit is adding up t a lot of money.
2. If the covered period on your PPP Forgiveness Application included more wages than you needed, the wages that are excluded are only the wages needed to match the loan amount. So the maximum exclusion due to the PPP Loan is the amount of the PPP Loan itself.
3. Remember that on the PPP FA, you had to reduce the wages paid to high salary folks. That limit does not apply to the ERC. However, you can only claim $10,000 of wages per employee, and those folks likely earned much more than that.
4.  For 2020, you will need to submit an amended 941 for each quarter. You cannot combine quarters.
5. Some CPAs have interpreted the rules such that on your 2020 Income Tax Return, you need to count the credit AS IF you had received it. The ERC is a reduction of your payroll taxes, and you will receive a check from the IRS for having over-paid your payroll taxes.
6. Many of these “rules” only apply to businesses with less than 500 employees.

Good luck!