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Why Customer Retention is Imperative For a Winery

Why Customer Retention is Imperative For a Winery

The primary goal of many wineries is to develop, cultivate and produce products that promote repeat business and retain customers. Wineries exist to satisfy customers’ needs through products or services and it’s important for a winery to retain these customers. Since we operate in a competitive business environment, it is important to identify how we can increase customer retention levels.

Let us first define customer retention:

Customer retention is a combination of intentional repurchase behaviour and psychological attachment of a customer to a particular product or service (Al-Hawari 2005:231; Peelen 2005:239; Godson 2009:72; Cant & van Heerden 2010:444). McManus and Guilding (2008:779) also define customer retention as an attitude where a customer’s attachment to a product, service, brand or company is developed. According to Zhang, Dixit and Friedmann (2010:128), customer retention is the likelihood of a customer choosing a particular brand with reference to his/her past purchases.

Why is customer retention important?

Retaining existing customers is cheaper than acquiring new customers.

By retaining customers it allows a winery to generate more profits with each additional year of the customer-relationship. Research has shown that 12 – 15% of customers are loyal to a single retailer, but these customers represent 55 – 70% of total sales, and the only way to increase customer retention is to increase customer satisfaction. Satisfied customers have the tendency to return to the same store and they end up buying the same product.

What happens when customers are dissatisfied? The negative aspect of customer dissatisfaction is that customers lower their expectations when buying from the same winery or stop buying from the winery completely.  Conversely, customers that are satisfied have the tendency to return and possibly refer new customers to your winery. As a result, the winery increases its customer retention and lowers customer acquisition costs, which in turn increases the profit of the business. One of the focal points of a winery should be on customer satisfaction as it can possibly yield greater profitability than customer acquisition strategies.

The question then remains, how to satisfy customers and develop a winning customer retention strategy?

Provide quality products

Quality is more than just producing a quality product. The quality of a product should be customer-driven. What is the customer looking for exactly and how do they define quality? It all comes down to how the customer experiences the product. It is important to note that the higher the quality of the product, the more likely a customer will be satisfied. Quality is also not something that you can improve overnight. Take for example the comparison of wine produced in the early 19th century to today’s wine. The use of modern-day technology, a variety of cultivars, viticulture, and overall winemaking experience allows us to produce outstanding quality wine. It takes time to design and build a quality product from the ground up.

Customer service

Customer service is intricately associated with good quality products. It is important to respond timely to the disgruntled customer and resolve their issue promptly. Customer service is one variable that you can easily control and oversee. Implement standardized service response systems that can deal with inquiries and complaints promptly. These response systems and remedial actions are vital to realize increased levels of customer satisfaction. Your ultimate goal should be to decrease your customer service queries, this in turn evidences that you are producing a quality product. An investment in quality and perfecting your product will reduce your need to deal with customer complaints.

Training and preparation are key

“He who fails to plan is planning to fail!” – Sir Winston Churchill.

It is important to train employees and convey to them that customers are the ultimate judge of quality. Provide employees with a detailed guideline and proper training on how to deal with disgruntled customers. This is especially important as these employees will be representing the brand and they have a big influence on how a customer can perceive the brand. It is important to listen to what the customer is complaining about and utilize this information constructively to improve the overall quality of your product.

Build a relationship of trust with the customer

When a customer trusts the product, the quality, and the brand, they tend to share their experience with family and friends. A case study by Nielsen found that 92 percent of people trust recommendations from friends and family above all other forms of advertising when making a purchase decision. Therefore, nothing comes close to the influence of word of mouth, and satisfied customers share their positive experience with more than five to ten people. Customers need to be able to trust what they buy. By building trust you are providing your customers with something of value which leads to a positive trend towards brand awareness. The winery sales team needs to be thinking about how to deepen the relationship with their customers, especially when they are not in buying mode.

Use automation to your advantage

There is no doubt that technology is there to help us. Try to make use of automated marketing software to engage, re-engage, and keep your customers up to date on what’s happening with your winery and products. Specifically, success stories at wineries have been reported using Customer Relationships Management (CRM) software such as Salesforce, Hubspot, Commerce7, WineDirect, and eCellar. All these CRM systems complement a full marketing methodology for wineries.  Make sure to use standardized email newsletters, event notifications, gated content, promotional emails, abandoned shopping cart reminders, and survey emails. Marketing automation will keep you one step ahead of your competitors by communicating more effectively and efficiently with your customers.

Use social media to your advantage

Social media can power your brand forward but can also be detrimental to your brand. Use social media to research your target audience, analyze your competitors, create engaging content, generate website traffic and grow your audience. Make use of customer reviews online and utilize this space to promptly deal with issues customers may have. By promoting brand awareness online, you create credibility and build trust with customers based on your online activity.

By implementing the above strategies, a winery can increase customer satisfaction, leading to an increase in customer retention. In today’s fast paced competitive market, the wine industry needs to focus their efforts on retaining customers and realise the importance thereof.

References:

Al-Hawari, M. 2005. The effect of automated service quality on bank financial performance and the mediating role of customer retention. Journal of Financial Services Marketing, 10(3):228-243.

Cant, M. & van Heerden, C. 2010. Marketing management. Cape Town: Juta.

Godson, M. 2009. Relationship marketing. New York: Oxford.

Magatef, S. & Tomalieh, E. 2015. The Impact of Customer Loyalty Programs on Customer Retention. International Journal of Business and Social Science, 8(1):81.

McManus, L. & Guilding, C. 2008. Exploring the potential of customer accounting: A synthesis of the accounting and marketing literatures. Journal of Marketing Management, 24(7/8):771-795.

Peelen, E. 2005. Customer relationship management. Essex: Pearson.

Zhang, J.Q., Dixit, A. & Friedmann, R. 2010. Customer loyalty and lifetime value: An empirical investigation of consumer packaged goods. Journal of Marketing Theory & Practice, 18(2):127-139.


4 Benefits of Outsourced Accounting For Wineries

4 Benefits of Outsourced Accounting For Wineries

Accounting and bookkeeping are the heartbeat of the business side of your winery. Unfortunately, these critical functions are too often overlooked by busy owners. While it’s tempting to take shortcuts, or simply rush through the tasks, that can lead to inaccurate financial statements. That’s why Protea Financial offers outsourced accounting services.

While it’s certainly understandable – you have your plate full with so many other business tasks – errors in your accounting and bookkeeping can derail your business. And often without warning.

In 2019, it was reported that 82% of small businesses fail due to cash flow problems. And this infographic from SmallBizTrends shows that 30% of all small businesses are continually losing money due to poor financial management.

With business growth, wine sales and general management stealing your focus, you may consider outsourcing your accounting to ensure financial accuracy and promptness. Outsourcing your winery accounting can help reduce your workloads and divert some, or all of your financial tasks to qualified, highly-skilled accountants. The results will be evident. Once you have outsourced your winery’s financial tasks to an experienced accountant, you can rest assured that your business accounts are in safe hands.

Don’t believe us? Consider this: A survey in 2018 showed that over 80% of businesses outsourcing their accounting function would recommend their accountant to other businesses. If you’re not yet convinced, we’re going to tell you about all the benefits of outsourced accounting.

What Can an Outsourcing My Accounting Department Do for My Business?

Outsourced accounting can take some elements or even the entire function of accounting outside of your business. This will make room for other tasks – especially those that are particularly time-consuming. Whatever your current accounting situation, outsourced accounting can offer you a far more comprehensive solution. Here are 4 of our favorite benefits of outsourced accounting.

1.     Accounting Firms Are Made For This

Wine accounting is a complex and challenging task. Not only does outsourcing your accounting take the work off your shoulders, but it places it in the competent hands of highly trained and experienced accounting staff. That’s right, with many accounting firms, you’re no longer relying on one person to manage your books, often you’re getting a whole team.

2. You Can Cut Your Overhead

When you outsource accounting, you will only pay for the work done. In the USA, worker illness and injury cost businesses a total of $225.8 Billion. You need not be one of them. By outsourcing your winery accounting needs, you skip the hassle of payroll taxes, sick leave and vacation time. Therefore, significantly improving your winery’s profit margin. You also eliminate the risk of suddenly losing staff – an issue that most businesses face when someone goes into long term sick leave or quits without notice, leaving you and your books high and dry.

3. Trained Accountants Are Meticulous and Logical

There’s nothing quite so analytical and precise as the mind of an experienced accountant. By nature, accountants are highly logical and willing to deep dive into the details in order to produce the best outcome. Often, accountants utilize highly complex software in order to manage your accounts and to produce the most accurate results possible. One of the many benefits of outsourced accounting is of course, the accountants themselves.

4. You’ll Save Money

While paying someone to do a task you managed yourself might not seem like it would save you money, it definitely will in the long run. You are now free to take care of your business in other more effective ways, or to hone your focus into one element of finance such as bookkeeping and redirect the rest. So the fee your business pays to an outsourced accountancy firm will pale in comparison to the profits from a more active business. In fact, around 30% of businesses outsourcing their accounting functions have been able to increase profit with the guidance of their new accountant. 

How Protea Financial Will Bring You All the Benefits of Outsourcing Your Accounting or Bookkeeping

To remain successful, wineries need business leaders to run fast while remaining agile, as well as access to accurate financial data. The opportunity cost of not having superlative accounting is potentially enormous. Protea is here to empower you to cultivate business growth, while your outsourced accounting team manages your financial back office.

Our clients enjoy the benefit of having a team structured around your business needs. The strategic benefits of outsourcing accounting start with the savings. It’s the stack of talent that works with you around the clock to maintain the integrity of your company finances. No matter what happens, your Protea team will have your back and strive to make your job easier.

Begin your journey with Protea by requesting an evaluation today. Our goal is to design a winery financial strategy that allows you the freedom to scale at the pace you desire.

Planning for Price Changes

Planning for Price Changes


It is common for small wineries to avoid raising their prices for an extended period of time. This is due to a variety of factors, including a lack of accounting input regarding price-volume trade-offs and management’s desire to preserve customer interest. Alternately, a winery may opt to make price changes based on a gut feeling. Neither of these strategies will help you maximize your profit margins and grow your business.

The Financial Impact of Price Changes


Perhaps the winery simply neglected to make price changes. That is still a decision that will impact the winery but produces exclusively negative results. When wineries choose to delay price changes, the cost of production steadily eats away at profit margins. This reduction in profit margins may go partly unnoticed or unattributed and encourage wineries to make ineffective price changes. Wineries should adjust their prices with relative frequency to match the rise of inventory costings and the value of labor. Planning for price changes is a key step for proprietors to undertake.

However, important decisions regarding price adjustments do not need to be made by a single person or section of the winery – rather, it should be a deliberate choice based on data from multiple individuals or teams. By facilitating a conversation between sales, winemaking, and accounting, a winery can make informed decisions.


Establishing a Team of Expert Staff


Each section of the winery provides valuable information. Effective accountants will be tasked with determining the true profit margins for each wine. While it may seem simpler to apply a blanket price increase, this ignores individual inventory costings. A generalized decision can negatively impact your price-volume trade-offs and result in lost profit. It’s invaluable for wineries to track data on individual SKUs throughout the year.

Each wine will have a set of associated costs: fruit costs, barrel costs, winemaking costs, and packaging costs. By keeping track of these SKU-specific profit margins, it will be easier to adjust the price for individual products.

The sales team can compile market data to estimate the price elasticity of demand. This can help guide the price change by demonstrating how much a 2-5% increase will impact the volume of sales. This insight on price-volume trade-offs is an invaluable factor for providing an estimate for a price increase range and its effect on the business’s profitability. This market data is also crucial for pricing individual wines to maximize profit. Your most valuable wine can generate a higher ratio of profit when marketed and priced appropriately.


How to Determine the Right Price Change for Your Winery


It is important for wineries to avoid making gut-feeling decisions. At best, these choices will be ineffective – at worst, they will negatively impact your profit margins and customer trust. Wineries should rely on a dedicated team to keep an eye on trends, track inventory costings, and reevaluate costs versus prices.

For the most part, wineries should plan to increase prices for their products. Production costs and the value of labor is steadily rising, and that cost should be reflected in the price to maintain a 45% or better gross profit margin. There are rare cases where a winery will elect to decrease price and increase the volume of a particular wine to reap more profit over time.

However, due to the extensive timeline needed for winemaking, it is difficult to increase product circulation quickly enough to improve profit margins. Wineries may choose to invest in additional labor and inventory to bottle more wine. Yet months will pass before a winery can sell their product to consumers. This lag between investment in the product and reaping profits (and the associated time value of money) can compound the difficulties and further reduce the return on capital caused by low profit margins.


Another possibility exists for wineries to improve their profit margins by decreasing the price of their wines. However, this is a rare situation. This is most common in wineries that already have high-profit margins, and even then, it is rare. As with all pricing decisions, choose to approach price decreases with carefully collected analytical data.

Instead, wineries will almost always increase the price (instead of the volume) to reflect the value of the product. It is likely that a winery may delay price increases due to fear of customer reaction. This is one reason why it is necessary to rely on data from the sales team. By allowing sales to collect and report data regarding market elasticity, management can make guided price adjustments and have a realistic estimation of the impact on consumers.


Employing Phase Planning


If a winery has delayed increasing prices for an extended period of time, it may be necessary to institute phase planning. Planning phases of price increases can preserve the overall price elasticity in your market, therefore encouraging consumer retention. Choosing to increase prices gradually will also allow for the sales and marketing team to evaluate the effect of each phase. This data can be used to adjust future phases as a winery restores its profit margins.

Price changes can and should be communicated to customers. This is especially true for phased planning, as the buyer will see multiple raises in price. The communication can be effectively handled by management and sales. Providing a brief snapshot of the accounting data is usually deemed unnecessary. Instead, communicate with consumers in generalities while maintaining transparency. By setting expectations, customers will be more receptive to price increases. Effective marketing has the potential to reduce price elasticity.

Though it is possible to manage larger price increases or phrased price changes, it is ideal to make more frequent changes. Reviewing costing and pricing quarterly encourages wineries to track and record data throughout the year. Insightful inventory costing is often left until the end of the year. However, this decision can harm wineries. Accountants may neglect collecting important information under the pressure of a deadline. This can easily impact a winery, as it loses the potential to prioritize marketing its most valuable wines.


Price Changes Keep Your Winery Thriving


In order to maintain profit margins and preserve positive consumer opinion, plan for price changes. Even if you do not increase your prices quarterly, it’s crucial to collect and analyze pricing and costing data on an ongoing basis. If you haven’t done so already, construct a dedicated team to address pricing. Opening this line of communication and trusting in the expertise of sales, winemaking, and accounting is the key to maintain and improving gross profits.

American Viticultural Area Valuations Offer Potential Tax Savings for Wineries

American Viticultural Area Valuations Offer Potential Tax Savings for Wineries

Producers and consumers place great value on where their wine grapes are grown. The famous wine-grape producing areas—such as Napa Valley, California, and Walla Walla, Washington— have come to be publicly associated with quality.

However, many wineries are surprised to learn this perceived quality can be quantified and used to offset tax liabilities in the years following a vineyard purchase. The more prestigious the land area, the greater the potential savings.

This complex process includes an American Viticultural Area (AVA) valuation, and the potential tax savings can be significant. Here’s what wineries and vineyard owners need to know about the process to potentially benefit from the savings opportunity.

What’s an AVA Valuation?

An AVA is a geographic area where wine grapes are produced, as defined by the Alcohol and Tobacco Tax and Trade Bureau (TTB). As of June 3, 2020, there are 248 established AVAs in the United States, with 139 in California.

An AVA may have an intangible value associated with the quality of the grapes produced within it. Unlike land, producers may be able to amortize the value of this asset for tax purposes, but doing so requires a valuation to determine the intangible value of the AVA.

Intangible Value

Simply put, the intangible value of a production area results from the perceived value of the wine and wine grapes produced there. This value comes from a number of factors, such as established root stock, weather, soil quality, and consumer preference.

Wineries are only allowed to claim their wine was produced in an AVA if the following conditions are met:

  • 85% of the grapes used to produce it were grown there
  • The wine is registered with the TTB

Grape Pricing Comparison

Prices paid for grapes from different regions can vary dramatically. The graphs below illustrate 2019 bulk grape pricing in California, as reported by the US Department of Agriculture (USDA) for different crush districts.

Grape Pricing Comparison

For example, in the Cabernet Sauvignon grape pricing chart, we can see that in district four—which is Napa County—the median price of Cabernet Sauvignon grapes was approximately $9,000 per ton.

This can be compared to the median of district 10—which includes the Sierra Nevada Foothills counties such as El Dorado and Amador—where the median price for Cabernet grapes was $1,625 per ton.

Potential Tax Benefit

When a buyer purchases a vineyard, the AVA intangible creates a potential tax savings by amortizing the AVA value in the 15 years after the purchase occurs.

If an AVA intangible isn’t measured at the time of a purchase, an AVA valuation can still be performed and the amortization expenses can be retroactively applied to recognized deductions not taken in prior years.

Amortization

Amortization is the gradual recognition in income of a capital expense over a specific period of time. It’s typically associated with intangible assets—like trademarks—or, in this case, AVAs.

Essentially, it expenses the intangible value of the AVA associated with the land. This option allows vineyard owners to put some of the money they’ve spent to acquire land in a highly desirable AVA back into their businesses.

AVA Valuation Methods

If you purchase a vineyard, you can’t depreciate or amortize the value of the land used to grow the grapes. There’s a distinct separation between the AVA value and the value of the land.

Quantifying the AVA value happens through a complex process known as an AVA valuation. The resulting amount is what vineyards are able to claim for amortization.

There are a few different methods used to determine the potential AVA value.

With and Without

This method involves looking at two scenarios in which vineyards producing the same grapes of similar quality are compared. One vineyard is within a particular AVA, and one isn’t.

By comparing different prices of the grapes produced in each area and the subsequent effect on projected cash flows from the vineyards, the AVA’s intangible value can be calculated.

Relief from Royalty

Estimating a hypothetical avoided royalty or licensing fee is a common way to value tradenames. Distinguishing that a wine is made with grapes from a specific AVA is much the same as marketing that wine with a specific trademark.

While we know AVA designations can’t be licensed, wine brands, as well as brands for other similar products, can be. Comparing the licensing and royalty fees that might be paid by wineries wishing to use different brand names on their packaging offers many insights into the potential value an AVA designation could offer.

Generally, the more profit a winery can produce by licensing a brand, the higher the value of the associated intangible asset.

Vineyard Land Sales

Also known as the market approach, comparing the sale records of different vineyards offers an indirect way to quantify the effects of an AVA designation on land value.

While the price of vineyards can be impacted by many factors, these designations can have a significant impact on comparative vineyard value. The goal is to separate the cost of the land from the value provided by the AVA designation.

Getting Started

With owners making claims about AVA value due to the potentially significant tax savings, the IRS and states are increasing scrutiny on these claims. The larger the claim, the more likely an examination could occur.

Making a well-supported claim should be the ultimate goal. Utilizing multiple valuation methods, providing the appropriate documentation, and working with an advisor with deep industry expertise can help the process move smoothly.

Next Steps

For more information about AVA valuations and how they could help your winery save money, contact an accounting or consulting professional.

Donovan Trone has worked in finance and research since 2009, performing valuations services for operating companies, partnerships, and limited liability corporations for mergers and acquisitions and financial reporting. He can be reached at (408) 558-4320 or donovan.trone@mossadams.com.

Alex Luke has worked in data processing and analysis since 2013. He has extensive experience in data solutions, marketing and business, and valuations analysis. He can be reached at (425) 961-7029 or alex.luke@mossadams.com.

Assurance, tax, and consulting offered through Moss Adams LLP. Investment advisory services offered through Moss Adams Wealth Advisors LLC. Investment banking offered through Moss Adams Capital LLC.

Accountant vs Bookkeeper

Accountant vs Bookkeeper

As wineries search for growth in today’s digital world, the accountant vs bookkeeper debate has become all the more relevant. Innovation, technology, and eCommerce have made traditional marketing strategies for wineries nearly obsolete. 

As RaboBank recently highlighted, only those wineries who respond to market changes with the needed urgency will thrive, and wine businesses that have leveraged the power of eCommerce have already seen massive returns. In this effort, the need for winery accounting and bookkeeping management has also risen.

Accountant vs Bookkeeper: Who Does What?

Before we get into which professional is right for your winery, it’s important to highlight the differences between them; each specializes in different responsibilities between financial and operational management within your winery business. 

An accountant is responsible for recording and presenting the financial well-being of a business. The most pertinent profiles for Ecommerce wineries are management accountants and tax accountants. 

Management accountants take charge of representing the financial performance of your digital business through drafting budgets, reconciling balance sheets, and analyzing financial reports stored on your eCommerce platform, among other actions. 

On the other hand, a tax accountant does tax reporting management. That includes calculating your business taxes and offering counsel on your business strategy to minimize tax audits and lessen the possibilities of tax law breaches. 

Unlike accountants, a bookkeeper records any and every financial transaction that your winery does. They are important team members, as they are responsible for identifying, recording, and labeling the purpose of every financial transaction in your winery.

Is an Accountant or a Bookkeeper Right for my Winery? 

The Ecommerce winery business model calls for both management and tax accountants. Management accountants are important as they provide you with the financial insight you need to gauge the effectiveness of your business strategy and make better financial decisions. While some winery executives feel that they can handle finances on their own, doing so will take them away from other important areas of business development, like sales and digital marketing.

Similarly, tax accountants are all the more important now than ever as winery businesses now need to enter into unchartered waters of eCommerce. Onboarding an accounting professional who has the right legal and tax knowledge in the digital field will steer you away from possible tax infringement. 

Bookkeepers take care of major responsibilities. However, practice shows that they are often too bogged down by data entry tasks that they don’t have the time to deal with possible financial issues, or provide actionable analysis and insight into the business’s key performance indicators (KPIs). While accountants can absorb the role of a bookkeeper, they tend to be overqualified and too expensive for the role. Furthermore, hiring all three professionals individually is too costly for most wineries, and the winery owner or executive is still responsible for making sure all three individuals work together seamlessly.

Luckily, the solution to this financial dilemma can be solved by getting in touch with Protea Financial.

Protea Financial: Ultimate Winery Accounting & Bookkeeping Services

Protea Financial is an accounting and bookkeeping firm that designs and implements customized accounting solutions for businesses. We are not a tax preparer, but we support businesses of all sizes in managing their finances so that they can focus on other facets of their business development. 

Our services include tax schedules, managing financial accounts, preparing accounting documentation, and bookkeeping

For wineries, we have an all-inclusive service that covers responsibilities needed for tax and financial management and bookkeeping, and our services are significantly less expensive than if a winery were to individually hire each professional. 

By housing all professionals under one team, we deliver the same services at a rate that’s below the average marketing-price while maintaining premium quality and accuracy. Furthermore, the winery’s leadership does not need to spend time training, overseeing, and making sure unrelated financial professionals are working together productively. 

Our team, led by Zane Stevens, consists of almost 25 accountants that, together, bring decades worth of accounting and financial managerial experience to our projects. We are poised to assist you in driving your winery business to success.

Get in touch with us to set up a consultation for your winery accounting and bookkeeping needs. We will conduct a thorough evaluation of your winery financial life-cycle to develop and propose a strategy that will lead you to financial freedom. 

Set up your evaluation today.