Could inflation mean the end of the wine club discount?

With much of the wine industry facing these same realities, other wineries may soon follow suit. Northern California winemakers have had back-to-back small harvests; in 2020, many wineries lost a significant portion of their grapes to the smell of smoke, and the drought significantly reduced 2021 yields.

Wineries facing less inventory and higher production costs will look for ways to make more money per bottle, several industry analysts told The Chronicle. Many wineries have already raised prices, they said, but eliminating wine club discounts could be another tactic.

At the height of the pandemic, many wineries launched discounts to help sell wine in the absence of restaurant and tasting room sales. Those are also disappearing, according to wine industry analyst Rob McMillan, founder of Silicon Valley Bank’s wine division.

“Naturally people are moving away from discount structures today because we’re running out (of supply) and have excess demand,” he said.

In 2017, O’Brien Estate lost two-thirds of its wine production to fires and smoke smells. In 2021, O’Brien’s harvest is down 50%. The family are currently replanting part of their estate’s vineyard, which means they are also growing fewer grapes.

During the pandemic, Barb and her husband Bart O’Brien struggled to keep all of their staff employed, despite the closure of visitors, and labor costs have since risen. Supply chain issues have caused the cost of production to skyrocket – from bottles to caps to shipping. In the email to wine club members, the O’Briens cited a 50% increase in the cost of foil for the foil that covers the bottle cap.

And now there is inflation.

“We had a tough decision,” Barb O’Brien said. While the winery had already removed most discounts years ago, the club’s original members had been grandfathered – until this year. “I was really nervous. I thought, these are our friends, our loyal members. Some members have been with us for 15 years.

A discount, usually 10% to 20%, is a big driver of wine club signups, so many wineries wouldn’t dare eliminate it. “It’s a quick fix to try to generate additional income and it’s not a long-term thought,” said Amy Pierce, founder of winemaking consultancy Vinovation Strategy Group. “Members are the main buyers. Even outside of membership mailings, they are the regular shoppers.

But club memberships usually include other perks, like exclusive access to members-only bottlings, free tastings, and invitations to special events. At small wineries like O’Brien, members can get to know the owners and feel like part of a family. In a good year, the winery produces 5,000 cases, but it has around 3,000 club members.

“We feel like we share our home with people and we want them to feel at home too,” said Barb O’Brien.

The discount was not the motivating factor for Benicia resident Nancy O’Brien when she joined O’Brien’s club eight years ago. There were several other inducements, as well as the fact that joining seemed “coincidental” due to his common surname. “I really enjoy going up there. It’s really relaxing and you’re sitting in those Adirondack chairs, looking at the vineyard,” she said. “Barb and Bart are not pretentious, they are very welcoming and friendly, and the wine is really good.”

Historically, ultra-premium wine brands, such as those that sell wines for hundreds of dollars a bottle, have rarely discounted their wines. Not only are these wines so sought after that they still sell out, but some marketers believe that offering a discount can dilute the perception of a brand.

Barb O’Brien agrees with this reasoning. “Luxury products are not discounted. Cartier watches, Louis Vuitton handbags will not be discounted,” she said. “Why should we send this flash sale message to the basement?”

As analyst McMillan points out, supply and demand also reduce the need for discounting. Many small wineries, like O’Brien, have no trouble selling their limited production of wines – some even have waiting lists for their clubs.

Other wineries have long proven that the no-rebate route can work, such as Napa’s Robert Sinskey Vineyards. Co-owner Maria Sinskey said the winery keeps its prices fair, while other wineries may inflate their prices and then discount later when they have too much supply. At Sinskey, she said: ‘There’s no artificial prize,’ adding that their club members’ favorite perk is an original cooking recipe – paired with an ingredient, like a spice – that she adds with each shipment.

Another example is Lynmar Estate, a small winery in Sevastopol. Owner Lynn Fritz called the decision not to discount her wine an act of “survival”, noting, for example, that the price of glass for bottles has risen 40% to 50% in the past year.

Fritz believes the thousands of Lynmar members stay because they recognize the costs of consistently producing high-quality wines and experiences. “Customers are more than happy to pay,” Fritz said.

Frias Family Vineyard in Napa, which has about 1,000 club members, stopped giving discounts a decade ago. An internal audit led to the change. “Over a 10-year period, we’ve basically given away over $1 million in rebates, and it’s really starting to add up,” said Fern Frias, president and chief operating officer.

Profits from eliminating the rebate, Frias said, were invested in improving the quality of his wines. The family purchased premium oak barrels, expanded their fruit supply, and put more intention into their farming practices. “The minute we did that, it literally elevated our game,” Frias said. “This audit was very revealing and we didn’t see a blink of an eye when we got rid of (the shed). We may have lost a few customers here and there, but some of them have come back.

Barb O’Brien said she was both surprised and relieved that so far the winery has received little resistance from members. The email did not trigger a mass exodus. Frias suggests that many wine consumers are sensitive to the challenges faced by independent owners.

“We get a lot of people who continue to join our club because they want to support moms and pops,” he said.

“The way I always describe it is you can go to Safeway and buy Chips Ahoy, or you can support your mom and pop bakery and get this awesome chocolate chip cookie that’s just delicious.”

Jess Lander is a staff writer for the San Francisco Chronicle. Email: jess.lander@sfchronicle.com