Unless you have been living in a cave for the last six months, then you are aware we are in the midst of tough economic times. The financial crisis has taken a toll on everyone and Clos LaChance is certainly not immune.

So what are we doing about it?  It’s hard to predict what is going to happen with sales for next year. So if we can’t guarantee additional revenue, then there is only one thing left to do: cut expenses

What are we cutting back on as we plan budgets for 2009? Christmas cards, for starters. Between our investors, wine club members, vendors, wholesalers, accounts  and growers…we were sending over 500 Christmas cards per year. With the cost of the card, postage, labor to address and stamp them all….we are talking over a grand to get our Christmas cards out.  There has got to be a better use of $1,000. Don’t get me wrong, I love a good Christmas card from friends and family, with pictures of the kids and updates of where the family traveled (as long as it’s not too braggy).  But business Christmas cards…eh, I can leave them.

So this year we did an electronic card. With a custom Christmas Carol. Didn’t get it? Click here. Yours truly wrote the song.

http://www.clos.com/index.cfm?fuseaction=category_detail&category_id_int=16082

What else are we cutting back on? On an annual basis, we have two departments that book the most expenses: Production and Sales and Marketing.

 On the production side, Mother Nature solved our expense cutting decisions for us. Yields in 2008 were very, very low. We did not pick as many grapes as we expected to, so we are bottling less next year.  By not bottling, we save on the costs of the packaging, the transport, the storage. Also on the production side, we purchased more barrels then we needed to in 2008 (again, low yields)—so we will be buying less in 2009.

In addition, we have consolidated a lot of our supplies for labels, bottles, capsules, corks….and are streamlining everything to be as simple and economical as possible. For example—our Vineyard Designate Pinots have traditionally been packaged in heavier, more expensive bottles. The fancy bottles cost A LOT more per case (we were buying very small quantities and they are pricey models), as was the transport because of the extra weight.  So we ditched the expensive bottle and are now using the same Burgundy bottle as our regular Pinot Noir.  

In addition, we have been re-evaluating all of our outside service contracts (thanks to Tom our Maintenance Supervisor) and made some major changes to our landscaping maintenance and regular deliveries of things like water, linens and doormats. We are saving a ton of money by hiring someone part-time for landscape maintenance and using our own crew vs. hiring an outside gardening service. Next up for review: phones, Internet, fax, cell phones for everyone that has one on the company. Telecommunications is expensive! But I bet we can get a better deal then we are getting right now.

On the Sales and Marketing side, our other major expense category, marketing expenses have been cut in half. Absolutely zero advertising (stop calling me if you are in ad sales), dropping out of a few trade organizations and tastings, and putting a hold on any press events or tours in 2009. However, on the sales side, this is not a good time to scale back. When times get tough, the big suppliers pull out their giant marketing budgets and start flying buyers around the world, giving huge incentives, and selling wine at a giant discount (can you say “2fer?”).  So to cut back on my miniscule sales budget—which pretty much includes only salaries, benefits and expenses for 6 people—is not an option. We would be completely ignored by distributors and accounts—who can be easily mesmerized by the flashy things offered by the “big boys.”

There are many more examples of the “little things” that are being done around here to cut expenses.  And we are doing them so we don’t have to raise prices or lay people off. Because two of my favorite things in life (outside of my family) are the people I work with and drinking good wine that is not crazy expensive.   I also like to combine the two. Bring on the Clos LaChance Christmas Party!

We start planning for 2009 in October, putting together budgets and revenue plans. It’s a nightmare process…with 30 different products at different price points across different channels. Makes my head spin every year. But a necessary exercise.

Monday we had fun planning meetings—production and vineyard. It also make my head spin, because once again I have to predict sales numbers for the bigger ticket items in the Hummingbird Series. But the fun begins when we talk about the little, esoteric things that we can make….exclusively for Tasting Room, Web sales and Wine Club.

Here are a few of the things we discussed.

*Sales of Syrah are tough. Syrah was supposed to be the next big thing, but never really took hold. Did the Aussies flood the market with too much cheap Shiraz? Are people confused by the whole Syrah/Shiraz “mystery?” Over planting?  All of this and more has probably caused varietal to never really taking off big. Oh yeah, and Cab is still king when it comes to red wines.  So we are going to make more Cab and less Syrah. This means a combination of budding over, selling fruit, selling juice.  We will have some Syrah in our portfolio…its damn good from the Estate Vineyard. But less of it.

*The sweet version of our Muscat Blanc is not selling well in the tasting room anymore. We had a good run when we first released it. But that was when we did not have anything else in the sweet category. It’s a low alcohol, a little spritzy, fruity aperitif (Asti Spumante style). Nothing fancy, but a nice, refreshing drink. Now, its competing with Nectar, our late harvest Semillon, and the Zin Port and Late Harvest Zin. And Amber’s Cuvee, our sparkling Blanc de Blanc.

We have one acre of Muscat Blanc. The vines are not strong (might have a virus), so budding over is not really an option. The next step is to find something else to make with the grapes or to pull the entire block of vines and replant. Next year (08 Muscat Blanc has already been made) Stephen, Bill and I discussed making a dry Muscat. I-N-T-E-R-E-S-T-I-N-G. Maybe age some on its lees in the tank? Who knows….but it will be fun doing some trials and coming up with a new product. Muscat is a fun grape cause it tastes like, well, grapes.

*Talking about the Muscat got us discussing the need for another white wine in the Estate or Special Selection category. I need something for the Wine Clubs that is unique and exclusive. And good. We have Chards and a Viognier….I need one more. The dry Muscat has potential to fill that vacancy. But what else could we do? 

Stephen and I remembered that we have a couple acres of Marsanne and Roussanne  that came on line this year in one of our CK Vines vineyards. What about a white Rhône-style blend, the yin to Lila’s Cuvée red Rhône blend’s yang?  And we could call it…AJ’s Cuvée! (Lila’s brother, and my son. Yes, I am biased about the name). Again, can’t wait till we get to the trial process.

None of these things are final until we get the wines and try them in their infancy. Sometimes I wish I worked at Ben and Jerry’s. One day you come up with a new ice cream flavor. A few weeks later, you get to try your big idea. In our case, we have to wait for the fruit, then the ageing process. It can take 1-4 years before a new product is ready. On the other hand, if I worked at Ben and Jerry’s I would undoubtedly be huge. I guess staying in my current position is a good trade-off to fit into my skinny jeans (on most days).

I thought I would address a question that we get all the time, in the tasting room, amongst our wine Club members and with potential new restaurant or independent retail accounts that we are pitching. “Your wine is at _______??” (insert Safeway/Vons,  Lucky's, Costco). The tone of the voice can often be one of disdain.  

My answer to that question is an enthusiastic “Yes!” and then an under my breath “Thank _____.” (insert whatever deity/higher power you believe in).

The signifigance of the grocery chain has grown significantly over the last few years, and is so very, very important, especially in these economic times. Restaurants are struggling as dining out has become a luxury. People are eating in more often and therefore buying more at the grocery store. Grocery stores are doing more to become “one stop shopping” for their customers, expanding their offerings in all categories to include higher end, “gourmet” or “luxury” types of items. For example—I use a shampoo called Pureology—something I could only get at the salon or a special store. Safeway and Target now carries it. Also, specialty and local breads from Watsonville and Santa Cruz is carried at my local Safeway and Costco.

This trend obviously expands into the wine department. About 2 years ago, Clos LaChance was lucky enough to get a meeting with the beverage managers at Safeway. The “Cluster 1 and Cluster 2” (newly remodeled or new stores) stores that have expanded wine sections (with approximately 1,000 different wine SKU’s, no joke) took on three of Clos LaChance’s Hummingbird Series Wines. Those are our best selling wines now—the Zinfandel, the unoaked Chardonnay, and the Cabernet Sauvignon. Not just via Safeway, but through other channels too…restaurants and other wine shops.

In my little control group of 1, I would venture to say that the awareness of those three wines has increased significantly over the last two years because of the exposure at 200+ California Safeways and Vons, among other things. So when I get a restaurant I am pitching that asks if our wines are in the chains, I say yes! And that’s a good thing because now people will recognize our name on a wine list. And those that recognize the name are more likely to order it.

However, the great thing about Clos LaChance is that we also have wines that are not in the chains (because of the small volume) and are only available at the winery or a couple of restaurants/specialty retailers (those that are buying right now, which are not many). So there is something for everyone. Our Estate Syrah, Grenache, Petite Sirah, Cabernet Sauvignon, our Vineyard Designates—the Biagini Pinot Noir and Chardonnay, Lila’s Cuvee, etc. I could go on and on. In total, Clos LaChance over 30 different products. Considering Clos LaChance’s total volume (approximately 60,000 cases annually), we are talking about 26 different, small lot (under 500 cases produced annually), artisan-type wines (we have 6 wines that are made inm qantities over 1500 cases).

Having the three wines that we do in the chains helps sell through the other, more expensive products on wine lists or in specialty retail shops. Customers recognize the name and the brand because of our broader distribution. And recognition is half the battle when it comes to marketing Clos LaChance—especially considering that we have 50,000 competitors (there is at least that many wineries in the world….probably a lot more. Couldn’t find an answer to this question online.)

Sometimes the chains offer some pretty amazing deals—especially at this time of year. At Safeway, they have a “Club Card” that gives incredible discounts across all departments—sometimes “2 for 1” offers (I got one of those this weekend on pickled jalapenos, go figure).  Wine is certainly no exception. Knowing what I know about wine pricing and the distribution channel, the store and/or the distributor is making little to no margin on these deals. It doesn’t matter who is losing money at this point (well, it would matter if it was me, but it’s not)—all the matters is that the customer is getting a good product at an unbelievable price.

So when people call me and say “Wow, your wine is only $7.99 at Safeway, that’s almost half off!” I tell them…BUY IT. The pricing comes down so much because of larger deals our distributor makes with the account that are often across other brands. It moves wine, and raises awareness of our brand. Most people that drink it are amazed at the price (“I would have paid more $ for that!”) and keep coming back for more. These prices tend to be 30 or 60 day programs, so they won’t last forever.

I also get the question “Aren’t you afraid that the low price will bastardize the Clos LaChance brand?” I personally think that the only thing that will ruin a brands reputation is bad wine in the bottle. Everything goes on sale every once in awhile. Does that make you less likely to buy it in the future at the regular price? Maybe, but not if you have some brand loyalty.  I tend to stock up on things when they are sale, but I don’t stop buying them all together when the price goes back to normal. If I get a wine for eight bucks, but it tastes like it is worth fifteen? Point me in that direction.

As for our wine club, we really try and focus on sending out wines that are not widely available. 90% of the time that is the case, no problem. Sometimes, when we are grasping at something to put in the club (usually a white wine, we only have 5 different white wines) it happens. No problem, give us a call if you have any concerns and we can take care of it. We are working next year to make sure this does not happen…as our Wine Club members are our most important customers and we want to make sure they are getting wines that no one else can get. Ironically, next year will be one of the first years that Wine Club members are the only ones to get our Biagini and Erwin Vineyard Pinots. Yields in the 2006 vintage were very, very low. We have just enough cases to send out to our Platinum Club members. These two wines won’t even be available in the Tasting Room. Fun!

Does any of this resonate with you? Am I in a vacuum here? I would love any feedback.

There is so much more to say on this issue, which I will get to in future blogs. Thanks for listening to my rant and go buy some wine!