These days, wineries find themselves in a tough spot: They need to cater to increasing customer demand for better wines, but they don’t want to raise prices and risk driving away more customers than they bring in.
As winemaker Mark Beaman put it to Sommelier Business, “We need to be profitable to be successful but defend what we need to successfully create wines of quality and distinction.”
Meininger International found that 85% of wineries see cost increases as a significant challenge. How can winemakers hope to keep costs down while still satisfying a quality-focused consumer base?
Current cost pressures in the wine industry
Inflation is having a cascading effect for winemakers. Wineries must spend more on grapes, glass, corks, and other crucial materials. Transportation and shipping have gotten more expensive, too. Workers need better paying jobs to buy their groceries, and so labor also comes at a premium.
Climate change is also affecting winemaking costs. Some regions have experienced crop-killing droughts, while others have experienced heavy rains that have led to excessive harvest yields. Either way, wineries end up spending more money to deal with the results. As the climate becomes less predictable and more extreme, preparing for major weather events must be factored into any winery’s overhead costs.
With so many people tightening their purse strings, relative luxuries like wine risk being cut out of the average person’s budget, putting extra pressure on wineries to keep prices down – despite rising cost pressures. That said, their budgets may be smaller, but they still want quality.
So, how can wineries reduce costs without cutting corners on quality?
Reducing costs via ERP
To reduce the impact of those cost pressures, and still meet demand for quality, winemakers need to dig deeper to make their entire operation more efficient in ways that won’t affect ingredient quality or cut corners in the winemaking process.
Here’s what they need:
Data visibility
To extend the digging metaphor, data is both the dirt and the treasure. You need to be able to access as much data about your business as possible to increase your chances of finding clever ways to cut costs. The more you know about your financial situation, both macro and micro, the easier it will be to assess key business processes, which in turn can help you reduce losses, improve cash flow, and build more sustainable practices moving forward. With greater visibility, you may be surprised by the treasure you unearth.
Inventory management
If you know what you have and what you need, you can budget accordingly. Let’s say you’ve been tracking your packaging inventory manually, and it looks like you need to order more corks—when, in fact, you have a surplus of corks sitting in storage, forgotten. You’ll end up spending more money than necessary, increasing your overall costs. By right-sizing and staying on top of your inventory, you can save that cash. Similarly, by closely monitoring your wine lot costs and performance, you can find opportunities to improve your production strategy.
Material cost and availability
Material costs can fluctuate, and as we’ve all learned over the last few years, availability can, too. Wineries should make an extra effort to keep track of the price of raw materials so they can buy low on high-quality ingredients. Combined with greater attention to inventory, this can really help wineries thread the needle that comes with demand for upscale wine and ultimately increase their profitability.
The right technology can help you meet customer expectations
When it comes to investing in tech as a winery, let customer expectations drive your decisions. What do your customers really expect? You don't need the shiniest gadget on the market if it’s not going to help meet those expectations.
But that doesn’t mean you should go too far in the other direction. A lack of shininess isn’t an inherent virtue. Investing in or holding onto older, bare-bones financial software may seem like a safe, cheap play, but without the ability to evolve, easily upgrade, and benefit from ongoing support, it’ll quickly become a sunk cost.
What you really need is the technology that makes the most sense for your business today and into the future. Cloud-based ERP software can help you gain greater visibility into all the data that matters to your business, including inventory management and pricing, so that you can confidently form cost-effective strategies and make informed decisions.
Of course, not all Cloud-based ERP software is created equal. When looking at candidates for your winery, you should consider things like security, customization, and Business Intelligence capabilities. And ideally, the software should be tailored to the wine industry.
The importance of ERP software that knows wine
While any business can benefit from a centralized, tech-driven approach, it’s important to remember that wineries aren’t “any business.” Wine-specific management software like VinPoint not only offers core business management functionality, but also a practical awareness of the ins and outs of this mercurial field.
The wine industry uses specific key performance indicators (KPIs) that simply don’t have a presence in your standard generic ERP software. KPIs like sales and costs by varietal don’t just come out of the box—unless the software is calibrated for wine producers. With a wine-specific ERP solution like VinPoint, your winery can dial in, including taking into account seasonality, and find ways to keep costs down while still delivering the upscale products that customers desire.
If your winery is looking to strike a balance that helps boost profitability while driving the quality your customers demand, reach out to the VinPoint team at Enavate today.
