NGP Analysis: How to Grow the Midwest Wine Industry

Professor Bill Gartner from the University of Minnesota and a team of researchers have surveyed hundreds of wineries in the Midwest and northern USA. The survey is part of an ongoing study by a consortium of universities for the Northern Grapes Project (NGP). The main aim of Gartner’s project is to determine which government policies are best for local wine industries based on cold hardy grapes. Also, how wineries can improve grape and wine promotion. Gartner discussed his preliminary findings during an NGP webinar last month.

See related story: Cold Hardy Grapes Having Big Impact

You’ve been analyzing a survey of winery owners’ perceptions of what they see as the main challenges to growing their winery businesses. What have you found out?

From the results, we’ve learned that the most important policies that affect winery sales and potential growth are those that effect the tasting room. In the Midwest, that (the tasting room) is where most of the sales are made, about 61%.

That figure includes some of the larger scale commercial wineries where tasting rooms are not that important for overall sales. But for the small farm winery, the tasting room is the most essential thing because it’s the connection with their customers. For smaller wineries, upwards of 80% of sales go through those tasting rooms.

So any policy that addresses tasting rooms, whether it enhances the ability to sell there, or puts up barriers, is going to be significant legislation and should be closely monitored by the winery industry, especially the farm wineries.

Other issues are less important, like distribution – that’s more important for the big, commercial wineries – and things like sales through farm markets or restaurants, and direct shipping — they’re much less important for a farm winery at this point.

One of the areas you investigated was why more Midwest wines are not in restaurants. You found that a significant issue is the legal obligation, under the three-tier system, to use a middle man for distribution?

Professor Bill Gartner. Photo courtesy of the University of Minnesota

I think there are a number of issues here. One is the middle man. I don’t want to say that’s the most important issue because I don’t know – but I do know that where you have to use a middle man, that sets up another layer between you and the ultimate consumer.

So it’s going to increase price. Obviously the middle man has to make a profit. Also, it’s going to require that you (the winery) work through the middleman, who then works with the restaurant. I think if  a winery can work with a restaurant directly, they’re going to have a greater chance of having wines listed on the menu.

The other thing is many of the people who purchase and recommend wines for restaurants are not familiar with wines made from cold hardy grapes. Therefore they hesitate to recommend them for drinking or food pairing. So there are a number of education, awareness and distribution issues that are preventing many of these wines from ending up in your restaurant menu.

In terms of helping a local wine industry, you also found that a winery having a second outlet can actually impact negatively?

It does increase their potential for sales, but it really doesn’t help the local area where the winery is located.  This can be an issue if you’re considering legislation or ordinances to create a winery attraction for a region or a rural area. Is the goal to let a winery sell as many bottles of wine as possible or boost the local economy? There’s pros and cons for each one.

Where was the data coming from that allowed you to conclude that the price of wine doesn’t actually affect winery sales in a tasting room?

See related story: Wine Price: No Impact on Midwest Tasting Room Sales

It was primary data we collected from a survey sent out to all wineries in the northern grape states. We got lists from state associations and the states themselves. It’s their responses that we’re using to analyze the data and to look at some of the outcomes. For example, excise taxes don’t seem to matter much. We could not see a relationship in the data between excise taxes and sales. We could see some relationships, but others were a little bit murky. I think we need to do a little bit more analysis at this point, we’re not done yet.

For more information on the Northern Grapes Project click here.