A fair question posed by Josh at Pinotblogger today reacting to yesterday’s news that Stormhoek’s UK partner, Orbital, has closed.

How could this happen to a wine brand that has grown so quickly in sales while spending so little on marketing?

The retail wine business is cruel and unforgiving. And it’s worse in the UK.

For those not in the wine trade, a winery sells to distributors for 50% of the retail bottle price. The distributor, in this case Orbital, then sells to retailers and restaurants to give them something like a 25-30% margin. They also have to pay for shipping of the wine, storage, some taxes, marketing and staff expenses. So what seems like a large margin becomes razor-thin particularly when dealing with large retailers like supermarkets.

Since the UK market is not nearly as fragmented as in the US, retailers have more leverage to get the lowest price for wine especially for products in the ?10 and lower range. It’s also sort of a Catch-22 situation with wines selling in this range since shipping cost becomes such a large factor unless consumers buy in case lots; thus a totally direct strategy is not possible for brands like Stormhoek.

So to answer Josh’s question, yes, social media does work for wine, particularly for lower production, higher-priced wines like he will be selling. For brands like Stormhoek, they will need to forge distribution relationships with those who have a portfolio to support the low margins in their price range. From Jason’s post today, it seems that process is now going on.

Stormhoek is far from dead and social media is the future of wine marketing even if most of the trade in the US hasn’t yet noticed.

Cartoon by Hugh MacLeod of gapingvoid.com