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MANAGEMENT By Steven S. Cuellar, Ph.D., Robert C. Eyler, Ph.D. and Rich Fanti, Sonoma State University Department of Economics asting rooms represent a significant investment for wineries, and the return on that investment comes in two forms. First, the tasting room acts as an on-site, direct-to-consumer retail sales outlet. This role is especially attractive since direct-to-consumer sales provide wineries with a high- margin sales opportunity, bypassing distributors and traditional off-premise retail outlets such as grocery and liquor stores. The second role of a tasting room is to act as an embassy for a winery's brand, introducing consum- ers to its wines, building brand recognition and brand loyalty which, it is hoped, results in repeat future sales through restaurants and tra- ditional retail outlets. While these two roles are not mutually exclusive, there is an inherent con- flict that exists. As brand ambassadors, tasting room staff members are tasked with creating a pleasant and informative wine-tast- ing experience. As sales people, they are tasked with selling wine, often incentivized with commis- sions based on how much wine they sell or how many members they sign up for their wine clubs. Although this conflict exists in most retail outlets, it is especially contentious in winery tast- ing rooms, where visits to wineries and wine tourism in general are as much about the "wine country experi- ence" as about the wine. The wineries' ability to bal- ance these dual roles will ultimately determine the return on investment of a tasting room. While there is no question that tasting rooms provide a high-margin direct-to-con- sumer sales opportunity, the ability of tasting rooms to Does Higher Tasting Room Traffic Lead to Increased Sales? Measuring the return on investment of tasting rooms create long-term repeat customers has not been empirically established. We attempted to shed some light on this issue by answering two sim- ple questions: First, what is the effect of tast- ing rooms on a winery's long-term sales through the traditional retail channels? Second, if tasting rooms are effective in promoting long-term retail sales growth, what type of tasting room produc- es the greatest long-term growth rates? AT A GLANCE Tasting rooms play dual roles as brand embassies and wine-sales outlets. A winery's ability to balance these two roles will determine its return on investment. The ability of tasting rooms to create long-term repeat customers has not been empirically established. Research shows that the amount of visitor traffic has an effect on sales growth – but not always in the way we expect. 74 VINEYARD & WINERY MANAGEMENT MAY - JUNE 2012 ROI Estimating the return on investment is always prob- lematic, but tasting rooms pose a particularly difficult undertaking. To begin with, we start with the simple assumption that the more people that visit a tasting room, the more people are exposed to a winery's brand and consequently the more brand identification and brand loyalty a winery can build. Unfortunately, howev- er, very few wineries main- tain data on tasting room traffic. Second, while tasting room sales are a good proxy for tasting room traffic, there is no single source of data on tasting room sales to ana- lyze. Third, although tasting room sales can generally be extracted from point-of-sales (POS) systems, these are maintained individually by each winery's tasting room, and come in dozens of dif- ferent formats. Fourth, even if we were to obtain data on tasting room sales from individual wineries and combine the multiple platforms into a single usable format, the sample of wineries willing to volunteer proprietary data for analysis is likely to be small. Finally, determining which type of tasting room is most effective in creating long-term growth in retail sales for a winery is prob- lematic without a metric on the "type" of environment a winery's tasting room cre- ates. One solution to this particular issue is to survey tasting room experiences on websites such as Yelp. How- ever, this would limit our analysis to only those winery tasting rooms reviewed. While these obstacles are certainly significant and would initially appear to pre- clude measuring the return WWW.VWM-ONLINE.COM