Ask yourself the right questions before taking the plunge
There may be a range of reasons to launch an additional activity, but the main thing is to define them clearly before beginning. Diversification should never be a matter for improvisation: this type of project must be perfectly prepared guarantee its success. It is therefore advisable to consider both the economic and the environmental benefits of the project.
According to many winegrowers, diversification can help them avoid “putting all their eggs in one basket”. They no longer depend on a single crop for their income, which is all the more reassuring given current uncertainties relating to the climate. To guarantee the viability of the project, it is nonetheless necessary to make the right choices. What new activity is best for you? This decision must be taken in view of several factors: your available time, your skills, your affinities, your material and human resources, the needs of the market and your customers, etc.
A spotlight on Domaine Cathala
In Saint-Chinian, the Cathala family has opted to diversify its crops and plant herbs (thyme, rosemary) that will go into making essential oils. Their long-term goal is to have a crop mix of two thirds viticulture and one third herbs.
Commercial and marketing aspects
Whatever the new activity, a commercial & marketing plan must be drawn up. What distribution channels will be used for new products? Are the two activities coherent with one another? Will the customers be the same? A thorough analysis should be undertaken to define the potential target, the distribution and retail strategy and all the marketing aspects.
There could be a wide range of distribution channels, and this choice should not happen at random. Selling to a wholesale or cooperative is a solution to consider if you have relatively little time to devote to selling, and if you want to have visibility on prices and opportunities. The advantage in this case is that there is not necessarily any need for a specific marketing policy.
Another possibility is to sell these additional products to existing customers (known as cross selling). Do these customers really need this product? Is the first question to ask. Taking this route requires that the two activities be connected with a coherent story. Therefore, it will be essential to have the same high standards for the additional products as for the historical products.
The development of a new market
Finally, you can also consider developing a brand-new market, with a distribution system that you build from scratch. This will help capture new clients through the second product, who could potentially buy both. Here too, a lot of marketing has to be done. It will be necessary to build a comprehensive brand image for the new products, and acquire or attract new customers, whether B2B or B2C. At this stage, it will no longer be simply about exploiting land and capitalising on human and material resources. It is a whole new project which will require genuine investment, both financial and personal.
The advantages of diversification
Diversification addresses several challenges for winegrowers. It may be pertinent, for example, to use land that you do not want to sell. It also constitutes an interesting opportunity to generate cross sales and additional income. It could be noted that an extra activity could also retain workers through open-ended contracts instead of seasonal contracts. The same goes for production equipment from which you can gain better payback if it is used all year round. A whole corporate project is thus born.
Among the main advantages, and depending on the type of activity and the distribution mode, diversification can help to:
- Smooth cash flow
- Increase agility
- Diversify revenue streams
- Eradicate market risks and climate and crop -related risks
- Develop employee loyalty
- Get more value from production equipment
- Improve farm biodiversity
- Make use of fallow land.
The limitations and risks of diversification
Despite the many benefits offered by diversification, there are nonetheless a certain number of areas of vigilance. These are not necessarily unavoidable or decisive obstacles, but, rather, items to consider before taking the plunge.
In particular, the main risk with several activities is to spread yourself too thin. The result to avoid is to make a mess of several activities instead of mastering a single one from A-Z. The issue of the calendar should also be considered. With several cropping periods, there is less time to sell. This means that more human resources are needed. Without forgetting that having several activities means more developed competencies in management and accounting.
Crop diversification is an interesting opportunity for winegrowers, but it must be validated by market research and feasibility studies. The aim is to develop a new activity which, in all events, will require substantial investment. Many parameters should be studied before starting out on this adventure. But the most important question is definitely: are you really cut out for this new business?