Direct to consumer shipping on the rise
The Holy Grail of wineries, especially small wineries, is direct-to-consumer shipping, where the winery sends product to the end user, without having to go through a middleman.
Usually that middleman is the distributor, and as we all know, the distribution system has been getting tighter and tighter, as companies consolidate and the majors dominate their regions. Because the major distributors are interested mainly in selling to large retailers, like Costco, Wal-Mart and big supermarket chains, they tend to take on large production wine companies, such as Gallo, Constellation, The Wine Group, Bronco and others. This has resulted in good deals for the average American consumer. Indeed, it’s safe to say that this is the best market the consumer has ever known. There’s an ocean of wine available that’s clean and well made and quaffable, and prices are being kept down by the Recession.
It’s a win-win situation for everyone, except the small producers. These mom and pop businesses, which account for the majority of winery bonds, find it difficult to get into the distribution chain. They’re just too small to matter to the big distributors. This isn’t a case of who’s wrong and who’s right; it’s simply a fact. Unable to get distribution, the small producers are left to their own devices, which means, in effect, that they have to figure out how to sell their wine all by themselves.
Traditionally, the best way for a small family winery to sell direct to the consumer was through the tasting room. It’s still a good way, but with limitations: if you’re not on a well-traveled route, it can be hard. This is why so many of the wineries in the Sierra Foothills traditionally have sold huge quantities of wine through the tasting room: all those tourists driving up and down Highway 49, visiting gold country, or on their way to a Civil War re-enactment in Murphys, or traveling through to Tahoe and Reno. Some Foothills wineries sell up to 80% of their wine “through the screen door,” as the saying goes.
Club memberships have always been an important way for wineries to sell direct. Older wineries, like Mayacamas, depended heavily on selling to their members. But again, this is of limited value, since nowadays there are so many wineries, and they can’t all succeed with their wine clubs.
Enter direct to consumer selling through the Internet. I first started hearing about it in the 1990s. As the 2000s dawned it turned out not to be the magic bullet everybody was hoping for. Too many hassles: you needed extra staff, and fulfillment houses, and there were all those pesky state laws to comply with. But the smaller wineries plodded on, tackling issues when they could, making incremental progress.
The effort has now paid off. Our good friends at Wines & Vines Magazine are reporting today that “the winery direct shipping market…is in full recovery, with 11.5% overall gains in both volume and sales over the 12 months ending April 2011.” During that period, volume exceeded 2.75 million cases worth more than $1.2 billion. The magazine’s editor (and my former editor from back in the day), Jim Gordon, said, “With the overall retail market pegged at $30 billion, direct-to-consumer shipments of wine now represent 4% of the American retail wine market.”
The devil, however, is in the details. According to ShipCompliant, whose data were used in the study:
• Napa Valley did even better than the average, with DTC volume up 19%.
• Sonoma County was up a less impressive 5%.
• However, “mid-sized wineries dominate direct shipping sector while boutique wineries falter.” More than half of all DTC shipments were from 5,000-50,000 case wineries. The most alarming sentence in the entire report is this: “the ‘boutique’ wineries increased their average bottle price by a whopping 52% in the past 12 months yet saw a 40% decrease in volume going through the direct shipping channel”!!!
How it has been possible for boutique wineries (defined in the report as producing under 1,000 cases annually) to raise their prices 52% in this economic environment is beyond me, although it’s not surprising that they saw an immediate reduction in DTC sales as a result. I know who these boutique wineries are. I cannot believe they’re immune to the Recession’s effects. I know that restaurants they formerly depended on are telling them they can’t sustain that pricing. I know that proprietors know this, and are wondering by how much they ought to lower the prices, a tricky business because a lot of snobs determine the quality of a wine by its price. There’s no hint in the report, then, as to why this “whopping” 52% rise in pricing is happening, if indeed it is. If anybody out there has a theory, let me know.