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DTC, snobs and market segmentation: A personal view

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“Wines delivered to your door” has been the business theme of direct-to-consumer entrepreneurs since as long as I can remember.

I used to be a member of one of these subscription services, back in the early 1980s. I can’t remember the name (I’m sure someone out there will remind me), but they sold German wines that “arrived at your door” on a monthly basis. I didn’t continue, because I eventually reached the point where I preferred shopping for wine myself, in a store, especially if I could taste it or see a recommendation—and that is the point of this post.

There’s now another “delivered to your door” service, Club W, and while I wish them well, I don’t see how they overcome the challenges that led to failure of almost every one of these ventures.

They all promise the ease and convenience of having pre-selected wines that arrive at your door once a month. They all say the wines are “curated” by experts or, in this case, actually produced for Club W “by noteworthy winemakers who develop their ‘juice’ for Club W exclusively.” And they all make claims that they offer lower prices [even with shipping?] than traditional outlets.

That may well be true in Club W’s case. The claim that their “exclusive” winemakers “have great talent but may lack access to capital enough to get their wines made and into the market” certainly rings true. That is a common challenge for winemakers, especially younger ones, who may have access to interesting grapes, and are making interesting wines, but have no realistic way of getting them to far-flung customers.

What are those wines? I went to Club W’s website and tried it out. They ask you to answer a couple of (kind of silly) questions, and then, after you give them an email, Facebook or Twitter account, they “recommend” appropriate wines. For me, they suggested three brands I’ve never heard of: a Wonderful Wine Co. red blend from Paso Robles, a Black Market Cabernet-Petit Verdot blend from Livermore, and Casa de Lila Airén, a white wine from Spain. Beyond these three wines, there are others on the website I could buy. They all have attractive labels, and I wish I could go to a tasting and try them out, because at $13 a bottle, that’s pretty affordable. There’s also a “Curator’s Choice” menu for wines costing $14 and up.

Now, any and all of these might be wonderful wines. Or they might not. The problem is, even thought they’re just $13 a bottle, I don’t want to buy a pig in a poke: A wine I’m not familiar with. Under their “Tastemakers” dropdown menu they have the names and pictures of folks I guess are some of their winemakers: a fine-looking bunch of men and women, young and appealing. There’s also a cool recipes link. That’s all good.

So I have mixed feelings. A lot of thought obviously has gone into Club W. The website is really nice. But I just don’t see how they get around the fact that you can’t taste the wines before you buy, or even see what the critics have said, since they’re club exclusives and have never been professionally reviewed. (I do make an exception for winery wine clubs: people join them because they know and trust those wines, so even if they haven’t had the latest vintage, they possess plenty of prior evidence that they’re much more likely to enjoy the wine than not.)

Finally, although this isn’t Club W’s fault, I hate the way the Wall Street Journal portrayed Club W; their headline reads “Club W Raises $9.5 Million To Appeal to Wine Lovers, Not Snobs.” Can we please get over this “snobs vs. everybody else” nonsense? I mean, does Lettie Teague write for the “Snobs” in the WSJ? I have news for you: All wine writers write for the people who read them; all wineries produce wine for the people who buy them. There are indeed snobs in the world of wine, as there are in other arenas, but they are the exception to the rule, and to toss the word “snob” around so much is really misleading to young people, who may end up thinking that wine isn’t for them because they’re not snobs and don’t like being around snobs.

Instead, why can’t we talk about beginners, amateur wine lovers and experts? The experts aren’t “snobs,” they just have a lot of experience, nor are the beginners “idiots” because they have little experience. Some “beginners” will be “experts” someday; will that make them “snobs”? So really, anyone (writer, blogger, winery, ad agency) who throws around the snob word so insouciantly is just indulging in lazy language that moreover insults a significant number of wine lovers.

And then there are new wine companies targeting everybody: I got this blast email from one of them just this morming: I omit the winery’s name: “We here at ___ have created a wine that will capture thegrowing new generation of social media savvy, adventurous, health consciouswine drinkers as well as the seasoned, more experienced ones.” Talk about something for everyone! Beginners, Millennials, twitterers, greenies and granola munchers, Baby Boomers, old folks, and snobs. Sic semper, market segmentation!

  1. There are a large number of people – none of which reads wine blogs – that need curation. They like wine but aren’t in the market for a new hobby. And with > 100K SKUs entering the US market every year, a site that winnows that down to ~ 50 diverse wines is providing a valuable service. Yes, you and I know that they’re bulk wines blended by a contract winemaker and a graphic designer pumps out cookie cutter brands all day long. But, hey, it’s an alternative to someone randomly selecting a bottle at the supermarket and that’s a good thing.

    Can you likely find higher quality wines with better stories and better prices from local wine stores? Yup. But until we layer curation on top of local fulfillment, we still have a paradox of choice problem.

    The big problem I see with the Club W model is distribution cost. It’s a shame, but investors fall for the DTC/cut out the middle man story every single time. At the under $20/bottle level, three tier economics destroys DTC. Throw in weather constraints, the awkwardness of receiving alcohol at your workplace, limited selection, no back story on any wines, etc. and it really isn’t a great model. OTOH, if the alternative for a consumer is to confront 400 wines at Safeway or 2,000 wines at a Total Wines then you can see the appeal.

  2. There are plenty of wine clubs already doing very similar kinds of things, including stores and big, reliable firms selling branded merchandise like The California Wine Club. Zagat even has its own wine club. In this case of Club W, it is not the quality of wine or even the distribution cost that will ultimately determine their fate. It is their skills as marketers, because no matter how you slice it, these guys are selling cheap baloney with made-up names and charging way more for than it is worth.

    Just the packaing and shipping costs alone probably are way higher than the cost of the wine to them so they have to sell the sizzle. On the whole, Two Buck Chuck looks like a veritable bargain.

  3. Steve, Thanks for bringing this article up. I too read the post and had much the same response to the use of the term ‘snob’. It is a catchphrase misused primarily when people, be it consumers, or writers are uncomfortable or naive about their grasp on the subject. When used in the press, it exacerbates ignorance of wine culture. I looked at the Club W site and found it overall attractive, despite the overuse of ‘perfect’, and ‘curated’ in the wine descriptions. Having said that, some of the wines look like they could be interesting, low threshold experiments for new drinkers. The idea of keeping choices to a reasonable number is smart as buying decisions happen faster, and more confidently. Having experienced the challenges of growing a wine-focused business, I wish them great success.

  4. In a sense, every bottle of wine sold to the consumer is “curated.”

    A grocery store chain category manager at the corporate office selected the wines for shelf placement.

    The category manager at the local wine store selected the wines for self placement.

    A restaurant owner or general manager or sommelier selected the wines for wine list menu placement.

    All “curated.”

    All begging the question: how accomplished and discerning are these “opinion leaders” and “tastemakers”?

    (Aside: Steve is correct in pointing out that many wine stores have their own “wine of the month” programs. So a consumer could actually chat up the person who made the selections, and get a better sense of what the wines are like. Possibly even go into the store and avail one’s self of a taste in the wine bar. No “pig in a poke” calculated risk.)

    When you add in the shipping charges on top of that $13 selling price “club wine,” you are now playing in a pretty big sandbox of selection: domestics and Europeans and Southern Hemisphere wines. Produced by name recognition and wine magazine reviewed wineries.

    Not “cheap baloney with made-up names and charging way more for than it is worth.”)

  5. Charlie, If I am not mistaken the Zagat Wine Club is no different from (for instance) the WSJ Wine Club that simply lend their name to a selection of wines assembled by others, with no input or regular endorsement/commentary from the names in the masthead. Any wine club that hopes to succeed needs to whet the anticipation of their members. Most don’t manage to do that. Based on my experience, Club W is not overdoing it. However, if it is in fact ‘cheap boloney’ as you suggest, they won’t last. Ridge ATP comes to mind as something I looked forward to when I was a member.

  6. Doug,

    I feel your pain . . .

    Like yourself, I was a “guinea pig” on Ridge’s Advanced Tasting Program (ATP) mailing list.

    While I enjoyed many of these single-barrel experimental wines — mostly Zinfandels — the sheer number of “one-off” Ridge wines exceeded my storage capacity, drinking interest and grape variety budget.

    I had a similar experience being on Williams & Selyem’s semi-annual mailing list dating back to the 1980s. Having one bottle allocated of (say) Summa Vineyard [*] posed a dilemma: when and for whom do I open and share this “unicorn”? If I like it, I covet a second bottle. (But that wasn’t gonna happen. Allocations were “one and done.”)

    ~~ Bob

    *A second opinion from a fellow Angeleno:

    “Perhaps the finest California Pinot I have ever had the pleasure of drinking.”

    — Allen Meadows (Burghound) on 2004 Rivers-Marie Summa Vineyard Old Vines Pinot Noir

    Source: http://www.princeofpinot.com/article/1232/

  7. Maybe I am missing the point but is this a disapproval of wine clubs in general or the fact this wine club was able to get some great free publicity?

  8. Peter,

    Not speaking for anyone but myself, but knowing this space very (very) well, I think what raises eyebrows is when these clubs or other DTC companies raise significant $$. Because of the inherent inefficiencies of the model, anything but the leanest operations are doomed to failure. Thus, operations like WTSO thrive, Lot18 flounders.

    As earlier commenters have noted, curating only doesn’t separate one club from a local wine retailer. They must introduce both convenience and, most importantly, a value proposition.

  9. Bob Henry says:

    From this weekend’s Wall Street Journal wine column . . .

    “Do Wine Clubs Really Deliver on Their Promises?”

    Link: http://www.wsj.com/articles/do-wine-clubs-really-deliver-on-their-promises-1422646193

  10. Bob Henry says:

    “Direct to Consumer Sales Fails to Lift the Wine Industry”

    Link: http://www.wineindustryadvisor.com/2014/07/14/dtc-fails-wine-industry/

    Author: “I am the former CEO of the nation’s largest grossing wine retailer and the former Managing Director of the Alcohol Beverage division of PricewaterhouseCoopers.”

    Summary: “The DTC movement is a wonderful idea, and there is no doubt that as regulations soften and technological efficiencies prevail, it will be a sustainable revenue stream going forward. That day is not today.”

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