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Does DTC mean the death of the wine store?

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Yesterday’s big new from ShipCompliant that direct to consumer wine sales grew four times faster than sales from traditional wine retailers is quite stunning. If you project the rate of increase out into the future, you can easily foresee a time when the DTC sales line crosses the retail sales line, eclipsing it. And the sooner the pesky states that currently do not allow direct shipping come around and enter the 21st century, the faster DTC will become the default mechanism by which consumers buy most of their wine. I’m talking to you, Alabama, Delaware, Kentucky, Mississippi, Oklahoma, Pennsylvania, and Utah. There’s hope they may actually come around: Last year, South Dakota finally allowed direct shipping of wine.

Will DTC really be the next big thing? I mean, everybody talks about it as the Holy Grail, but let’s face it, there are difficulties. For one, consumers have to pay the added cost of shipping in DTC, which they may be reluctant to do on all but expensive bottles—the kinds of wines they buy for gifts, to impress somebody, to cellar, and other special purposes. They’re not going to buy, say, a $10 bottle direct from the winery, then pay for freight. As Forbes Magazine recently pointed out, “Shipping is the top deterrent to buying wine online.”

Another reason why DTC may prove to have its limits is because consumers seem to enjoy the browsing experience that off-premise stores allow them. I do. I like to look at bottles, pick them up, read the front and back labels, talk to the floor staff (at least, in a decent wine store) and maybe even check out a few reviews on my smart phone if I have the time.

Leaving those concerns aside, the big shipping companies are eagerly trying to grab their fair share of what they perceive as a booming DTC market. GSO hopes to compete with FedEx and UPS by pitching itself as the DTC wine shipper of choice; they just presented their Select Wine Delivery Service at the Unified Wine & Grape Symposium.

At any rate, wine stores don’t have much to fear from DTC at this moment, but they’re going to have to figure out ways to make themselves more relevant over the coming years. One way to do it is for the wine store to become the direct shipper, not the winery itself. This is the position taken by the National Association of Wine Retailers.

But is “retailer direct shipping” the same as “winery direct shipping”? In both, the consumer ends up with the same bottle of wine. But wine consumers who buy direct from wineries tend to have a greater emotional attachment to the wine than they do if they buy from stores, and this is why the Holiest of the Holy Grail for wineries is to form a personal relationship with the customer, a relationship they hope will last for a long time.

Anyhow, it’s great to witness this growth of DTC. It’s too bad that, for so long, the anti-alcohol, anti-common sense forces in this country have had so much sway over what Americans can drink and how they can buy it. That is so unconstitutional, so contrary to our value, so inimical to the free market system, it deserves to be buried once and for all.

  1. Bob Henry says:

    “If you project the rate of increase out into the future, you can easily foresee a time when the DTC sales line crosses the retail sales line, eclipsing it.”

    A trend line’s rate of growth never remains the same. Over time, it flattens out or declines.

    To the larger issue . . . beating Michael Brill to the punch(-line), “Wine is sold, not bought.”

    Even the most ardent wine enthusiast is going to hit the delete/spam button in reaction to the tsunami wave of solicited and unsolicited wine offers from DTC wineries and their surrogates.

    Retail stores offer wine enthusiasts so many benefits: aspirational/”wish fulfillment” window shopping; just-in-time physical inventory delivery; wine education mentoring; risk-free wine sampling before buying; and (should the store have a wine bar or host winemaker dinners) access to a community of “fellow travelers” who enlarge one’s hobbyist social circle.

    DTC winery programs and online wine retailers can offer only a few of those benefits.

    (And as I noted in an earlier blog comment, residents of apartments in urban centers are getting pushback from their landlords over having to be the caretaker of home deliveries.)

    The neighborhood wine merchant isn’t going away anytime soon . . .

  2. Bill Stephenson says:

    More than half of our wines are DTC, but we have the good fortune to live in Northern California. As long as our orders are fulfilled in the cool weather months and not shipped by FedEx we’re confident the wines will arrive in good shape.

    This doesn’t prevent us from trying new wines at our local wine shop/restaurant or exploring the aisles of Total Wine or even Costco, but it does allow us to get the wines we love in larger amounts at a better price.

    I might feel different if I lived in a flyover state and my wines had to cross time zones in a series of vans, big rigs, and planes. The less control I have over the shipping, the less confident I am in the product

  3. Collin cranor says:

    Selfishly this is good news for my business. And we did see a major upswing in people purchasing direct from out of state this year. That said, when you find a knowledgable wine merchant who is passionate and can bring you a diverse set of wines from all over, the world hold onto them, foster that relationship. Much love to Jim Denham and Eric and Steve and the whole staff at The Wine Steward in Pleasanton CA. These guys make my wine exploration easy and fun. Every wine person should have a great retailer and they should buy wine from them!

  4. As a lifelong passionate fan of book stores, I’d like to say that wine stores are obviously here to stay; but that may be wishful thinking. As a consumer, I love dropping in to browse them and impulse buy wines I’m surprised to find, much as I would with a book store. I think their future is locked into whatever turns general brick and mortar retail takes in the future. (Hey, they say book stores are coming back.)

    My part of the wine business, though, is DTC sales. Selfishly, I’d love to see this become immeasurably bigger. Instead, I think it’s just one more avenue of delivery in an ever-expanding wine market. (Despite alarmist claims, smartphones and tablets haven’t replaced desktop and laptop computers, they’ve just broadened our flexibility in accessing the same content, and quite a few of us move through three or four coordinated devices during the day. Each is just another delivery channel. We’ll buy wine similarly.)

    On the other hand, traditional three-tier marketing has got to go. Requiring price-hiking intermediaries that intrude upon winery directly selling to restaurants and other outlets is antiquated, and I agree with you completely, Steve, on the civil liberties aspects of this. These are systems intentionally created to keep people from drinking too much. Remove that statutory restriction, and there is room for enormous creativity and flexibility in wine marketing.

    I also agree on shipping costs being a barrier. Our holiday superdeal in December was free shipping. Now, though I buy a lot from Amazon, I was never going to get Amazon Prime just for free shipping – seemed nuts – I waited until they had the video selection I wanted – and I never understood free shipping being that big a deal. But, boy oh boy, it is! Marion and I moved more wine in December than in the whole prior 11 months and nearly everybody said it was the free shipping.

    As for delivery awkwardness, it’s no different than any wine club shipment. I have all wine delivered to me at my office (my main job in big law), and that’s become pretty common for professionals in Los Angeles. Wine delivery is today’s “adults only” mail, so I’m pretty sure society will figure out some ways around this that don’t tick off apartment managers.

    I think the next evolution, though, is more routine wine retail starting to feature tasting room experiences and even starting their own wine clubs of different types. This is already starting, and overcomes many of the limitations. (“Hold for pickup” is no big deal if it’s in your neighborhood.) All those newly minted somms are next year’s wine store assistants, perhaps.

  5. As you implied Steve, DTC is not the same as Online. As a matter of fact, DTC largely originates *offline* in tasting rooms. A typical winery in Napa with a tasting room derives over half its revenue from direct sales. No tasting room and the DTC number drops to just a few percent. Therefore DTC is currently tied to wine country tourism.

    Almost all *online* sales are retailer-driven.

    Of course this could change if someone figures out how to create a DTC model that isn’t predicated on winery visits. But currently wineries largely charge full boat for wine+shipping, making those wine uncompetitive with the same wine sold through the three-tier system. And it’s clearly not as fun.

    There’s too much in favor of local retailers: the enjoyment of shopping, the convenience of same-day delivery, access to far more wines (e.g., imported wines) and better pricing, despite the three tier markups.

  6. As attractive as increasing DTC share is for wineries, most realize that some diversification of channels is vital to growing brand awareness. How many would ever taste a pineapple if you needed to go to Hawaii to get it? Having a wine available remotely in an appropriate wine shop affords exposure to the people that they influence. The shop client discovers a bottle from a producer that is unfamiliar, enjoys it then contact the winery to see what else they make. They may decide to buy that brand from the winery but will continue to return to the shop if they trust and value the discoveries found there. A shop like 750wines in St. Helena is a prime example of that type relationship. Additionally, the category of wineries experiencing the largest growth are those who operate out of industrial warehouse space who can’t afford to offer the traditional winery experience, and need to be in retail to gain exposure and identity.

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