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.
Ever since I’ve been a wine writer—the 1980s—direct-to-consumer sales has been the Holy Grail of wineries. Why pay a middleman a cut of the profits when you can make 100% of every dollar by selling direct?
In the 1990s and early 2000s, though, DTC was as elusive as unicorns. Some wineries did a lot of it; I remember touring the wineries of Gold County, where proprietor after proprietor told me they were selling 90% or more of their production “out the screen door” to tourists cruising up and down Highway 49, or on their way to Tahoe and ski country. But if you weren’t on a major tourist route, you weren’t so lucky.
Some wineries tried to lure tourists in through indirect means. Wineries along Highway 29 in Napa Valley, for instance (where competition is fierce) offered educational, artistic and musical venues, becoming, in effect, entertainment palaces that just also happened to sell wine in the tasting room. This was, and is, quite effective. But still, not everyone was in a position to do it.
Now, Business Wire is reporting that “American wineries increased the dollar value of their direct-to-consumer wine shipments by an unprecedented 15.5% in 2014.”
Granted that this percentage increase comes on a relatively smaller base compared to traditional on- and off-premise accounts, it’s still a pretty impressive achievement.
Another breakthrough in DTC sales has come due to efforts to get around the nation’s silly patchwork of laws that limit or prohibit reciprocal shipping of alcoholic beverages between states. In Massachusetts, a new law just went into effect that “allows wineries from throughout the United States to sell and deliver up to 12 cases of wine per year to Bay State consumers — a transaction previously prohibited.”
I doubt that the three-tiered system of distribution is going away anytime soon. It’s just too entrenched, and does serve the useful purpose of providing a solid infrastructure to deliver wine to every nook and cranny of the U.S., something that individual wineries, especially smaller ones, are in no position to do. But DTC should continue to grow, fueled in part by the desire of increasing numbers of consumers, particularly younger ones, to buy locally. The Internet and social media, too, are making it easier for consumers to dial in to local wineries and buy direct from “sales’ links, provided that doing so is legal where they live.
So it’s just one game-changer after another when it comes to selling wine in America. Interest in DTC on the part of wineries and other parties is evident by the proliferation of professional seminars on the topic; the Direct to Consumer Wine Symposium just completed their 2015 event yesterday in Concord (Contra Costa County), attracting the attention of such important national media as Forbes, which reported (via Cathy Huyghe), “It was so crowded you’d have thought they were giving away money for free.”
Have a great weekend!
“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!
It’s interesting, in the light of this new report on the status of direct-to-consumer wine shipments in the U.S., to project the trend into the future and imagine what the American distribution system might look like in 15 or 20 years.
The report’s most startling discovery is that DTC’s dollar value last year “was greater than the total value of U.S. wine exports.” Almost as noteworthy is the fact that “The direct shipping channel continues to grow at a faster rate than the overall wine market.” DTC is said to be more important to “small and medium sized wineries” than it is to large wine companies that dominate supermarket and big box sales, presumably because the Big Boys have a lock on a distribution system that’s been consolidating in their favor for decades.
Which brings me to the crystal ball part of this tale.
Let’s imagine that it’s 2030 and, all other things being equal (the U.S. still exists, there’s no internal civil unrest to discombobulate markets), consumers are still healthy and buying wine. At the present rate of expansion of DTC, one can easily see the day coming when small and mid-sized wineries sell pretty much everything they produce direct, either through tasting rooms or through some sort of postage.
The result would be a schizoid market: Giant companies (Constellation, The Wine Group, Diageo, etc.), with their scores of individual brands, still dominate the supermarket aisles where most Americans continue to shop. At the same time, more and more consumers are getting their wine direct from the winery.
The situation is roughly analogous to what happened to traditional bookstores with respect to Amazon.com and other online sources of books. The trad bookstores found themselves confronted with a huge challenge: how to stay relevant. It was much easier for busy shoppers to buy something online and wait a few days to get their hands on it, than it was for them to actually get into their cars and drive to a mall or downtown, find parking, wait in line at the register, etc.
As similar-sounding as the situations are, though, there are important differences. Consumers don’t have to go to bookstores, but they do still have to go to the supermarket to buy their groceries, so as long as they’re there, it’s no hassle at all to swing by the wine aisle. This is good news for the big wine companies, who should continue to enjoy robust sales for decades to come.
Still, there are lessons for everyone. The big wine companies are going to have to “act small.” This means creating new brands that seem eco-friendly and appeal to individual niches in the market: young people, urbans, ethnic and racial groupings, housewives, singles, older retirees, liberals, conservatives, hipsters, etc. Although these brands may be mass-produced in the tens, if not hundreds, of thousands of cases, the consumers don’t know that. All they can see is a bottle they can relate to, and that seems to relate to them. To a great extent, the big wine companies are already doing this. They’re going to have to keep doing it, and do it better, if they want long-term dominance.
The small and medium-sized wineries have this lesson: They have to “think big.” They have to put on their businessman’s hat and come up with real marketing plans. After all, direct-to-consumer doesn’t happen all by itself, like Athena springing fully-born from Zeus’s brow. DTC has to be planned, created, executed and followed through; and once you have a loyal customer base, you have to keep it and make sure the competition doesn’t poach it away.
This is where communicating with the customer comes in. If a small winery has a tasting room on, say, Highway 49, in Gold Country, and is selling 90% of their wines “through the screen door,” they’re very lucky. But most wineries aren’t in that position. They may sell 30% in the tasting room, but the rest has to be cultivated, through clubs and the like. This is where social media comes in. Consumers like to feel connected to the producers of goods and services they buy, especially when the product is something as mental as wine. (“Mental”? Yes. There’s nothing emotional about buying a screwdriver. But there is something emotional about buying clothes, a car, wine. Think about it.) I’ve long said that wineries can’t put all their eggs in the social media basket, but they should put at least one or two and, depending how it goes, maybe even three or four.
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.
“U.S. wineries [are] leveraging social media and multiple direct sales channels to rebound from recession — winery managers forecast continued double-digit growth in 2011,” a new study from Vinquest suggests. The VinQuest™ U.S. Consumer Direct Wine Sales Report is produced annually by VinterActive LLC.
Direct to consumer (DTC) long has been the Holy Grail for wineries, particularly smaller ones that find it difficult to get into the distribution chain. DTC holds other allures, as well: the winery makes 100 cents on the dollar (or close to it), instead of having to sell wholesale.
The challenges confronting DTC sales, however, have been well documented. It’s awfully difficult moving quantities of case goods a bottle at a time. It requires infrastructure and expertise that many wineries simply don’t possess. And there’s still the meddlesome issue of non-reciprocity in various U.S. states.
So it’s good news, as VinQuest reports, “that tasting room, wine club, internet, and event sales grew 12% to a record $3.4 billion in 2010 as wineries adopted new marketing strategies to emerge from the grip of recession.”
However, there are caveats. While $3.4 billion sounds like a lot, you have to compare it to the total of U.S. wine sales in retail value. That’s projected to be just north of $40 billion this year, according to Whole World Wines. So total direct sales still amounts to less than 10% of all sales, and while 62% of winery respondents told VinQuest that DTC sales is their fastest growing sales channel, it’s not the immediate game changer they might be hoping for. At least 13 states do not yet allow direct shipping from out-of-state wineries, (in apparent defiance of the U.S. Supreme Court’s May, 2005 decision), and of course there’s now HR 1161, a resurrected form of last year’s HR 5034, a bill currently making the rounds in Congress that could potentially do an end-run around the Supreme Court’s ruling.
My own feeling, in traveling around California and meeting up with lots of small winery owners, is that they’re challenged enough as it is by the day in, day out routine of producing wine, with all that entails, and don’t have the time or energy to put into adequate oversight of tasting rooms, wine clubs, managing online sales and otherwise succeeding at the whole DTC thing. Many proprietors simply don’t know where to start, and there are surprisingly few resources available to them.
So while the VinQuest report is encouraging, I’m viewing it in context. Distribution remains, and is likely to remain, the chokehold on wine sales in America. Until someone figures out how small wineries can get into the system, there are no magic bullets to ease their plight.