Stories From the Wine Shipping Report You Need To Know

If you ever wanted a precise explanation as to why alcohol wholesalers and some retailers so vociferously opposed winery-to-consumer shipping throughout the 90s, 00′s and up until today, all you have to do is take a cursory look at ShipCompliant and Wines & Vines’ new winery-to-consumer shipping report.

According to these sources, winery to consumer shipping now annually account for $1.35 billion in sales. But what’s remarkable is that those sales represent 8.6% of the total American wine retail marketplace and looks to be set to rise to represent 10% of retail sales in a couple years assuming all goes well.

If my calculations are correct, this $1.35 billion worth of wine shipped from wineries to consumers would have amounted to something in the neighborhood of  $225 million in revenue for wholesalers had these wines been sold through wholesalers and the three tier system as they all along claimed was a sufficient channel to get wine to consumers.

Of course the truth here is that not very much of that $1.35 billion in wine would have ever been able to find its way into the the three tier system as much of it comes from brands that wholesalers have never demonstrated they want much to do with. So, if they had their way,much of this wine would not have been sold by wineries, would not have been sold via the three tier system and would not have been available to consumers.

The release of the ShipComplaint/Wines & Vines is cause for celebration among wine producers, grape growers, states that need tax revenue and, of course, consumers. It demonstrates that what was once considered an iffy paradigm for wine sales is in fact growing into a powerhouse of a sales channel, despite efforts to kill it in its crib.

The ShipCompliant/Wines & Vines Report serves to remind us of and point us to some very important facts:

1. The 2005 Granholm v. Heald Supreme Court Decision was a game changer for wineries and consumers. Without this close 5-4 decision ruling that states may not discriminate against out of state wineries that retail their wine, direct shipping laws would have been largely dictated by what wholesalers thought best for consumers.

2. The two primary common carriers of wine, UPS and FedEx have profited substantially from winery shipping and look to profit substantially more as the shipping channel continues to grow. Their cooperation with winery shipping advocates is not only necessary but probably owed.

3. States not currently allow wine to be shipped into their state can now fairly easily see the kind of tax revenue they are leaving on the table. For example, Massachusetts, which has a population roughly equal to Washington State can expect, based on information in this report to see $50,000,000 worth of wine shipped to that state, resulting in over $3,000,000 in tax revenue—were its legislators to change the law to allow direct shipping from wineries. Pennsylvania stands to gain far more than Massachusetts in tax revenue if it opened its borders to direct shipment of wine—even if it applied its bizarre 18% “Jonestown Flood” tax to shipped wine.

4. Alcohol Wholesalers Were Chicken Littles. In a brief to the Supreme Court in 2004 asking the court not to overturn discriminatory direct shipping laws, the Wine & Spirits Wholesalers of America were very blunt: “Direct shipment of wine would sound the death knell of the longstanding liquor distribution system.” Here we are, $1.35 billion later and somehow the “longstanding liquor distribution system” is alive and well.

5. California has challengers in the direct shipping game. According to the ShipCompliant and Wines & Vines report, California wineries are responsible for 83% of all wine shipments, leaving only 17% to wineries outside of California. But if you look into the report you see that wineries outside of California increased their total wines shipped, the value of wines shipped and their average price per bottle of wine shipped at at far greater rate than California wineries, including those in Napa and Sonoma.

 The direct shipment channel has a ways to go to make it truly a consumer friendly channel. More state need to open to winery to consumer shipping. There remain very burdensome regulations in some states that make it difficult for wineries to comply. And of course wine stores (retailers) are restricted to legally shipping to only 14 states resulting in the shipment of imported wines illegal for the vast majority of the population and leaving millions upon millions in tax dollars on the table or under it.
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Wark Communications was initially consulted on the substance of the ShipCompliant/Wines & Vines report


11 Responses

  1. Terroirist: A Daily Wine Blog » Daily Wine News: Bees and Snakes - September 27, 2012

    [...] Tom Wark, everything you need to know from ShipCompliant and Wines & Vines’ new winery-to-consumer shipping [...]

  2. Adventure Capital - September 27, 2012

    There is a table that LITERALLY has millions of dollars on or under it? We should find this table.

  3. Dan Beekley - September 27, 2012

    Tom,

    Can you explain how you arrived at the $225 million wholesaler revenue loss figure? To me it seems the revenue loss is more like $1 billion. Perhaps you meant to state it as the “gross profit” loss, to which I would agree.

    I also agree with your presumption that the word “loss” is relative. Many of these wineries have “limited” or “very small” productions. Chances are their wines would have never seen the light of day in a wholesaler portfolio anyway.

    But, its interesting that that “small” (5,000-49,000 cases) and “medium” (50,000-499,000) wineries make up north of 75% of the data set. That IS a big number and clearly falls into the purview of wineries that many wholesalers are doing, or wish to be doing, business with.

    And that’s $750 million out of the $1 Billion in “lost” revenue the wholesalers DO care about and will cause them to continue to fund their march toward 3-tier preservation for as long as they possibly can.

    Thanks for call attention to the report and keeping us informed!

    Regards,

    Dan Beekley
    Portland, Oregon

  4. Tom Wark - September 27, 2012

    Dan,

    The way I calculate it is that the $1.4 Billion in wine shipped would represent $700 million in FOB costs that wholesaler pay to the wineries for the wine. Wholesalers would mark this somewhere in the neighborhood of 30% to 35% when sold to retailers.

    • Dan Beekley - September 27, 2012

      Right Tom. $1billion in revenue. Pretty clear to understand what they’re lobbying for.

  5. Ben Bacon - September 27, 2012

    Hi Tom – thanks for linking to the report and the write-up! Our goal was to make the data available for wineries, wholesalers, retailers, and industry members alike so that they can use it to create effective marketing strategies.

    We are always open to feedback on how to make the report more useful in future editions. Thanks to all for spurring on this conversation. Cheers!

    Ben Bacon
    Director of Marketing
    ShipCompliant
    ben@shipcompliant.com

  6. CSMiller - September 27, 2012

    Tom,

    Today has many stories flying around the virtual wine world about the changes happening and how it will effect wine sales in the future. John Gillespie of Wine Opinions figures there are 100 million wine drinkers in the US and 57% of them are core drinkers.

    Then Decanter Mag had an article about wine econ that had this James Walton quote: Walton said online shopping is a ‘quiet revolution’ which the drinks industry ‘must understand to survive’.

    ‘The internet is no longer just a way of selling; its greatest potential is in shaping the relationship with the shopper’, for example in using web pages ‘to add quality and depth to your brand’.

    All these little quakes in the small little wine industry make me wonder how big the fault-lines will get with Amazon getting in the game. oh yeah and the growth rate of the biggest wine companies is out-pacing the rest of the industry.

    The 3rd Tier isn’t going away though, it’s just going to have to adapt. Restaurateurs are not going to suddenly buy their wines direct and wineries will still want to be in fine restaurants. The “new tier” will just add some competition in the mix and level the playing field if all goes right.

    Amazon or someone else as big will change the game, hopefully for the better… first books, then music, now wine???

  7. Daily Wine News: Bees and Snakes - September 27, 2012

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