2007: The Year of Winery Direct Sales

Posted by Tom Wark on Nov 22, 2006

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If the new poll of Wine Industry CEO carried out by Scion Advisers is any indication, we can say with some confidence that 2007 will be the year that the wine industry discovers the utility of e-commerce.

Of the over 116 Wine Industry CEO’s queried, 44% said the top issue they are talking about is the benefit of investing more in E-commerce systems. If you take out those respondents that head companies making more than 100,000 cases the slice of those CEO thinking about on-line commerce rises beyond 50%.

My hope is that many of these CEOs are not standing around, scratching their heads and asking themselves or their minions, "Will folks buy wine on line?"

The only question they need to be asking is: "How fast can we recoup our initial investment in technology when we institute a serious direct-to-consumer/e-commerce-based initiative?"

Yesterday I crafted and sent out an e-mail to a client’s email broadest e-mail list: wine club members, previous purchasers and tasting room sign ups who did not buy. The incidental cost of sending out this e-mail was somewhere in the neighborhood of $30. As of this moment, as I type, the email has generated over $3000 in sales via their on-line store. I’ve not checked the sales that came from folks who would rather call the winery, and there are always a few who prefer that method of purchase.

This figure will rise over the next two to three days. The result of both on-line and phone in purchases as a direct result of the email will be somewhere in the neighborhood of $6000.00.

Hmmmm?

Things change. There was a time when a great number of folks in small towns obtained their milk, butter and eggs from the "milkman". The dairies bought trucks and made their rounds. It was profitable. However, the emergence of the Grocery Store and modern refrigeration changed everything. It became more profitable for Dairies to sell directly to grocery stores and more convenient for Mrs. Smith shop for all her food items in one place, even if it meant forgoing a bit of afternoon delight. It was a significant change in the way commerce and distribution of products occurred.

The Internet has wrought a similar change. For years only a handful of wineries sold wine direct, most via their tasting rooms and a much smaller number via a mailing list. Today, the Internet provides a new channel that does exactly what the rise of the grocery store and modern refrigeration did: It makes the producer more profitable and offers more convenience to the the consumer.

Why has the wine industry not jumped on this paradigm shift in the same manner that that the book industry, toys, music has? I suspect there are many reasons. Wine is a VERY traditional industry that has at its foundation farmers; not exactly an innovative group. Their most important supplier is a large fiery ball in the sky.

Then there is the traditional sales structure called the three tier system whereby states have mandated that alcohol be sold by the producer to a distributor to the retailer then to the consumer. This middleman-heavy system has been in place and supported by the state for more than 70 years. A lot of very powerful folks have a lot invested in maintaining this structure. Selling direct to consumers is the antithesis of the three-tiers system. It’s subversive to the very structure of the wine industry.

These are just two of the reason why the wine industry has been slow to surge headlong into the world of e-commerce.

But eventually. CEO who are selling upwards of 80% of their production through the three tier system look at the implications of e-commerce. Consider this:

Chateau SunGod produces 10,000 cases annually.
Chateau SunGod sells 80% to wholesalers and 20% Direct to consumer
The average case of Chateau SunGod sells for a suggested retail price of $300.
Chateau SunGod realizes Sales of $600,000 from its 20% direct to consumer sales
Chateau SunGod realizes sales of $1,200,000 from its 80% wholesaler sales.
Grand Total for a vintage: $1,800,000

If Chateau SunGod can convert 38% of its wholesale sales to direct to consumer sales it’s annual sales increases to $2,250,000 annually.

The other benefit of going direct is that one’s marketing expenses will in the long run decrease significantly.

Yes, 2007 is poised to be the year that the wine industry, particularly the small to medium-sized players get serious about selling direct to consumers.

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