What it Takes to Grow the Direct To Consumer Wine Channel

increaseIn a recent editorial at Wine Industry Advisor, Brian Rosen, former CEO of SAMS, a large wine retailer in Chicago, and now head of the consulting firm Rosen Retail, said the following:

“The DTC movement is not what you think it is and will not provide the added revenue that wineries around the globe are seeking….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.”

His case against the current benefits and utility of direct-to-consumer sales is contrarian. And it requires the reader to look at DTC sales from an unusual angle. I suggest those interested in DTC wine sales read it and come to your own conclusions. However, he does bump up against the questions, what would it take for DTC wine sales to see a significant growth spurt beyond the opening of a new state for winery to consumer shipping like we recently saw in Massachusetts?

In my view, there are four fundamental things that, if they occurred all at once, would result in a tremendous increase in DTC wine sales. If they occurred subsequently and more slowly, they would still result in a tremendous increase in DTC wine sales.

Faster and Cheaper refrigerated Overnight and 2-Day Delivery
Wine is both heavy and easily damaged in warm conditions. These basic facts make the delivery of the stuff more complicated and more expensive. When consumers can feel assured that they can receive those $50 and $100 bottles of wine quickly, undamaged and unaffected by heat and for an economical price, they will be much more willing to purchase it remotely.

Removal or Relaxing of State Laws Meant Only to Hinder Delivery of Wine
Expensive annual fees imposed on retailers and wineries for the privilege to ship direct to a state. Restrictions on the amount of wine a consumer can have delivered in a single year. Requirements that delivery companies get separate licenses for each delivery truck instead of one for their entire fleet. These are just some of the laws and provisions of laws that are in place for a single reason: to hinder the direct shipment of wine and protect state-based sellers and distributors of wine. When these kinds of provisions and restrictions are lifted, more wine will be shipped direct and more wine sold direct to the consumer.

Continued Increase in Interest in Small, Craft-Oriented Wineries
The first adopters and their followers have honed in on the psychic value and quality that comes with purchasing wine from smaller, small batch producers of wine. These producers are the ones that are justified in holding the “artisan”title. From produce to chocolate to beer to meat to wine, certain consumers want to dabble in products that deliver a sense of place and person. As this trend continues to spread (and it will), consumers will be forced to use direct shipping services to obtain these wines.

Judicial Deference To Irrationality
In case after case, federal and state judges have given deference to the most irrational arguments you can imagine in upholding state laws that deter commerce. In one federal court ruling a law allowing one kind of retail store to sell cold beer but prohibiting another kind of store from doing the same was upheld on the grounds that this issue of beer not being cold in one venue would stop underage drinking. Absurd. In another federal court case, judges ruled that wineries that retail wine are protected by the Commerce Clause of the Constitution from state-based discriminatory laws, while wine stores retailing wine are not protected by the same commerce clause. Absurd. Judicial trends change direction. Sometimes in a slow arc. Sometimes with an abrupt turn. When federal judges stop giving in to irrational and absurd arguments and stop upholding state laws meant to deter wine sales and protect local interests, direct shipping of wine will see a big increase.


8 Responses

  1. Joe Czerwinski - July 16, 2014

    I read Rosen’s piece and came away from it shaking my head.

    I’m just back from Sonoma, where I visited a number of boutique producers who told me their sales are as much as 98% DTC.

    In fact, it’s hard for me to imagine small wineries meeting the financial sustainability test if they don’t do a large proportion of their sales at retail pricing already.

    For big wineries, DTC is icing on the cake–not really necessary but helpful in pumping up overall margins.

    The ones who really need to work it (IMO) are the midsize wineries who lack leverage with their distributors but aren’t considered “boutiquey” enough to have a big DTC component.

  2. Tom Wark - July 16, 2014

    Hi Joe…

    I think Rosen was sort of dismissing the small wineries that depend on DTC and thinking more about whether DTC could ever make a dent in overall wine sales in its current state. Right now, DTC sales are probably around 4% of the total wine market. From that perspective, it’s not much of a channel. But, as you say, from the small winery perspective, it’s everything.

  3. Jimmy Kawalek - July 16, 2014

    Good piece as always Tom. Small brands suffer from lack of recognition. No one will find you by accident (over and over again) to make your DTC program viable. Consumers have to become aware of your brand somewhere, somehow before they can come and find you directly. The stool has many legs and distribution is one of them. By pushing the brand out you can hopefully one day rein it back in. If you are blessed with getting your fruit from a known Vineyard, employ a rockstar winemaker, receive favorable reviews from major critics of your first vintages, you may stand a chance of successfully launching a DTC (first and foremost) path out of the gate. Attracting a following does not happen by chance, every business needs a “go to market” plan to attract loyal customers. Having access to more states to sell is always good but again if no one in that state knows who you are or what your story is it might as well not exist.

  4. Tom Natan - July 16, 2014

    I have an online retail business. DTC is growing but is still small and the obstacles to making it hit the big-time are large ones. The four points you’ve made are good. While reducing shipping costs will encourage customer demand, removal or relaxing of state laws that hinder DTC sales really is key to the whole enterprise — along with a move toward greater uniformity of regs and procedures. These would make it easier for new entries and small businesses to ship. Ultimately, that will help the wines reach more customers.

    Even if you hire a service to assist with compliance, the winery or retailer will still be responsible for getting the state permits. I’d love to see a common application and elimination of silly requirements like getting a bond (really? Like bail bonds?) and having to prove that you have permission to sell from the producer. A few other things would help, too — having a uniform internet sales tax for alcohol across all states would be one, along with common state income tax submission forms. (I am amazed at how much still has to be done on paper).

  5. Tom Wark - July 16, 2014

    Tom,

    ShipCompliant has done a great job of eliminating a great deal of the hassle associated with compliance that burdens vendors like wineries and retailers. However, they have no control over many of the absurd regulations you cite. Your wish list is a good wine!

  6. Tom Wark - July 16, 2014

    Nicely put, Jimmy. If I were in the business of winemaking (who wants to invest in “Henry Geroge Cellars”?), I’d almost certainly design a distribution plan that relied on distributors, on direct to trade sales and on direct to consumer sales.

  7. Carl - July 16, 2014

    Tom, we’re one of those “Cs” that depends heavily on DTC. We get most of our wine that way; up to 80%. About the only wines we buy locally are imports. This despite our archaic laws that case many wineries and retailers to flinch.

    We have found that in some cases it is essential to develop a personal relationship with the owner or key employee of the winery we are dealing with. In some cases this enables us to get bottles from a nearby winery who won’t ship. I realize that all this is shady or even outright illegal; but in this environment who must do what one must do.

  8. Tom Wark - July 16, 2014

    Carl,

    I’m shocked!! Shocked, I tell you, to learn that such things go on.


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