What are the Stakes of Direct to Consumer Sales?
With the click of a button, customers can buy bottles or cases of wine without even leaving the house. The ease of this shopping experience has made direct to consumer sales a widespread trend within the wine industry. It’s generated billions of dollars in revenue and given wineries a new outlet to explore. Although it sounds easy enough to hop on the trend, there is quite a bit at stake for wineries looking to expand into direct to consumer.
Direct to consumer sales began in 2005 with the Supreme Court decision to lessen the restrictions on interstate shipping of alcohol. In just a few short years, it's made up 10 percent of the wine market, according to Gomerg Frederikson Associates, making it a roughly $2.7 billion industry. Elizabeth Mercer, a WISE Academy instructor and content developer with more than 18 years of experience in direct to consumer sales, explains that this is largely due to the economic benefits. Instead of the winery selling to the distributor; the distributor selling to the retailer; and the retailer selling to the consumer, the winery is in complete control of the process. Since there are less individuals involved, the winery can yield a higher profit.
“When you sell a bottle of wine through the wholesale market, there are people taking slices of that bottle of wine along the way,” Mercer says. “Not only are you losing margin along the way, but you’re also losing the brand message. The blood sweat and tears that go into those bottles.”
Mercer compares direct to consumer to the Apple Store. A customer can go into the Apple Store and find a unique experience by interacting with those involved with the brand, or a customer can go to Best Buy to get the same product without the experience. Communicating the brand message is an element that a lot of wholesale wineries struggle with and one solution may be direct to consumer, Mercer says.
There are various aspects of direct to consumer beyond traditional online marketing. It's all about getting the customer into the brand's space, so tasting rooms can also be a form of direct to consumer. If done correctly, consumers will walk out of the tasting with at least one bottle of wine. Other examples include direct mail, phone campaigns and event marketing, explains Mercer.
Establishing a direct to consumer strategy that works for your environment takes a lot of planning and research. While direct to consumer sales saw a 15.5 percent increase in growth in 2017 and accounted for 5.78 million cases of wine shipped across the U.S., according to Sovos, it does not mean every winery will see a large spike in revenue. In fact, shipping laws and overall cost have caused Mike Faltz, Vice President and part owner of Fox Valley wineries, to step away from direct to consumer.
“That’s a very small part of our business, maybe one percent of our sales. The reason it is a small part is because there are so many laws associated with it,” says Faltz. “For us to ship a bottle down the road it would cost us $22 and that doesn’t include the bottle of wine, that’s shipping alone.”
Shipping is a huge barrier for a lot of wineries and is largely due to weight. A box of wine can weigh anywhere from 35 to 50 pounds, which means the cost of shipping is around $100. If the winery is paying for the shipping, they are not making any money on the sale, explains Mercer. The success of direct to consumer depends on what a winery is able to establish.
For a winery hoping to expand into direct to consumer sales, there should be a lot of internal communication and planning. The winery needs to establish what realm of direct to consumer they are looking to explore. If it is a tasting room, a winery needs to think of the space where this tasting room will live, how much wine they can afford to use in tastings versus whole bottle sales and how they are going to establish a unique and inviting wine club. Overall, there needs to be a well thought out customer acquisition strategy.
“A lot of times tasting rooms and direct to consumer businesses will start out with a lot of excitement but not necesarily think through the sustainability of some of that programming,” says Mercer.