How are Winemakers Benefitting From DTC Strategies?
It is no secret that the alcohol industry is one of the most regulated industries in the United States. Indeed, the United States has a long and complex history and relationship with alcohol, stemming back to temperance movements during the turn of the 20th century and prohibition, which lasted from 1919 to 1933. Nowadays, in the wake of the e-commerce trend that has spread across industry after industry, wine producers have begun experimenting with how their businesses can benefit from DTC sales and operations. However, unlike other industries, one of the biggest barriers to entry into the DTC market for wine producers has been regulations. In this article, we will discuss some of the regulations facing wine retailers, the benefits of online direct to consumer sales, and how winemakers are going DTC with their wine businesses.
United States Wine Market
While the United States does not have the highest per capita wine consumption in the world, it is still the largest consumer of wine overall, making the U.S. a premier market for the wine industry.
In fact, wine sales in the U.S. in general have been increasing steadily since the latter part of the ’90s, and last year was no exception. Since that time, wine production in the U.S. has surged, and per capita wine consumption has increased as well. As such, the recent trend toward online wine sales has been unsurprising, since the industry as a whole is looking to take advantage of the benefits of DTC sales. Naturally, the direct to consumer (DTC) segment of the industry has seen the most explosive growth of all in recent years.
In addition, as a result of the COVID-19 pandemic, we have seen a massive shift to e-commerce by consumers out of necessity. Since consumers are unable to go to traditional brick-and-mortar retail stores, they are all over the internet looking at new ways to get their favorite products to their doorstep. As part of this, many consumers are realizing for the first time how easy and convenient shopping online is. With the click of a button, they can have exactly what they need brought right to their house! Very little hassle, very little effort, and, most importantly, very little time is required.
While many people will certainly return to brick-and-mortar stores once the crisis is over, analysts are still expecting many consumers who weren’t shopping online before to continue with shopping online even once the crisis subsides. This means e-commerce retail sales should become even more prevalent in the coming years.
In light of all these factors, now could be a great time for your winery to explore getting into e-commerce and direct to consumer selling.
Benefits for the Wine Consumer and Wine Producer
What has been great about the push to DTC by the wine industry has been the fact that the changes have equally benefited both the wine consumer and the wine producer.
To understand why the impact of direct sales has been so significant we must first understand how alcohol pricing works. Under the traditional “three-tier system”, alcohol producers produce a product which they are then forced to sell to a distributor. This distributor then sells the product to a retailer, who in turn sells it to the end consumer.
This leads to significant markups on the price of wine, since each party (the producer, distributor, and retailer) has to get their share of profit.
For example, let’s say a winery is offering a particular bottle of wine at $10, which they think, after the taking out the expenses of land, harvesting, labor, barrels, and bottles, will net them a small profit per bottle of $2. Ten dollars seems like a reasonable price, however, this is the price that will be offered to the distributor, not the consumer. The distributor will buy each bottle at this $10 price (usually in cases). Then, after factoring in their costs, they will raise the price of the bottle to somewhere between $15 and $20. A retailer will then buy the wine at this price and add their own markup, since they have to make a profit as well. By the time you, the consumer, get to the store to buy the wine, you will end up paying anywhere from $25 to $35 for a bottle of wine that the producer only sold for $10. This is a substantial difference.
Thus, wine sold at typical retailers, like Binny’s Beverage Depot, has a markup of about 2.5x the price it was sold for by the producer to the distributor. Restaurants have even larger markups, typically somewhere in the 200x to 400x range, however, this is for the most part unavoidable regardless of whether buying wine online is an option or not.
Additionally, because of this system, only a limited number of brands are able to achieve national distribution, limiting their ability to expand and grow their business.
However, since wine has a lower alcohol content than most spirits and liquor, U.S. law typically enables them to go around the three-tier system and sell directly to consumers.
Typically, the price difference between, for example, a t-shirt for sale at Amazon and a t-shirt for sale at Wal-Mart is not huge. This is not the case with DTC wine sales. Consumers stand to capture significant discounts from buying online and getting direct shipments of their favorite fine wines.
Thus, while DTC wine sales are certainly beneficial for producers, who are able to access a larger, expanded market, they are also incredibly beneficial for consumers, who are able to get their favorite wines for an incredibly low price!
Do Wine Producers Need a License to Sell Wine Online?
Alcoholic beverage regulations, including wine regulations, are highly dependent on the state you live in. While there are a number of federal regulations that apply to wine, states also have strict regulations on alcohol.
Thus, because of the nature of the alcohol industry, if you are planning on selling wine online, we recommend you seek out professional and qualified legal consul that understands the industry and the laws surrounding it.
Remember, just because you are able to sell wine locally or within your state does NOT mean that you can sell wine nationally and/or online. In fact, you will most likely need a shipper’s license for each state that you plan on shipping your product.
You should also be aware of the fact that in some states only small wineries are allowed to sell DTC, while online stores and retailers, such as liquor stores, are not allowed to.
Does Alcohol Need to Be Shipped to Consumers in a Special Way?
Shipping alcohol is not like shipping a t-shirt or a book. Instead, businesses have to jump through a few hoops in order to make wine shipments.
The United States Postal Service (USPS) does not allow for alcoholic beverages, including wine, to be shipped through them. While this could theoretically change in the future, for now, consumer wine shipping has to take place either through UPS or FedEx.
Wineries must also sign an alcohol transportation contract with whichever shipper they choose. Wine shipments must also be signed for by someone age 21 or older upon delivery, which is something you should make clear to your customers before they purchase wine from you online.
Additionally, by opening a shipping account with UPS or FedEx, depending on your shipping volume you can access great discounts on shipping rates. These savings add up quickly!
Wine Direct Shipping Laws
Again, winery direct shipping laws depend on the state. However, the following list provides the basic for states that do and do not allow direct shipping. This list is for states that allow wineries to ship direct to consumers (DTC). Most of the states that allow this do not allow online retailers, like wine shops, to ship direct to consumers in their states.
Winery Direct Shipping Permitted:
– New Hampshire
– New York
– West Virginia
– North Carolina
– South Carolina
– North Dakota
– South Dakota
– New Mexico
Limited Winery Direct Shipping Permitted:
– New Jersey
Winery Direct Shipping Prohibited:
– Rhode Island
Building an Online Website and Marketing Your Product
Obviously, just setting up a website to sell wine, getting the proper licenses, and making shipping arrangements is not enough to start making a splash in the e-commerce wine industry. This is particularly the case if you are planning on offering a new product or starting a new winery.
Indeed, one of the biggest apprehensions consumers have about buying online is the fact that they are unable to taste the product before they purchase it.
Additionally, the alcoholic beverage industry is one of the most competitive industries around. There are thousands upon thousands of different products and options for consumers to choose from. This can make it hard for alcohol producers, including wine producers, to set themselves apart from the competition.
Based these factors, starting a successful online site can be challenging and will require a concerted, thoughtful, and detailed effort. Don’t let this discourage you though. There are a number of ways you can help market your online wine business, and with the proper research, there are thousands of marketing tactics and strategies you can learn about to increase your online presence and drive your sales. We have listed just a few of the different methods below.
Search Engine Optimization (SEO)
For businesses looking to sell online, search engine optimization (SEO) is a must. Search engine optimization allows businesses to optimize their sites for search engines, like Google, which crawl the website and then, based on the information they gather, direct searchers to them.
Search engine optimization revolves around keywords, which search engines index when they crawl your site. When searchers enter these keywords as a search query, your site, as well as the other sites that rank for the keywords, will come up in the order in which they rank. This is key for driving organic traffic to your site, meaning traffic your don’t have to pay for through advertisements and traffic that doesn’t enter your URL directly into their browser.
SEO is a massive field that cannot be covered in a single article, and the aforementioned information is just a brief overview. If you would like to learn more about how SEO works as well as the benefits it can provide your website, be sure to take a look at some of our other posts on how SEO can help your online business thrive.
Social media is another way to reach out to customers and get people engaged with your product. You can post specials and promotions on social media, images of new products, updates on upcoming releases, and even concept art for, for example, new wine bottle labels.
Since many consumers are apprehensive about purchasing wine online because they haven’t tasted if before, social media is a great place to post about your different wines and what they taste like. You can discuss the different varietals you offer, as well as the different flavor and tasting notes of your different wines. This way, consumers can be more confident about purchasing a bottle or even cases of wine from your store.
You can also ask for feedback on your products, sales team, and customer service through social media. The possibilities with social media are essentially endless!
If you are already an existing winery with a customer base and a social media presence, then this is a great way to alert your current customers that you are now selling products online.
If you do not already have a social media account, you should definitely consider opening one, even if you are not planning on taking your winery the e-commerce route.
Has your winery been collecting e-mails from customers? If so, this is a great opportunity for your to reach out to past and current customers about the fact that you are now selling wine online.
You can send promotions, coupons, sales, and general information through e-mail. Plus, as more and more customers purchase from you online, you will be collecting more and more e-mails, growing your customer base and your business.
Online stores are also able to offer rewards clubs to their customers quite easily. This is a great way to inspire brand loyalty and keep customers coming back.
For example, you may want to offer a free bottle of wine for every 12 bottles of wine purchased. Or maybe you want to offer a free premium corkscrew for first time customers.
A rewards club will also expand your e-mail list.
Obviously, the aforementioned ideas are just a few of the options available to you. There are so many different methods winemakers across the country are using to disrupt the industry and expand the reach of their businesses.
Over the last few years the United States has seen the explosive growth of e-commerce. While most people think of Amazon when it comes to online shopping, the e-commerce boom has not been limited to just corporate giants. Instead, as a result of the ease with which retailers can now build online stores, small businesses have also seen massive gains as a result of the e-commerce boom. Setting up an online store has never been easier!
Plus, by selling online, small wineries have been able to access a national market they were previously barred from by the three-tier system, giving small wineries more opportunity than ever before.
In light of these factors, if you run a winery, now may be the time to follow the trend of winemakers going direct to consumers with their products. Yes, there are some regulations and logistics that you will need to consider and weigh, however, with the proper planning and analysis, opening an online store for your winery could be just what you need to take your business to the next level!