The Key Message Behind the New Wine Direct Shipping Report
Last week ShipCompliant and Wines & Vines released their annual Winery Direct Wine Shipping Report. It told of a 15.5% increase in the value of the winery to consumer shipping channel to more than $1.8 billion. At the same time, Wines and Vines reported that in 2014 off premise (retail) sales of domestic wines (the same category of wines that were the subject of the Direct Shipping Report) increased by 5% in 2014 to $7.87 Billion.
What didn’t get reported is a very important conclusion based on both these figures: If in 2015 we see similar, or even more conservative increases in sales in both the off-premise wine market and winery to consumer shipping channel, then direct wine shipments will represent 25% of the size of the entire off premise shipping channel for domestic wines. TWENTY FIVE PERCENT!!
That’s a big number by any measure and it’s certainly a big number for a wine distribution channel that only 10 years ago won the right for fair treatment under the Constitution despite the vehement opposition of the powerful wholesale tier.
But the real and most important upshot of this tremendous growth in the winery-to-consumer channel is growth in product diversity on a national level instead of that diversity being relegated to a regional level.
Without winery to consumer shipping, the diversity of products available to curious wine consumers would be governed by the number of wineries in a given region. Californians would have access to a great diversity of wines. So would New Yorkers, Oregonians, Washingtonians, and Texans. But because the three-tier system of wholesale distribution is not very good and delivering a diversity of products, let alone promoting diversity of products, wine lovers living in places like Florida, Illinois, the Plains States, the Southwest and the New England would not have access to the diversity of products that consumers in winemaking regions would possess.
Yet, with inter-state direct shipping, nearly everyone has access to a huge diversity of wines. This is the great success and impact of the growth of winery-to-consumer shipping channel.
That channel has also played the most important role in fostering and encouraging the creation of new wineries. Knowing that direct sales locally and inter-state shipping is available to them and that this channel is growing in a vibrant fashion, entrepreneurs in a number of states have committed capital and resources to the creation of new wineries…thereby creating even more diversity of product choice for wine consumers.
The greatest access to a diversity of wines occurs in those states where both out-of-state wineries and out-of-state wine stores to ship wine to consumers. In those states where out-of-state retailers do not ship, access to shipments of all imported wines are off-limits since only retailers and not wineries ship these wines.
The three-tier system is equally bad at providing a diversity of imported wines to a region’s consumers as it is providing a diversity of domestic wines. The Alabaman seeing unique and small production wines will be equally deprived of both domestically made and imported product diversity. But consider the Californian or Nebraskan or Virginian who has access not only to three-tier provided wines locally but also domestic and imported wines shipped from out-of-state wineries and retailers. Their selection is monumental.
We have no data on how much domestic wine is shipped direct to the consumer from wine retailers. But it is certainly a large number about which we can only speculate. Given this, it is likely that the percentage of all domestic wines that end up in consumers hands in 2015 as a result of a direct-to-consumer shipment will be well over 25%. A good deal of this wine will have moved through the three-tier system as a result of retailers shipping it. And a good deal of it will not have moved through the three-tier system as a result of it being shipped direct from the winery.
What does all this mean? For one it tells us that the slavish devotion to a three-tier system of wine distribution that is still advocated by wholesalers and some policy makers would do nothing but retard the growth of product diversity, while offering no off-setting benefits. It also means that as the market for fine wine and consumption of fine wine continues to grow, so with it will be the growth of direct-to-consumer shipment and with that an even greater increase in product diversity.
Good times for consumers and producers alike.
You have broken down a lot of facts to highlight the impact of a couple of channels of distribution on the consumer; variety seems to be a major consideration, however don’t forget about costs. The 3 tier system hinders choice for the consumer, for sure. But, further factor in distribution costs and then see the impact on costs: Winery, distributor, retailer. Compare that to Winery direct to cosumer costs.
3 tier system definitely restricts competition by freezing out low volume producers who might be profitable with lower cost supply chain. Distributor costs are significant. They must support their infrastructure of distribution, sales costs, overhead/fixed costs, etc.
Politicians are motivated to legislate a 3 tier system.
It remains to be seen if UPS will step on the cake due to higher shipping charges and the change to dimensional weight. The consumer is drunk on free shipping for online stuff and can’t get the picture on what 38 pound boxes cost to ship. So the only possibility for a sustainable winery is to ramp up the wine prices while offering free or nominal shipping. How this works out in a time of increasing supply remains to be seen. Of course, deep pockets wineries can take the Saudi strategy and run smaller guys out of the business by taking a loss and dumping on the market. Should be an interesting year.