October 23rd, 2009
The much-anticipated entrance of Amazon.com into the wine industry has come to an end before it ever got off the ground. The prospect of Amazon’s wine site sent a wave of excitement throughout the industry as small and medium sized domestic brands with limited distribution saw an opportunity to get exposure through Amazon’s enormous book of active customers. For foreign brands, the opportunity seemed even more attractive since imported brands don’t have the same rights to ship wine directly to consumers as U.S.-produced brands do. The Amazon program, in theory, would have provided access to a broad selection of wines from all regions of the world in a reliable, cost-effective approach to consumers in many states across the country.
Because of the large number of brands (6,000+ wineries in the United States alone) and labels that exist in the world, the wine industry seemed ripe for an aggregator like Amazon to come in and help consumers discover and purchase wines that they otherwise couldn’t find in their local wine shops and restaurants. Parallel success stories are easy to find in industries such as books, electronics and music. Sites like Amazon and the Apple iTunes Store are great platforms for exposing the “long tail” of industries that have large selections.
But, distributing wine is not the same as distributing books. Since the ratification of the 21st amendment in 1933, each state has the power to regulate the flow of alcohol within their borders. This system has led to a hodgepodge of antiquated laws that are very different from state-to-state. Much of the existing legislation that regulates the sale and distribution of alcohol was written at a time when lawmakers had no vision for today’s technology that allows for automated payments, electronic title and funds transfers, real-time compliance checks, and online age verification. Because of the conflict between available technology and written law, alcohol regulators are often put in a tough position when the time comes to establish administrative policy and to enforce their statutes. Recently, both the California and Virginia Alcoholic Beverage Control (ABC) departments issued industry advisories in attempts to clarify their statutes and policies. Both advisories make it very difficult for a third-party marketing company, like Amazon, to participate in the sale of alcoholic beverages without actually holding the appropriate licenses to sell and distribute alcohol.
Nevertheless, the challenges that third-party marketers (often referred to as “marketing agents”) face are quite different than the challenges that domestic producing wineries face when marketing, selling and distributing their own products. With the help of technology solutions, wineries can easily deal with the complex legislative rules that come hand in hand with selling and shipping their wines directly to consumers.
There is no doubt that third party marketers can add real value to wineries by exposing them to new customers and providing new sales channels. But, wineries are becoming better and better every year at marketing and selling their own products as well as finding new ways to effectively connect to their current and potential customer base. Additionally, when selling and shipping their own product directly to consumers, wineries gain a significantly larger margin on each sale compared to going through distribution systems.
As the 2009 holiday season (a time when most wineries make a significant share of their sales for the year) approaches, many will be nervous and disappointed to see Amazon exit the wine industry. At the same time, wineries should be excited about taking advantage of the brand building that they have done and finding innovative ways to connect to customers and sell their fabulous products. Furthermore, 2009 was a banner year for wine shipping legislation as three states (Kansas, Tennessee, and Maine) opened up their borders to direct shipment where shipping had previously been prohibited, bringing the total of available “offsite” (states that allow Internet, mail, phone, fax and club orders) states to 37. Although these are not among the top wine consuming states in the country, every consumer counts in this sluggish economy. Free the Grapes! hailed 2009 as the “best vintage since 2005” in terms of direct shipping legislation, and there is no reason to believe that this trend will not continue right into 2010.