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A 5-Point Checklist For Selling Through Online Wine Marketers

Editor’s Note: The following post is part of our series on the Third Party Providers

The rapid emergence of online wine marketers might be the biggest innovation in wine sales over the past five years. But selling and marketing your wine through these third-party channels poses many compliance and business-related challenges. That’s why we’ve put together this comprehensive 5-point checklist to help you sell through third-party marketers efficiently, compliantly and profitably.

1. Know Your Why
There are lots of great business reasons why wineries work through third-party marketers to sell their wine. It could be to move excess supply, help launch a new brand or label, power your social media efforts, or perhaps target a new demographic. And not all marketers are alike.The first thing you need to ask yourself is “Why?” Understanding this will help you best determine which marketer is best positioned to help you reach your business goals.

Key Questions to Ask:

  • Which online marketers are best able to attract my target customers?
  • How much inventory should I dedicate to this?
  • Which type of online marketer best satisfies our business objectives – a daily deal site, social shopping, niche wine site or a mass market platform?
  • How would my brand be impacted across these different options?


2. Know Your ABCs
From a compliance perspective, selling wine through third-party marketers had been somewhat of a gray matter until the release of a very important advisory from the California ABC last fall. In the advisory, the ABC provided clear guidance on how wineries and third-party marketers can work together in a compliant fashion. The guidance covers everything from pricing to fulfillment to disbursement. Luckily, there’s a great blog post that breaks down the full advisory, so you know exactly what landmines to look for.

Key Questions to Ask:

  • Is my third-party marketer familiar with the ABC advisory?
  • Have they considered the ABC’s guidance in how they’ve constructed their service?
  • Am I assured that I won’t be putting my license at risk?


3. Know How Funds Get Handled
When working with third-party marketers, payments and disbursements can often be the trickiest steps of the process. In order to follow the guidelines set forth in the ABC advisory, the licensee must be in full control over all aspects of each transaction. This can be hard to balance as third-party marketers typically secure the credit card info and payment authorization. So make sure the process by which funds are collected and transferred is crystal clear.

Key Questions to Ask:

  • What’s the checkout experience like from a user perspective?
  • When do I take control of the order funds?
  • Am I fully in control of the funds throughout the entire process?
  • How are the marketing fees structured and when are they paid?
  • How will taxes get calculated, collected and paid?


4. Know How Compliance Gets Handled
In online shopping environments where customers are used to lightning fast checkouts and no additional actions are needed, compliance checks can also be a very delicate thing to handle. Technology has now evolved to a point that holistic compliance checks and tax rate calculations can happen in real-time; online orders can also be automatically bundled into your overall numbers for state reporting, but the third-party marketer must work in close concert with your compliance provider. If you want to keep your back-office paperwork to a minimum, this point is truly important.

Key Questions to Ask:

  • Is the third-party marketer integrated with our compliance solution?
  • If not integrated, how will orders get checked for compliance? How quickly can it occur after transaction?
  • How do I consider my other direct shipments when evaluating the compliance of these orders?
  • If the transaction is found to be out-of-compliance, how does that get communicated back to the customer?
  • How do I retrieve the order information needed to aggregate and consolidate for tax and shipping reports?


5. Know How To Measure Success
In addition to the hard costs involved in selling through third-party marketers, there are several soft costs to consider as well. Namely, how much time will it take for me and my staff to launch and maintain this sales channel? Make sure mechanisms are also in place to measure progress towards your original business objectives, whether it’s tracking new Facebook fans, wine club members, or net proceeds on a certain batch of inventory.

Key Questions to Ask:

  • Did this third-party marketer help us achieve our original objectives?
  • What would make working with this third-party marketer an easier process?
  • Was our brand well represented through the entire marketing, transaction and distribution process?
  • What information will I receive about the customers who buy through this marketer?


At ShipCompliant, we believe compliance should never get in the way of your success in the wine industry. That’s why we’re intently focused on making sure you’re fully aware of both the potential and risk involved with selling through online wine marketers.

If you feel that you are ready to engage in selling your wine through third-party marketers, we’d be happy to answer any questions that you have or introduce you to similar sized wineries that have already navigated these waters and experienced success. Learn more about ShipCompliant MarketPlace.









Additional Resources:

Formalization of Wine’s ‘Fifth Column’: Third-party Marketers

Editor’s Note: The following post is part of our series on the Third Party Providers

“A compliant and effective e-commerce sales platform [is] now in place and available. There is a Fifth Column of wine sales now…The evolution and momentum of the Fifth Column of wine sales leads us to believe the genie is finally out of the bottle and there is no putting it back for state-to-state and direct wine e-commerce.”

The historical metaphor of the “Fifth Column” is new to the world of wine marketing. As used by Rob McMillan and the authors of Silicon Valley Bank’s recent “State of the Wine Industry” report, it is a reference to the Spanish Civil War of the 1930s and the idea that “an ad-hoc group of loyalists emerging from within the city [of Madrid] who would rise up against the incumbent order”. Silicon Valley Bank uses the term to refer to a “group of wine businesses partnering with producers to sell direct”.

The Silicon Valley Bank report is referring to various companies in the wine industry that have been founded to support direct to consumer sales such as logistics, compliance, third party marketers and others companies that, taken together, provide suppliers with a support system for getting wine into the hands of consumers across the country.

From our perspective, another way of understanding the “Fifth Column” is the recognition that after many fits and start, innovations, failures, successes and the introduction of new technologies, the wine industry now has new paths to market by which new and old customers can be cultivated with confidence. We view the emergence of compliantly operating third party marketers as the final piece of the “fifth column” puzzle.

The first glimpse of the real value that third party marketers provide to the direct-to-consumer market came during the recent recession when these talented marketers were able to use private or “flash” sales, membership platforms and outstandingly executed e-mail marketing campaigns to help suppliers move through distressed inventory during a decline in demand. Third party marketers played a key role putting suppliers’ wines in front of motivated consumers.

While some people have predicted either the end of the road for these marketers as inventory has dried up and the recession wanes, or the end of firms that focus on discounting, we believe that the third party marketer is here to stay and will continue to play an important role not only in giving suppliers a new path to market, but in introducing brands to new customers.

Third party marketers, flash sites, and email marketers in a number of industries continue to thrive. In large part this is occurring because consumers have become accustomed to using these services and appear to be quite comfortable with either encountering singular products on a daily basis or allowing the products to “come to them” via trusted vendors and marketers. We see the same thing happening in the wine consumer world.

In fact, we are convinced that 2012 is the year that third party wine marketers will demonstrate not only their staying power but also their long term importance to the wine consumer and wine supplier that they bring together. We recommend that everyone working in the direct-to-consumer channel carefully read the new Silicon Valley Bank “State of the Industry” report with particular focus on their understanding of the “Fifth Column”. It explains what we are seeing put into practice: The formalization of a new channel to successfully cultivate new customers and sell more wine.

Direct Shipping Legislation Heats Up Across the Country

This time of year always brings a flurry of legislative activity, and 2011 is no exception. The Granholm v. Heald Supreme Court ruling from 2005 is still having its impact on many states. 27 states are currently considering some form of direct shipping legislation, and at least 44 more have considered some sort of tax bill that would affect wineries. While legislation can change quickly and no outcome guaranteed, what follows is a summary of the most important direct shipping legislation as it stands as of today.

Maryland

Marylanders have long awaited a bill that would allow direct wine shipments into the Old Line State. This past Tuesday, both the Senate and the House acted on all three direct shipping bills proposed in the current session. The Economic Matters Committee both withdrew HB 234 and passed as favorable, HB 1175. SB 248, the counterpart to HB 234 (introduced not long after the Direct Wine Shipment Report by Maryland’s Comptroller, in support of winery direct shipping), was also passed as favorable, but includes amendments, touted as a “compromise”, which removed in-state and out-of-state retailers’ ability to ship direct to consumers. Additionally, the customer volume limits are now set to 18 liters per household per year (down from the original 24 cases per individual per year, as was initially introduced), the permit cost has increased to $200.00 per year, and the bond security increased to $1000.00. As introduced, HB 1175 also made no allowances for direct shipments from retailers. The Senate and House bills are scheduled to be presented for a third reading today on the floor of the House. Amendments concerning a new study on retailer shipping and the ability of Maryland retailers to ship Kosher wines to Marylanders will likely be introduced on the House floor.

New Jersey

If direct shipping legislation passes this year, New Jersey could open up to wineries for direct shipments for the first time. S 766 and counterpart A 1702 would allow permitted wineries to ship up to 24 cases annually. S 766 passed the Senate on 2/4/2010. The Assembly bill remains in the Regulatory Oversight and Gaming Committee, which is chaired by the bill’s lead sponsor, Assemblyman John J. Burzichelli. Burzichelli is also the lead sponsor of another, less desirable, direct shipping bill (A 3897) that would impose a capacity cap of 250,000 gallons on direct shippers. A3897 is also waiting for a vote in Committee. It remains to be seen if the recent Freeman decision will complicate the bills that are on the table.

Florida

Florida is currently open to direct shipments from wineries. The state’s previous direct shipping legislation was found to be unconstitutional under Granholm and was overturned in a 2005 court ruling under Bainbridge, et al. v. Turner. For the fifth time in six years, direct shipping legislation is being considered in Florida (no bills were considered last year). As introduced, HB 837 and counterpart SB 854 would allow wineries (not retailers) to ship directly to consumers. The bill contains severely onerous restrictions that would prevent most wineries from obtaining a permit or shipping into the state, including a 250,000 gallon production volume cap (capacity cap), bond, and a mandate to give wholesalers a year’s notice that the winery plans to direct ship.

HB 837 was voted on and determined “favorable” by the Business & Consumer Affairs Subcommittee on March 22, 2011, and is now in the Government Operations Appropriations Subcommittee.

Massachusetts

There are several problems with Massachusetts’ existing unworkable direct shipping laws. The 30,000 capacity cap restriction was found to be unconstitutional by the First Circuit Court in 2010, but other statutes regarding customer aggregate volume limits and carrier licensing remain in effect, and need to be updated in order to truly open the state to direct shipping. HB 1029 and HB 1883 would address these issues and would allow permitted wineries to ship wine to consumers. Both bills were referred to the Joint Committee on Consumer Protection and Professional Licensure in February, and still have a ways to go before becoming law.

Indiana

Currently, only wineries that have not had a relationship with a distributor in the past 120 days can obtain an Indiana direct shipping permit, and wine can only be shipped to Indiana residents who have previously visited the winery in person. Two bills in the current legislative session aim to remove these restrictions and open up direct shipments in Indiana to many wineries that are currently unable to get a permit. HB 1081 would remove the requirement for an initial face-to-face transaction, as well as remove the restrictive wholesaler relationship provision in the law. A similar bill, HB 1132, was also introduced in January of 2011, but has been amended to become a study “concerning the viability and efficacy of instituting a policy to permit the direct shipment of wine to consumers in Indiana.”

Rhode Island

Rhode Island remains closed to offsite direct wine shipments. SB 170 would create a direct shipping permit and allow shipments of up to 24 cases of wine per year, per resident from permittees. On March 23, 2011 the Senate Special Legislation Committee recommended the measure be held for further study.

Tennessee

Pending legislation in Tennessee would open up the entire state to direct wine shipments, eliminating the “dry” areas of the state that wineries are not allowed to ship wine into. The bill is currently on the calendar in both the Senate and the House.

Pennsylvania

At a hearing on March 22, 2011, the Liquor Control Board asked that the legislature “modernize” the liquor code. As part of the modernization, the PLCB asked that direct wine shipments to consumers’ doorsteps be allowed. Pending legislation (HB 110) would allow for a workable permit system. Thus far, the bill has yet to move out of the House.

Representing Change: One Piece of Washington’s Overhaul

Last year, Washington State relaxed some of its restrictive alcoholic beverage laws as a result of a couple of comprehensive bills that passed the legislature (SB 5834 and HB 2040). The mandatory minimum markups between suppliers and wholesalers and between wholesalers and retailers are now history. Retailers can now pay suppliers using electronic funds transfers if they want to. Price posting (which required beer and wine suppliers and distributors to file their product prices with the state and hold those prices for 30 days) was officially abolished.

Another change in the law that has more significance than it might appear to on the surface is the expansion of the state law’s definition of “Authorized Representative.” First, some definitions are in order: a Certificate of Approval is the Washington license given to a U.S. winery or brewery located outside of Washington that enables it to ship its products to a Washington importer or distributor. An “Authorized Representative” is an entity located outside of Washington but in the U.S. that is appointed by a Certificate of Approval (COA) holder to market and sell the COA holder’s products into the state of Washington through the three-tier system.

Before last July, Washington made it very hard for out of state wineries and breweries to sell their products into Washington through marketing agents, unless they wanted to give over all of their brands to the marketing agent.

That’s because, through a quirk in Washington law whose origins aren’t very clear, there could be only one source (i.e. either one Certificate of Approval license holder, or one Authorized Representative) for an out of state winery or brewery’s products. For example, if you were a winery that produces Brand A and Brand B, and you have been selling your Brand A to a Washington importer, you couldn’t appoint an Authorized Representative to market and sell your Brand B in Washington.

That all changed on July 26, 2009. As part of the “omnibus bill” and other sweeping legislative changes that took place last year in Washington, the definition of Authorized Representative was amended to remove the exclusivity portion that had been so problematic. As a result of the change to RCW 66.04.010(2), a Certificate of Approval holder can now divide up its brands, selling some itself and using one or more Authorized Representatives to market and sell different ones, if it wants. The state does require the producer to have written agreements with each of its Authorized Representatives, and there can be only one Authorized Representative per brand, but even with these restrictions, this one seemingly minor change in the law gives producers a lot more control and flexibility over how they market their products in Washington.

-Sara Mann, Beverage Industry Attorney

Representing Change: One Piece of Washington's Overhaul

Last year, Washington State relaxed some of its restrictive alcoholic beverage laws as a result of a couple of comprehensive bills that passed the legislature (SB 5834 and HB 2040). The mandatory minimum markups between suppliers and wholesalers and between wholesalers and retailers are now history. Retailers can now pay suppliers using electronic funds transfers if they want to. Price posting (which required beer and wine suppliers and distributors to file their product prices with the state and hold those prices for 30 days) was officially abolished.

Another change in the law that has more significance than it might appear to on the surface is the expansion of the state law’s definition of “Authorized Representative.” First, some definitions are in order: a Certificate of Approval is the Washington license given to a U.S. winery or brewery located outside of Washington that enables it to ship its products to a Washington importer or distributor. An “Authorized Representative” is an entity located outside of Washington but in the U.S. that is appointed by a Certificate of Approval (COA) holder to market and sell the COA holder’s products into the state of Washington through the three-tier system.

Before last July, Washington made it very hard for out of state wineries and breweries to sell their products into Washington through marketing agents, unless they wanted to give over all of their brands to the marketing agent.

That’s because, through a quirk in Washington law whose origins aren’t very clear, there could be only one source (i.e. either one Certificate of Approval license holder, or one Authorized Representative) for an out of state winery or brewery’s products. For example, if you were a winery that produces Brand A and Brand B, and you have been selling your Brand A to a Washington importer, you couldn’t appoint an Authorized Representative to market and sell your Brand B in Washington.

That all changed on July 26, 2009. As part of the “omnibus bill” and other sweeping legislative changes that took place last year in Washington, the definition of Authorized Representative was amended to remove the exclusivity portion that had been so problematic. As a result of the change to RCW 66.04.010(2), a Certificate of Approval holder can now divide up its brands, selling some itself and using one or more Authorized Representatives to market and sell different ones, if it wants. The state does require the producer to have written agreements with each of its Authorized Representatives, and there can be only one Authorized Representative per brand, but even with these restrictions, this one seemingly minor change in the law gives producers a lot more control and flexibility over how they market their products in Washington.

-Sara Mann, Beverage Industry Attorney

Kansas permit applications available, Tennessee coming soon…

Late yesterday the Kansas ABC posted their applications for direct shipping on their website.  Wine producers across the country can now apply for permission to direct ship wine to Kansas consumers effective July 1, 2009.

ewl_blog3Kansas SB 212 was signed into law by Governor Kathleen Sebelius on April 10. Wineries interested in avoiding the hassle of the application process can purchase the license at www.easywinelicensing.com.

Licensed wineries will be able to ship up to 12 cases of wine per year to Kansas residents. To obtain a Kansas direct shipping license, wineries must pay a $50 license fee, a $50 registration fee, and post a $750 bond.

Tennessee will also open for direct shipping on July 1, although the paperwork has not yet been finalized.  Tennessee’s license is available for pre-order pending the state’s posting.