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Amazon could disrupt direct to consumer sphere for Napa wineries
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Amazon could disrupt direct to consumer sphere for Napa wineries

From the Napa Valley Wine Insider Digest: Dec. 13, 2019 series
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The last week of November saw the quiet release of Amazon’s own wine brand. Industry members say the label, released to Amazon Prime members in Germany, could be a sign of what’s to come for wine in the e-commerce space.

Amazon has made several attempts to merge its online retail platform with the wine industry, beginning in 2000 with WineShopper.com – one of the first websites that formed around the idea of selling wine to consumers online. WineShopper failed in 2001, and Amazon went on to invest in its successor, New Vine Logistics. That venture ended in 2009.

The Seattle-based company shuttered its most recent attempt, Amazon Wine, in 2017. At the heart of those failures has been Amazon’s inability to wrangle the regulation of interstate wine shipments for retailers; each state has a different set of laws regarding shipments of wine, and some states prohibit the out-of-state shipping of wine all together.

Still, Amazon’s release of the German label is the company’s way of “prodding” the market, according to Paul Mabray, who has worked in winery e-commerce for almost two decades.

“Amazon is incredibly smart and patient, and they play the long game,” Mabray said. He worked at WineShopper.com, then went on to found WineDirect.com in 2002, the first e-commerce platform for wineries. Currently, he’s the CEO of Emerty, a wine-centric data and analytics company.

He points to several lawsuits working their way up to the Supreme Court that would allow retailers to function as wineries do, shipping products from out-of-state to customers nationwide. Should the laws barring and restricting that kind of transaction change, Mabray said, it’ll create a wine e-commerce landscape vastly different than the one that exists today.

“Retailers are coming to compete with wineries,” Mabray said. “They’re more tuned into e-commerce than wineries are. And the largest retailer in the world could be unlocked.”

Wineries focused increasingly on direct-to-consumer (DTC) programs after Granholm v. Heald, a 2005 Supreme Court case that drastically expanded out-of-state shipping ability for producers. The importance of DTC for wineries is two-fold: it allows them to circumvent distributors, reducing costs, and obtain information on customers – where they live, how often they purchase products and other statistics valuable for sales teams.

Clif Family Winery, which produces 8,000 cases a year, does “99.9 percent” of its business dealing directly with consumers, according to Efrain Barragan, the winery’s director of digital and marketing.

“We decided to make the leap into direct to consumer because at that time, there was a lot of consolidation happening in the wholesale world, and we didn’t want to play on that playground,” Barragan said.

E-commerce is an area in which “the wine industry has a lot of room for growth,” he added.

“The biggest pain point is that there’s a lot of larger companies that have figured out how get the product to people’s doorsteps in a quicker, cost-effective fashion,” Barragan said. It’s difficult to compete – wine weighs a lot, and therefore shipping costs are at a premium, he said.

“It would be substantial competition,” Barragan said, of Amazon entering wine e-commerce. “We’re feeling it regardless. It doesn’t matter whether they operate in the United States or elsewhere: Whatever they do heavily impacts e-commerce in general.”

He says the online retail giant has set new standards for the speed of delivery – an Amazon Prime membership, which costs $119 per year, guarantees two-day shipping on eligible products.

Amazon’s German wine label, Compass Road, offers six varietals and retails for just over $22 (19.99 in Euros). Greg Sweval, a DTC consultant for boutique wineries, said he believes that the market Amazon is entering wouldn’t much impact premium and luxury wine produced by Napa’s wineries. He currently works with Hesperian Wines, which produces around 5,000 cases a year from the Atlas Peak appellation.

“I think Amazon is an experience-based company. They’ve earned their dominance through good diligence and creating positive experiences people want to have online,” Sweval said. “The fact that they’ve had three missteps in the wine business, though, means that I’m not feeling threatened by them just yet.”

To survive at the $20 a bottle price range, Sweval said, would mean operating at a large-scale distribution level. For wineries and companies that do belong in that category, Amazon’s re-emergence into the wine market could be highly disruptive. Duckhorn Wine Company, which has a sizable distribution network nationally and acts as its own distributor within California, could not be reached for comment for this story. Treasury Wine Estates also declined to comment.

Mabray said opening the floodgates for retailers would require wineries to get creative with the value-add of their brands.

“A retailer has more advantages than we do. The only reason to buy wine directly from wineries is not price, selection or convenience. It’s a product you can’t get elsewhere, or an emotional relationship you’ve formed with the brand,” he said.

Mabray says wineries must act as “digitally native vertical brands,” mirroring the business models of companies like Warby Parker, which sells glasses, and Casper Mattress. Those companies don’t sell on Amazon, he noted: they manufacture their products and sell directly to consumers, creating and insulating relationships with customers.

Wineries have all of those same elements, Mabray said, but don’t operate through the lens of “digital first.” The industry must “look past the tasting rooms” to prevent cannibalizing upon the same demographic of customers, he added.

And though the label is currently time zones (and possibly a Supreme Court ruling) away, Mabray believes Amazon will inevitably break into the market. They could create their own labels in the United States, following in the footsteps of other major retailers like Costco with its Kirkland brand.

“No other industry will experience Amazon like the wine industry will see Amazon,” he said, citing Whole Foods’ buying capacity and same day deliveries. “When those laws change, and they will, it’ll be unlike anything we’ve ever seen.”

You can reach Sarah Klearman at (707) 256-2213 or sklearman@napanews.com.

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Wine Industry Reporter

Wine industry reporter at the Napa Valley Register.

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