Wine Industry Distribution: Direct-to-Consumer Growth Heightens.
KDM Global Partners, LLC
Monday, 31st December 2012
Internet wine sales have become formidable sales alternative opening doors for new, creative uses of wine as a branding tool and improved revenues.

Data presented to industry members this past summer illustrate the strength of the alternative Direct-to-Consumer (DTC) distribution sector in the wine business. These sales are now a robust and growing trade - no longer a 'niche' alternative for some wineries to traditional three-tier distribution.

DTC refers to the sale, directly from a producing winery to a consumer - without the product first passing through the hands of a wholesaler/distributor and then a retailer/restaurant.

Direct shipments were up 8.2% in volume and 11.5% in value for the year ending in April, 2012.

Total wine produced in the United States for domestic consumption was 262 million cases, according to the Nielsen Company. Of that total, 80% was sold through retailers and 20% through on-premise (restaurant and bars).

Total DTC sales volume last year was 3 million cases, a 225,000 case increase from the prior year. Baby boomers (ages 49-65) currently comprise 56% of DTC sales, followed by 41% for Generation X (30-48). The much sought-after Millennial generation represents 3% now though that is expected to grow significantly over time.

Beyond these growth statistics, what do these trends also tell us?

1. Market Access for New Wine Brands

4Hoteliers Image LibraryBefore the onset of DTC, unless wine brands could convince a licensed state wholesaler to "carry" its product, the wine could not achieve a place on a retailer's shelf. And, as large wholesalers consolidated their businesses nationwide, their power over market access has grown to the point where the wholesalers (and the heavily-promoted "national" brands) act as gatekeepers and "shelf sheriffs" at most large retail chains.

Thus, small brands, without the same distribution clout as the heavily-funded large brands, are often unable to present their wares to consumers.

DTC offers a more democratic (and efficient) market solution for these brands...enabling a more diverse and properly-priced array of wine products to reach the market. Consumers also recognize this and vote with their dollars by showing up regularly online with their mouses and credit cards.

2. A New Use of Wine: As an Effective Marketing/Branding/Promotion Tool

Wine is a phenomenal branding tool....everyone loves it (more than any other adult beverage) and enjoy sharing their experiences with it - how they paired it with food, what the taste characteristics were, how much the bottle cost, where they found it....and so on. Wine is a consultative sale....a perfect fit as a merchandising tool, for publicity, for brand growth and story-telling. It also has significantly better shelf-life than other products used for the same purpose.

Marketers, publicists and others associated with Social Media are recognizing that wine might well be the most compelling branding tool out there. So, in combination with the onset of a robust ecommerce environment (and DTC sales/fulfillment availability) new wine brands are arising for new purposes: (i) charitable/fund raising; (ii) celebrity branding - rock bands, chefs, politicians, movies and TV shows, athletes, sports teams, etc.; (iii) tourism, resorts and travel; and (iv) corporate meetings/events/publicity efforts.

Not only are these DTC wine sales steady - but, because they are sold directly by the winery to the consumer, there is no "middleman" margin (typically taken by the wholesaler). The brand owner makes a stronger profit online through DTC that it otherwise would under traditional three-tier distribution.

3. Viable Distribution Alternative for all Brands

4Hoteliers Image LibraryThe rapid rise of DTC does not, however, signal the beginning of the end for three-tier (bricks-and-mortar) distribution. To the contrary, store sales and on-premise sales remain strong and will not go away. The retail tier still offers value to the industry and to consumers.

What DTC offers is an alternative distribution avenue that, overall, works to the benefit of the brand - and even helps to buttress store sales. Customers will continue to use the Web, even while they are using bricks-and-mortar stores for their purchases. When a brand has an additional presence on the Web, the branding opportunity - even for the stores - is significant.

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