A dizzying array of sales channels are available to wineries. Choosing the right mix for you is one of the most important things to get right to ensure your survival.
You should consider the appropriateness of your wines to each channel. For example, non-vinifera wines and other oddities have little chance in national distribution or on internet flash sites, but such wines may be perfect for DtC channels such as in tasting rooms, wine clubs and email sales where you can tell their stories and share your vision. These personal relationships, stories, visions and experiences are not easily reproduced in national distribution.
The traditional three-tier system (the winery sells to the distributor, who sells to the retailer, who sells to the consumer) has become a dinosaur for all but a handful of million-case wineries. Nationwide wine sales are in decline, giving way to other craft beverages and cannabis because all these products provide is a consistent, well understood product that provides the illusion of gracious living and a pleasant high.
For a typical $20 wine, the distributor and retailer pocket about $6 and $7 respectively, leaving $7 for the winery, out of which it must pay cost of goods plus marketing expenses, leaving about 50₵. By contrast, DtC channels allow the winery to keep at least $10.
Whether you choose to sell your Nectar-of-the-Gods at your physical location, online Direct to Consumer (DtC), directly to retailers, through distributors in or out of State, or to State or Canadian Province alcohol control boards, your company will need to complete and submit all required licenses to the correct authorities. Visit our legal compliance tab for a crash course in different types of licenses both federal and state requires.
Be aware that licensing for DtC sales are a completely separate world from licensing for sales to State distributors across State lines. That means that to be fully licensed in all 50 States and DC, you need to purchase, maintain, and comply with monthly reporting requirements for 100 licenses completely lacking in standardization. This means that a small winery should pick their hot spots to concentrate on.
We live in troubled regulatory times where considerable trade barriers have been erected by many State legislatures to make it expensive or even illegal to sell DtC or B2B across many State lines. In 2019, the U.S. Supreme Court clarified its 2005 Granholm v Heald decision to make more obvious the unconstitutionality of these State trade carriers, particularly regarding the right of retailers to conduct interstate commerce. As a result, new channels may be opening up as these legal battles are fought State by State.
At WineSmith, we have developed simple, affordable approaches to address the various channels. We also closely monitor developments in emerging market opportunities and pass these along to our clients.
Here are ways to sell your sweet nectar and make a buck or two:
- Direct-to-Consumer Sales Channels
- Wholesale B2B Distribution
Direct-to-Consumer Sales Channels
Tasting Rooms have many benefits. They offer unforgettable personal experiences that visitors can share with friends and family, generating more customers and sales. They allow you, as the owner, to use your imagination and add your personal touch to your brand. This is a huge advantage small wineries have which national brands cannot provide.
Tasting Rooms offer you and your customers the following:
- Tasting wine before deciding on purchases
- Building personal connections with staff, winemaker, owners
- Offering special events or live music helps to emotionally link the customer experience with your products
- Wine Club pick ups reinforce customer connection and provide up-selling opportunities
- Offering VIP treatment for prior reservations encourages group outings
- Refundable wine tasting fees encourage purchase and discourage freeloading
Due to the high labor cost and unpredictability of foot traffic, Tasting Rooms, like restaurants, are not always profitable on their own. An important function of Tasting Rooms is to sign up customers into wine clubs and other mailing lists so they can be signed into automatic programs or contacted about new releases and special offers. Wineries generally offer a variety of programs for which customers can sign up to receive shipments automatically at a discount. These might include price tiers or white-only / red-only categories. Credit cards are kept on file by the winery.
Administrating a wine club involves six steps: (Email notification, customer consent, credit card processing, customer contact for declined purchases, fulfillment and delivery verification). Wine club packages may be linked to virtual tastings by the winemaker, scheduled a few weeks after the order is sent out.
Once a program is successful, it is advisable to implement software to automate this process before your labor eats you alive.
Direct-to-Consumer Shipping (DTC)
There are currently 45 states permitting direct-to-consumer shipping.
Sales outside of your home state will be beneficial to your business; however, keep in mind that each state has separate rules and regulations for inbound and outbound traffic, tax records, license applications and fees. Here is what is needed to sell wine on-line
- A winery license from your state
- Retailer’s license from your state
- Shipper’s license for each state on which you plan on shipping to
- Alcohol Dealer Registration- with TTB
- Direct shipping agreements with all your carriers
Shopping online has become an alternative to tasting rooms for busy customers who can shop at their convenience, especially those sheltering in place. Thus, allowing for information to be readily available 24/7 at the touch of a button. Let’s use this to sell some wine.
Online sales to several States require special DtC licenses (separate from three-tier licenses). Sales taxes must be calculated at the time of sale and paid through monthly reporting. Software systems such as ShipCompliant.com handles these tasks but charge a fixed monthly fee that may not justified below a certain sales threshold. Vinoshipper.com has a variable cost model, charges no fixed fee, and shares its DtC licenses for 44 States.
Webstores & Shopping Carts
Today it is essential to create a website for your winery. Its elements include:
- A simple, clean portal page with images and a mission statement with clear links to the winery location, directions and contact info.
- A history page in which you tell your story and share your vision in a way your customers can relate to and share with their friends. Wine customers are often prosperous professionals in challenging but lucrative jobs motivated to connect vicariously with winemaking families they are drawn to. Photos and videos are much more effective than long pieces of text to pull them in. Sell them on yourselves before selling them on your wines.
- Wine pages in a well-organized, easy-to-navigate set of menus which may contain short descriptions, awards, access to tech sheets, videos and vineyard pages and linking to your webstore.
- Other pages may include Vineyards, Events Calendar, Media and Trade Only.
Examples of excellent small winery sites we have worked with include:
Online shopping carts for wineries are too many to count, here are a few to get you started.
- Shopify– an online E-Commerce platform for online sales. The winery will need to hold all licenses to states they ship to. Here’s advice on how to use Shopify legally.
- Xudle-all-in-one solution. Providing a single view of a customer’s sales from the tasting room, shopping cart, events and clubs.
- VinoShipper’ online shopping cart offers a solution for wineries looking to reduce compliance costs, become compliant, and/or expand sales outside of their own state. Vinoshipper carries numerous state permits, emails volume and quantity checks when inventory is low and is easily linked to your website. More important, VinoShipper pays all your sales taxes and keeps track of your DTC sales and inventory cheaply and efficiently. The only thing they don’t do is ship vino. Go figure.
A large and growing number of online flash sales will feature a single wine for one day (structures vary, but this is the gist). If the fit is right for the site, a winery can move pallet quantities overnight. Here’s a partial list of flash sites, each with their own unique character.
- In response to COVID-19, this type of sale has become much more prominent. As consumers become more comfortable with the reliability of online shipping, these gains will persist after the pandemic.
- Flash sites always involve a substantial discount off the Suggested Retail Price (SRP). Wineries may need to choose to inflate their SRPs so they can be discounted. These discounts can also be passed along to DtC consumers as an incentive to purchase. We recommend initial pricing be 3 to 4 times cost of goods so substantial discounting will still bring in at least double the COGS.
- Very few flash sites allow the winery to participate in the sales process through a comments section. An exception is Casemates.com, which is a great place to sell if you have a catchy story. They will also send out samples to “lab rats” who will chime in with third-party comments. WineSmith has successfully built a cult following there.
- Absent a comments section, the wine needs to sell itself. Standard varieties, well-known appellations, famous brands and 90+ scores from respected critics work best in this environment. I have never seen a non-vinifera wine on a flash site.
One-Day Flash Sales
Wholesale Sales Direct to Retail
Most States allow wineries within the State to sell directly to shops and restaurants without a distributor. Investigate whether your State is among them and he state you are selling to for rules and regulations. This can be a lucrative business and can drive consumer interest and walk-in traffic, especially if your wines are featured in restaurants near the winery.
Distributors are an agent who supplies goods to stores and other businesses that sell to consumers.
Distribution companies are valuable for states regulating the sale of alcohol directly from the winery to retailers and restaurants. Distributors purchases cases of wine from the winery and takes ownership of the wines to sell to retailers and restaurants whom in turn sells the product to consumers.
Passthrough Online Distributors
A new type of distributor has emerged in recent years to enable small wineries to market to restaurants and retailers more effectively and economically. Unlike traditional distributors, these distributors do not purchase, warehouse or promote your wines. They do the invoicing, collect payments, take 15% and pass the balance through to the producer. The winery must make the sales and arrange delivery to the business.
Since traditional distributors also can’t reasonably be expected to promote small brands, the sales piece is always on the small winery.
The key aspect of pass-through distributors is that they do not vet wines or wineries. You post prices, images, promotional materials and COLAs for your wines on the site at no charge, acquire licenses for the States you want to sell in, and devise a strategy to make sales happen in those markets. Some States also require wholesale price postings prior to selling
Two emerging merchant passthrough systems are Merchant23.com, which is a network on distributors that serves all 50 States and LibDib.com, which is in a handful of States and expanding rapidly. This is an idea whose time has come, and there is room for many more players. We will monitor this growing market segment closely.