The way wine is sold is subtly changing. Until recent history, wine was sold through an arcane system known as the Three-Tier Distribution that emerged when prohibition ended. The winery, brewer, or distiller have no choice in how to get their product to market. However, this is gradually changing as states approve of wine being shipped directly from the winery to the consumer.
The 2016 Direct-to-Consumer (DtC) Wine Sales Report has some interesting information. It confirms that wineries are focusing their strategies more on marketing their wines directly to the consumer. In fact, this distribution method is not just for the smallest wineries; the large wineries are now focusing more attention on this point of sale. More than 5 million equivalent cases of wine were shipped directly to the consumer and they were not limited to less expensive wines either. Sonoma wineries had the highest growth rate in 2016 of nearly 30%.
Wines and Vines has a 2016 database of 9,069 American wineries that they have divided into 5 categories based on the number of cases produced annually. The largest combined categories are called limited and very small producers, each producing up to 4,999 cases per year. These two categories represent 79% of all wineries that ship directly to consumers, approximately 3,600 wineries in each category. If small wineries (a total of 1,570) are added to the two categories above, they represent 96.4% of wineries in the US market presence.
The five million cases of wine shipped DtC in 2016 represented an increase of 17% over 2015. This consisted of shipments of one or more bottles. “The value of 2016 shipments increased 18.5 percent from 2015, exceeding $ 2 billion for the first time and culminating at $ 2.33 billion,” reported Sovos ShipCompliant / Wines and Vines. The average price of a bottle of wine sent to the consumer in this format was $ 38.00; far from the $ 15.00 per bottle of wine that constitutes the largest number of bottles shipped. Jon Moramarco, managing partner of BW 166 LLC reports that the average bottle of wine sold “off-site” was $ 9.29.
This indicates that consumers are not ashamed to buy expensive wine online or over the phone and receive the wine via FedEx, UPS, or a contracted shipper. With the number of wineries growing by approximately 5% per year, most are in the category of small and limited producers, so it seems that they are the most receptive group to reach customers directly. Given that DtC shipping represents 8.7% of national wine sales, there is plenty of room for growth.
Very large wineries, in 2016, accounted for 13% of all DtC shipments, an increase of 183% compared to 2015. However, it appears that they did so by reducing the price of their shipped wines. The average price of wine shipped by the 64 largest wineries (producing> 500,000 cases) fell to $ 16.00 per bottle. Obviously, there is a certain elasticity in the wine business. However, there are some exceptions, some Napa and Sonoma wineries raised prices and still saw an increase in shipping and therefore values.
The varieties that have experienced the greatest increase in the volume of shipments since 2011 are: Rosé (+ 259%), Otro Blanco and Otro Tinto (+ 174% and 172% respectively) and Pinot Gris (+ 101%). Cabernet Sauvignon and Red Blend wines continue to be the best in annual increases in DtC sales. Red Blends are surprising because they are relatively new for people to try.
In all the good news for direct shipments to almost every state (expect Utah, Kentucky, Alabama, and Mississippi), every region / state that produces wine saw increases. It is worth noting that Sonoma County’s surge in 2016 – “to the tune of $ 100 million in 2015 – was so impressive that, despite the region accounting for only 18 percent of the total dollar value of shipments from DtC, Sonoma County accounted for 27% of the $ 363.6 million added to the DtC shipping channel during the year, ”according to Wines and Vines.
Direct to the consumer, as a distribution channel is increasingly important for the success of a winery. Yes, technology is an important tool for selling directly, but the ramifications of cost reduction cannot be overstated. This channel allows wineries to respond in real time to changes in the markets, the need to promote products; even promoting products geographically. Shipping costs may be less than the discounts required for distributors.
Used correctly, DtC marketing can increase profitable sales, reduce marketing costs, and create brand loyalty from wineries that know their customers more deeply.