Thanks to a Supreme Court ruling, wineries are now able to forego the middle man and sell online directly to customers nationwide -- a big boost for smaller vineyards without the marketing budgets and distribution networks of major labels.
Wine, so plentiful in its range of flavors, has developed an exclusivity tied to diverse locales. It is hardly your average consumer product. From casual sippers to serious investors, wine aficionados are loyal to their favorite vintage and will often travel across the nation and around the world to get it.
But that quest hasn't always been easy. Until recently, many wineries were barred from shipping their products to out-of-state customers directly, and clients that bought directly at wineries faced airline restrictions on wine as a carry-on item. Thus, the answer for many wineries had been to go through distributors.
That was until 2005, when a Supreme Court decision opened many states to direct wine sales. The decision made it illegal for states to discriminate against consumer-direct wine shipments from out-of-state wineries. During the past three years, most legislatures have written their own additions into the non-discrimination policy and small vineyards are now counting on consumer-direct sales and Internet marketing to bring in a bulk of their revenue. According to the 2007 VinQuest survey, published by wine marketing advisors VinterActive, U.S. consumer direct wine shipments reached $1 billion in 2006.
The ability of wineries to sell direct has effectively cut their dependence on distributors. They are now free to tap their loyal customer base across the country -- a big boost for smaller wineries without the marketing budgets and distribution networks of the bigger houses.
Michaela Rodeno, CEO of St. Supery Vineyards in Napa Valley, says that although her California winery had offered a direct sales option for many years, the last three years have witnessed a rapid growth in its wine club membership. "It has taken off like a rocket," she says. At 7,000 members, the wine club is currently St. Supery's largest direct-to-consumer sales channel, followed by sales to visitors at the winery's tasting room.
Before the Supreme Court decision, Rodeno says that she frequently received disappointed responses from out-of state visitors who were interested in having wine shipped directly to their homes. At the time, St. Supery was only able to ship to customers in 14 states, called reciprocal states, which were allowed to conduct consumer-direct business with one another.
"We were the ones who had to deliver the bad news to visitors who lived in a non-reciprocal state and wanted to ship wine home," Rodeno says. "And we said, 'Sorry, we can't do that,' and they'd get mad at us."
About 17 percent of the 100,000 cases the company produced last year went directly to customers, Rodeno says. Meanwhile, of the winery's 18 available varieties, nine are made exclusively for consumer-direct sales.
In smaller wineries, such as Napa Valley-based Baldacci Family Vineyards, a vast majority of wines are sold directly to customers in and out of state. The vineyard produces only about 2,300 cases a year, and over the past three years has seen her direct-to-consumer sales go from less than 40 percent to 80 percent.
"For someone my size, direct is the only way of staying alive. Because no one is really interested in distributing you and you certainly aren't going to get shelf space," says Debi Cali, general manager of the vineyard. "If direct shipping didn't exist, who would know our brand?"
In order to ship to another state, a winery is required by law to register for a direct shipping license, charge a local sales tax, and pay an excise tax. The process and fees vary from state to state, making the red tape "a nightmare," Cali says. Many wineries go to ShipCompliant.com, a website that provides compliance-management software, or they hire a consulting business to monitor their paperwork.
Since the ruling, 35 states are now able to receive out-of-state direct shipments. Some states, like Massachusetts, restrict shipments to small wineries, and are not included in the list. "The effect is that you can again prohibit shipments from a certain group of wineries," says Jeremy Benson, CEO of the Benson Marketing Group for the wine industry and executive director of Free the Grapes, an organization advocating for direct sales.
"At least anecdotally, it's clear to wineries that in states where they are allowed to direct ship, their sales through the three-tier system are much stronger than in states to which they aren't allowed to ship," Benson says. "There's a built-in incentive that if customers like the wine, they can then go buy it from your favorite wine store."
Once a winery sorts through state-specific requirements, regulations, and taxes, online sales offer an opportunity for an imaginative customer experience. With a sagging economy, the added sales option has been a lifesaver.
Some wineries, like St. Supery, are already seeing high gas prices translate to a drop in visitor traffic, and growers might soon see a growing need to spruce up their Web offerings. A carefully constructed site, complete with multimedia features, can bring to mind the natural character of the region and the feel of the tasting room itself.
"I think the e-commerce thing is on its merry little way," says Bryan St. Amant, founder of VinterActive. "If wineries see a reduction in visitors, maybe they want to bring the winery to the customer a little more. And without getting in the car, streaming video is as close as you can get to bringing the winery experience to a customer through the Internet."
"This industry is one of those slow adopters," St. Amant adds. "We are farmers for the most part, and most of them are trying to figure out what's practical and how this Web 2.0 thing is going to shake things up."