The intricacies of the three-tier system for alcohol distribution in the U.S. are complicated enough to give one a headache worse than the worst of hangovers.
From complex shipping laws, to restrictions on retail promotions and convoluted licensing, it is no surprise that domestic wineries are looking for more ways to sell direct to consumer, or as industry-pros deem this sales route, DTC.
In fact, recent increases in domestic wine consumption can be largely contributed to an increase in DTC, which account for nearly $2 billion of wine sales (Forbes 2015). Wine club memberships account for nearly half of all DTC shipments, and the model has been particularly strong in California among smaller wineries, with production between 5,000-50,000 cases (Wine Searcher 2016).
Along with increases in DTC sales is an expansion of the DTC shipping industry, which has increased in value by 66% since 2010. Wine shipment volume neared 4.29 million cases, an 8.5% increase over 2014, and sales exceeded 1.97 million, an 8.1% increase. Fulfillment and shipping companies such as Wine Direct are scaling up capacity in order to handle increased demand.
Some brands have even decided to skip the traditional distribution chain altogether, and concentrate all sales efforts on DTC. One primary example is Viansa Sonoma. By selling directly to the consumer, wineries like Viansa do not have to meet production needs that support large wholesale and export portfolios, ensuring a focus on quality wines made without compromise. In the late 1980’s/early 1990’s, Viansa was one of the fore-runners in the DTC business model with over 19k wine club members. Vintage Wine Estates (VWE) purchased the Sonoma property in 2014 and has since enhanced the Viansa wine club program, keeping the DTC model in full force, and expanding marketing and communications efforts to increase sales.
In addition to wine clubs, wine tourism is another valuable source for DTC sales. California is the leader in wine and food tourism, much of which is centered in the Napa Valley. In fact, the total of DTC sales surpassed the $1 billion mark in sales from Napa wineries for the second consecutive year according to January 2017 reports from the Napa Valley Register. Classic Napa flagships like Charles Krug, the county’s oldest tasting room, are focusing more on the DTC customer experience by increasing offerings in the tasting room. New experiences include an on-site Salumeria with by the glass pours and cheese and salumi plates, a weekend pizza oven and more.
Wineries like Viansa and Charles Krug are using DTC as way to control their customers experience with the wines, and keep the brands more personal. With more scandal and red flags surrounding the traditional three-tier system, it is no surprise that brands are looking for alternate routes to sell to consumers. It will be interesting to see how traditional distributors respond to this increasing trend. Will they adapt their models to provide easier routes to market for suppliers? Conferences like Impact Napa are tackling these questions and providing a valuable forum for industry leaders, including Vintage Wine Estates’ president and co-founder Pat Roney and C. Mondavi & Family CEO and president Judd Wallenbrock, to discuss the changes the lie ahead for the ever-evolving alcohol beverage industry in the U.S. Although it may not be clear to what extent DTC will permeate the industry, it is certain that those three letters will change the way wine and spirits are sold and consumed. To end with another three letter acronym, TBC…
