Third-party direct wine shippers
are helping wineries increase sales --
a trend that only promises to grow
FILE: SCAN OF THE ARTICLE AS PUBLISHED
- (Click here if you need a PDF
- by Patricia Dines
- October 2009, Special Wine Issue
NorthBay biz magazine
NorthBay biz reports on why a growing number of
wineries are using direct wine shippers to increase
sales -- a trend that only promises to
(c) Copyright Patricia Dines, 2009.
All rights reserved.
- Note: In addition to its regular distribution, this issue
is also the official publication for the Sonoma County Harvest
- The sudden closing of New Vine, Napa's pioneering direct wine
shipping operation, was big news last May in the wine industry and
beyond -- generating uncertainty, rumors and ripples of concern.
The intrigue only increased when Napa's Inertia Beverage Group
(IBG) offered a financial lifeline, then eventually purchased New
Vine's assets. Beyond the drama, these events offered a peek
behind the scenes at the innovative businesses providing
nuts-and-bolts logistics for the growing direct wine sales
- "We're not the glamorous part of the wine industry," explains
Truman Reynolds, general manager of Windsor's Pack n' Ship Direct.
"It's not the vineyard and the nice winery that everybody comes
out and says, 'Gee, I wish I lived here.' We're the logistics part
of it. We store it, are custodians of it, move it through the
retail and wholesale channels. It's not a high-margin business,
but it's something wineries need."
- "The people who made money in the gold rush are the ones who
sold the pans and shovels," advises Barbara Insel, industry
analyst and president/CEO of Napa's Stonebridge Research Group.
"In most industries, it's the people who provide the innards of it
who really have the stable businesses. And you really can't
modernize an industry until you have those innards. But you need a
certain amount of scale to make it happen, and that's hard to do
in an industry of small-scale players."
- The wine distribution
- Until the mid-1980s, direct shipping of wine in the United
States was severely limited because of restrictions dating back to
Prohibition. As a result, nearly all wine was sold through a
three-tier system, traveling from wholesalers to retailers to
consumers. Even today, Insel estimates, about 90 percent of
domestic wine goes through this system.
- According to Tom Wark, IBG spokesman and principal of Wark
Communications, "The traditional three-tier system is
[like] an hourglass, with wineries at the top, feeding
hundreds of thousands of products through a very narrow channel
controlled by wine distributors." At the bottom are hundreds of
thousands of retailers, restaurants and consumers seeking
products. However, because of the large number of different wine
products (or SKUs), plus wine's slow turnover rate (and, thus,
inventory cost), wholesalers only carry a small percentage of the
available wine labels.
- "That's why, no matter what grocery store you go into in the
United States, you normally see roughly the same 200 wines. It's
really hard to get into the wholesale chain," observes Josh
Langford, New Vine's former vice president of sales and marketing.
"There are about 250,000 SKUs available worldwide," he adds, but
"about 80 percent of the revenue is made up from the top 250
SKUs." Last fall's economic downturn further reduced the number of
labels in the channel.
- Selling direct
- This situation has increased wineries' interest in selling
directly to consumers through tasting rooms, wine clubs, the
Internet, mail order and phone sales. IBG President/CEO Ted Jansen
calls direct sales "the most profitable path for wineries to gain
market access, increase sales, protect their brands and create
margin opportunities." He describes an IBG customer whose direct
sales generated about 20 percent of its transactions -- but more
than 50 percent of its revenue, because of the higher
- While Jansen and his staff often hear about customers'
"struggles trying to sell their wine in a system that simply isn't
looking to take on any more brands," he emphasizes, "we don't see
[direct sales] as a substitute for three-tier, but a
complement to it."
- One factor increasing the opportunities for direct sales has
been the wine industry's success in loosening state shipping
restrictions. Twenty years ago, only four states allowed shipments
from out-of-state wineries directly to consumers, according to
Napa's Free the Grapes coalition (http://freethegrapes.org).
Now, 45 states allow such shipments from wineries through various
methods, although only 12 let retailers do the same. While the
situation has improved, a complex patchwork quilt of laws remains.
"The wine industry is very complex, especially for as simple as it
ought to be," sighs New Vine's Langford.
- Stepping in to help wineries navigate these laws are
third-party logistics companies, which have created technology and
services for direct shipping to both consumers and "the trade"
(retailers and restaurants).
- It was this vision of helping wineries sell directly to
consumers by overcoming complex state regulations that led to the
2001 founding of New Vine Logistics (renamed New Vine in February
2008). Katie Hoertkorn, New Vine's founder and former
president/CEO, explains, "The whole objective was to let wineries
concentrate on sales and marketing, versus the back-end
- "It doesn't make sense for most wineries to do their own
fulfillment," counsels Insel. "It's just not an efficient use of
time and resources. Logistics is an economy of scale business,
[which gets cheaper with greater volume] because there are
so many fixed costs."
- Direct wine sales got a notable boost when the landmark 2005
Supreme Court Granholm decision opened up new markets for
interstate shipping. From 2005 to 2006, according to Insel, sales
grew 28 percent, followed by a 31 percent increase in 2007 as new
markets opened up. Growth fell back to 7 percent in 2008, largely
because of the economy's downturn in the last quarter. Insel
estimates domestic direct wine sales were $3.2 billion in 2008,
about one-tenth of the estimated $30 billion in total domestic
- New Vine's journey
- Hoertkorn's innovation in the wine industry was inspired by
her work for international shipping company DHL from 1984 to 1999,
including running DHL's global logistics group. DHL developed
methods and technical tools for overcoming international shipping
barriers, thus significantly expanding the types of items that
could be shipped while trimming costs and transit time. Hoertkorn
saw an opportunity to similarly serve the wine industry.
- In 1999, she went to work for Wineshopper.com, leading the
team that built its logistics back end, including a groundbreaking
system for moving individual wine orders directly to consumers
through the three-tier network, "in an automated, auditable and
economical transaction." After that company merged with the (old)
Wine.com, which then went bankrupt, Hoertkorn acquired the
fulfillment center and the back-end software as the foundation for
New Vine Logistics.
- New Vine then expanded and refined these systems, building an
extensive, industry-leading three-tier network with a complete
audit trail; creating a massive, 150,000-square-foot, fully
automated, paperless fulfillment center; and pioneering other
solutions, such as temperature-controlled packaging. IBG's Wark
praises New Vine's "cutting-edge logistics, shipping and
compliance capabilities," and calls its warehouse "a stunning
piece of engineering."
- At its peak last year, New Vine's 120 employees served 200
customers, primarily wineries, including names such as Beringer
and Chateau St. Jean. They stored 1.6 million wine bottles in
inventory, moved about $200 million in wine annually, shipped to
customers in 44 states and, according to a June 1, 2009 article in
the Press Democrat, earned $30 million in revenues in 2008.
Hoertkorn calls both Wineshopper and New Vine "absolutely
revolutionary," because they "allowed the 21st Amendment
[which repealed Prohibition] to function in the Internet
- Trouble brews
- This past June, New Vine's next level of achievement was
finally about to occur. E-commerce giant Amazon.com had contracted
with the company to do the back-end logistics for its upcoming
wine website, and, after months of preparation and investments in
production expansion, the website was quietly in the final testing
phase, with test orders being run and the site ready to
- Then came the bad news: At the last minute, New Vine's
expected (and much-needed) financing had fallen through, which
then froze New Vine's bank accounts. The company couldn't meet
payroll, explains Hoertkorn, so by law it had to send its
employees home. A sign on the company's door read, "We regret to
inform you that New Vine is in a state of financial crisis and has
been forced to cease operations." Through its voicemail and emails
to clients, New Vine indicated it was "no longer receiving or
shipping orders from our facility."
- With such little notice, and the annual Napa Wine Auction
starting the following week, mayhem ensued. Wineries worried about
their inventory and pending orders; employees were anxious about
getting paid; unknown numbers of customers jumped ship; and
everyone wondered what had just happened to this industry leader
on the brink of success.
- "It literally happened in a 24-hour period," remembers
Langford. "It's hard when you get told at 4 p.m. on Friday to
release your employees, and then at 5 p.m., your customers start
calling and asking, 'Hey, how come your website's down? How am I
going to get my wine out?' We literally had people beating on our
front door, showing up with trucks, and lots of voicemails and
- Opinions abound regarding the cause of the company's collapse,
but Hoertkorn attributes it to a combination of factors, including
the freeze in credit markets; the company's high expenditures
ramping up for Amazon; and scrutiny from "a new regime" at the
California ABC (Alcoholic Beverage Control), which delayed
third-party compliance programs.
- "We had a thriving, growing business," says Hoertkorn. "Last
summer, when we started to go out for funding, we had a great
reception," because the company had doubled its sales and revenue
three years in a row and had just secured the Amazon contract.
Once the financial crisis hit, though, "it was impossible to raise
money," says Hoertkorn. "We just didn't have the reserves to
weather the storm."
- She muses, "It's sad
I put eight years of my life into
this, with a dedicated team, so many hours. And we came very
it's just what happens in business. If you don't have
capital to grow your business, you run into a brick wall. You just
have to go forward and make the best of everything."
- Inertia steps in
- With New Vine in limbo and facing possible shutdown, many
welcomed the news a week later that IBG would provide funds to
resume operations while exploring what to do next. IBG eventually
bought New Vine's assets at auction on July 27 in a process that
included its own share of controversy.
- But why did IBG buy New Vine? Founded in 2002, IBG offers web
tools that enable its approximately 300 clients to manage online
sales direct to the consumer and the trade. In 2008, it released
its integrated Rethink Compliance tool, which allowed compliance
checks and reporting. Prior to its purchase of New Vine, IBG let
other logistics and shipping companies integrate into its
e-commerce software, the Rethink Engine.
- "We were already on a path to build infrastructure as part of
our business model," says IBG's Jansen. "But that takes time.
Acquiring New Vine simply lets us do it quicker."
- Jansen sees the purchase of New Vine as "the start of an
exciting new phase in our company's evolution. We're now the only
company in the industry that has all the necessary components for
a winery to sell direct under one roof." This includes e-commerce
technologies for consumer purchases, fulfillment and logistics to
get the wine to the consumer, and compliance to make sure wineries
are following each state's differing regulations. Already, he
says, IBG's winery clients are seeing value in the new
- When asked about the future of the lucrative Amazon contract,
Jansen indicates they've had "productive" conversations but don't
have an agreement yet. "The first priority is integrating
operations and managing the business so that New Vine clients see
no interruption in service," he says.
- Hoertkorn concludes that, while she's disappointed by New
Vine's downfall, she's glad IBG could step in, both to "take care
of the customers" and to carry forward the facility and systems
they'd created. She adds, "I passionately believe in the solutions
New Vine developed
[and] I'm glad that there was some
outcome other than nothing."
- The future
- This major shakeup at New Vine also impacts the fulfillment
field's other key leader, Napa-based Wine Tasting Network (WTN),
which serves more than 100 wineries. Last year, WTN caught up with
New Vine's share of the logistics market, according to Insel, with
each capturing about 15 percent of sales.
- Chris Edwards, VP/GM of WTN Services, estimates the consumer
direct fulfillment and compliance market currently grosses about
$500 million annually. He sees the arena as "pretty fragmented
right now," with a few bigger companies, many small players and a
lot of shipping being done by wineries in-house.
- But he also notices wineries migrating to third-party
fulfillers, as evidenced by the increasing number of providers
over the past 10 years, from about three to probably 20 now in
Northern California. He believes "the [fulfillers] that
can afford to implement the technology and take a long-term view
will likely win the market space."
- IBG's Wark sees growth potential in direct consumer wine sales
as well. "I wouldn't want to predict the economy, but I think
that, a decade from now, we'll be seeing double the amount of
direct consumer sales that we see now, because consumers are
becoming accustomed to doing their own research and going online
to buy things. And I think we'll see many more states open their
borders for retailer-to-consumer [interstate] shipping."
Driving these changes, he predicts, will be consumers upset that
they can't order the wine they want, and states looking for
additional revenue sources.
- Insel also sees room for growth in direct sales, both from
states opening up and consumers seeking more variety in their wine
options. She says established retailers with online stores
currently dominate wine e-commerce, because they offer both
trusted guidance and the brand variety that consumers value.
Significant growth in wine e-commerce from other sources will
depend on a major, well-known online retailer, such as Amazon,
entering the market. Still, she advises, "distributors will always
play a major role. The three-tier system is not
- Much is yet to be determined about how the emerging wine
logistics industry will evolve, including how the players will
organize themselves to meet customer needs. "We're going to be
moving into the holiday season pretty soon," notes Reynolds,
"which is the largest volume time of the year" and will likely
test the new configurations. Beyond that, only the future knows
Glossary of Key Direct Wine Shipping
Storing a winery's cases in secure, temperature-controlled
conditions, with tools to manage inventory and related services.
Reynolds indicates that, "generally, the [winery's]
property is too valuable to build a big warehouse there to store
Navigating the patchwork of state regulations to ensure a
winery is operating legally in each state. According to Jansen,
"that can involve everything from up-front permitting and label
registration, to making sure the licensee can actually order wine
legally" and verifying a consumer's age or status with volume
limits. "Then, on the back end, it provides all the mechanisms to
file reports and taxes in the state."
- Fulfillment and shipping
Receiving the customer's order, doing a "pick and pack" of the
bottles from the winery's inventory in the warehouse and shipping
it to the customer -- hopefully all at an attractive cost and in a
reasonable time, while protecting the wine in transit.
Patricia Dines is a writer and public speaker. Her specialty is
inspiring and empowering constructive action on environmental
issues. For more information, see <www.patriciadines.info>.
This article (without graphics) is also on the publication's website
The main Wine Issue is at
IBG Buys WTN Services Division of
1-800-flowers.com, Creates WineDirect, September 6, 2011, Posted
by Lewis Perdue
New Company Provides One-Stop Solution for
Direct-to-Consumer Wine Fulfillment, Ecommerce and
(Napa, California) -- Inertia Beverage
Group (IBG) and 1-800-flowers.com, Inc. today announced a strategic
alliance designed to enhance both company's position in the wine
business. As part of the agreement, IBG has purchased the WTN
Services division of 1-800-flowers.com, which provides marketing and
fulfillment services to wineries.
The newly formed company, WineDirect, will
combine the fulfillment and e-commerce technologies of IBG with the
consumer outreach capabilities and customer service expertise of WTN
Services. Under the agreement, WineDirect will now manage all facets
of the direct-to-consumer (DTC) fulfillment and telesales, and it
will have access to WTN Services affiliates such as major
direct-to-consumer retailers, 1-800-flowers.com and Fannie May
Company Overview of WineDirect, Inc.
WineDirect, Inc. provides direct sales
technology and fulfillment services for the wine industry. It offers
fulfillment solutions, such as shipping, inventory management,
facilities, processing, 3-tier network, special handling, green
practices, and export services. The company also provides an
ecommerce platform that offers shopping cart, content management
system, CRM and marketing, integrations, wine club, allocations,
performance, and direct-to-trade solutions; sales and marketing
tools; and compliance services, including upfront services and
monitoring tools, in-transaction compliance, and post-transaction
compliance. WineDirect serves wineries, retailers, and
WineDirect & Amazon Team Up For Wine Marketplace
Compliance, October 1, 2012, Posted by Lewis Perdue
An enhanced compliance and shipping system
through WineDirect is in the works for vintners participating in
Amazon's Wine Marketplace program revealed last week.
"We are working closely with Amazon to
connect then to our winery partners enabling them to take full
advantage of this opportunity," said Waechter. "We will also assist
Amazon to help them expand the offering and reach."
EXPANDED COMPLIANCE AND SHIPPING
While all the program details were not
available, sources tell WII that it the WineDirect program will allow
enhanced compliance and the ability to ship beyond the original 12
states anticipated for the program's launch.// The same sources say
that Amazon will provide vintners with access to these enhanced
compliance and shipping services at a discounted price much like the
discounts on shipping and credit card charges offered to early
TED JANSEN HAS MOVED ON
From his Facebook page
He was President President and CEO at IBG
from May 2008 to Mar 2010.
Received a Graduate Certificate in
Sustainable Business from Bainbridge Graduate Institute (Seattle,
Washington), Class of 2011.
Chief Commercial Officer at Travix
International, Amsterdam, Netherlands Feb 2012 to present
Travix Appoints Ted Jansen as Executive Vice President for
MOUNTAIN VIEW, Calif., April 5, 2012
/PRNewswire/ -- Travix International B.V., one of the leading global
online travel agencies, announced that Ted Jansen , has joined Travix
as the new Executive Vice President for the Americas. Travix is
committed to growing its global presence and Jansen will lead this
effort in the Americas for U.S. (Vayama.com and BudgetAir.com),
Canada (BudgetAir.ca) and new markets in Latin America.
Ted Jansen is a seasoned e-commerce and
travel industry leader. Prior to joining Travix, Jansen spent six
years at The Walt Disney Company as VP of product management and
marketing for the Disney Parks Online group and three years at
Expedia, Inc. as Sr. VP of product and retail. Jansen also led
venture backed wine ecommerce services company IBG, Inc. (nka
WineDirect) as President and CEO. In his new role, Jansen will lead
the Americas brands and scale the business to introduce new product
lines, brands and points of sale, such as Brazil later this
"Travix International is dedicated to
providing travelers around the globe with the sharpest local deals
and the widest choice of travel options by building a solid
reputation in the online travel industry," said Raymond Vrijenhoek ,
Managing Director at Travix. "We are thrilled to have Ted join the
team to further enhance our global presence as the best international
online travel provider."
"Travix brands, Vayama and BudgetAir, are
quickly becoming strong players in the North American online travel
industry, delivering incredible travel deals with a unique focus on
international travel," said Jansen. "I look forward to building on
that success by growing the brands in the Americas to ensure that our
customers find great values and a superior customer
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