We have to understand the meaning of DTC in the USA. Since the repeal of prohibition in 1933, numerous systems came into being for getting wine into the hands of consumers. Overall, with many permutations, we saw the emergence of a largely mandatory 3-tier system for wine distribution. An importer sells to a wholesaler who sells to a retailer or on premise customer such as a restaurant, and finally to the consumer. This is of necessity a relatively expensive way to distribute wine. For example, let us say that an importer pays $5 for a bottle of wine in France. In the pure 3-tier system, a consumer would pay about $15 at retail and about $30 in a restaurant. And this is using reasonable markups in each tier! So what do we mean when we talk about DTC? Are we really saying that a French winery can sell directly to a USA consumer? The answer is “no.” The only true DTC wine sales in the USA are from USA wineries direct to their customers. There must still be, except for Washington DC, an importer, wholesaler and retailer (or on premise) buyer. In most states, such as California, it is legal for the importer also to be the wholesaler, potentially cutting out one tier and the associated markups. In states where the state is the wholesaler such as Wyoming, Utah and Pennsylvania, one cannot avoid the 3-tier system. Some years ago, the law was changed in California to allow the existence of a single entity that can be the importer, wholesaler and online retailer, no bricks and mortar stores permitted. Technically then, DTC can eliminate, or compress, two of the three markups with large potential ramifications for wine availability and price.
It is not surprising then that the growth of this type of DTC wine sales continues. In the past what looked like DTC in the form of telephone sales, was not. The same 3-tier system was in play. The difference was that the retailer was no longer passive where one waited for a consumer to enter a liquor store, but an active process of calling and engaging directly with the consumer. This had some success but did not have a downward effect on prices.
So DTC today offers many benefits:
- You buy wine without leaving your home
- In rural communities or communities without specialty wine shops, you have convenient access to a diversity of quality wines
- You receive detailed information either on a website or via email
- If you follow the sellers for some time, you get to know their preferences, get a feel for their integrity, knowledge and passion, all of which amounts to good advice
- You can interact with the people who select the wines
- You will often find a greater range of interesting wines and niche wines that are not sold at your local retailer or supermarket. Many of these wines are too much of a “hand-sell” and retailers don’t want to sell every wine by hand. Unfortunately, the offerings at many retailers have been dumbed down for a raft of reasons that may be the topic of another article
- Very importantly, prices may be lower due to the compression of the distribution chain as discussed above. There is also the very important phenomenon of flash sales!
What are flash sales? Typically, if a winery or an importer / wholesaler, finds themselves with excess inventory for reasons such as, slow sales, the arrival of a new vintage, they may wish it to disappear. If these excess products are well known names, dropping the price drastically in the regular markets to boost sales is problematic. It has potentially negative connotations on the value of the brand or it will disadvantage reseller customers who paid full price and now are forced to sell at uneconomic prices. So, the winery or importer / wholesaler will offer the wines to a successful flash seller at low prices. The seller puts out an email to his or her customers offering the wines at very low prices. The idea is that the wines are bought via the subscription email list in just a day or two. The wines do not go into regular sales channels and those low price sales skate under the radar. Everyone wins; low prices for consumer, sales for the flash site plus customer satisfaction, solution to an inventory problem with no damage to brand image or to relationships in the brand’s usual supply chain. Dear reader, if you wish to take advantage of these opportunities, pick a potential supplier or a few and SUBSCRIBE to their newsletters or daily emails. You must subscribe because sellers may only send emails to opted-in, i.e. subscribed, customers, or the emails are considered spam and are a violation of the law.
Is there anything stopping the growth of DTC as it obviously offers many advantages to consumers? Unfortunately, the answer to that question is a resounding “yes!” When it comes to wine sales in the USA, it is more like 50 countries than 50 states, with each having its own rules and legalities. Some states will not allow DTC at all. Some will allow DTC for wineries but not retailers. Some will allow DTC but have intentionally made the licensing so expensive that small sellers can’t afford to play. As with most things, the real issue is not control over a potentially dangerous product, alcohol, but money. The large distributors in each market do not want suppliers to bypass them; they want their fingerprint and hence profit on every bottle every day, irrespective of whether you want or need their services! State monopolies are large enterprises earning very good returns and employing many people. So dear readers, whenever you have a chance, urge your state to change its laws and set wine free!
Sellers who wish to compete in the DTC arena may find it lucrative in time but need to build their social media presence first. The real value for the consumers is the hard to find niche offerings and the value of wines offered via flash sales. Sellers must project their knowledge and passion and have the highest ethical standards. In essence, the top sellers in this space become the brand!
For reasons of full disclosure please understand that our company, GreatWine2U.com, is one of these sellers.
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