Direct to Trade IS the future
If you don’t feel it yet, the wine industry is not an easy place to do business. The competition is growing at an extraordinary rate, not just domestically but internationally. The nature of the three tier system and its increasing consolidation makes market access tremendously difficult. Moreover, by its own nature, the economics of the three tier system are fundamentally flawed against small and medium sized wineries and especially against unknown brands. Wholesalers, by nature, are limited by the capital risk to purchase wines (and smaller producers wines generally are at a higher cost), transport them, store them, and they place value on products that have market pull or higher velocity of sales. Do the math; a wholesaler having to sit on 28 cases of a 225/case FOB of Paul’s great wine that depletes over six months is less interesting than a wine that they buy for $98/case and sells 600 cases in 6 months.
Why is Direct to Trade (or as Steve Gross calls it, “Self Distribution”) is accelerating? It is a result of many key drivers:
- The strong winery adoption of Direct to consumer as a key channel.
- The Supreme Court Decision regarding wine shipping with the Commerce clause as the key constitutional right.
- The broken (and getting worse) three tier system limiting market access yet with an extraordinary consumer and trade demand for differentiated products. Especially in regards to restaurants whose three key points of differentiation are their food, their atmosphere, and their wine list.
- Costco initiating the fight to buy Direct to Trade in the state of Washington.
- Technology improving at an incredible rate the will enable complex regulations to be solved through programming.
What is Direct to Trade? It is the ability to directly acquire trade, restaurant and retail, customers in a market and be able to interact with them in an on-going and real time basis. The winery for the first time has the ability to directly acquire restaurants and retailers as their customers. Imagine what this does for the winery:
- You can actually capture the customer and market to them other products or when your next vintage comes out.
- You can directly tell the customer about promotions, winery news, and create a relationship. Customer relations is the key to ALL direct sales (both DTC and DTT).
- You have real account sold information in real time!
- You can allocate wine to accounts instead of hoping the wholesaler will place them where you want. You control your placements.
- You can sell your wine to the market at what the market will bear. How many times have you told your FOB to a wholesaler and he told you that he needs to buy it for less or needs you to put together an extensive discounting plan.
- You can meet restaurants and retailers at shows, your winery, or at a social event and electronically take the order there. No more will you have to say, “sorry, I don’t have a wholesaler in your market.”
- When you decide that your volume warrants a wholesaler, you can bring them a universe of customers that already buy your products as a baseline for their market development.
- Instead of regional focus, the internet can become your sales team and the entire state or country will be exposed to your products.
Ironically, you as a winery are already familiar with Direct to Trade sales. First, in your local market, you probably sell and promote your wines. Napa wineries are extremely good at selling and promoting their wines within a 180 mile radius. The same is true for all wine growing regions in the US. In Arizona a large portion of their states production is sold within state.
However, even if you have a wholesaler, you still essentially sell Direct to Trade without the benefit of gaining the customer. Two words - “ride along.” Almost every single winery has a sales force super-imposed on the wholesaler tier to assist them in selling the winery’s product.
Why is Direct to Trade so important to small wineries? There are so many reasons but I’ll try to distill it to the two most important: capturing the customer and market access. The current three tier system prevents wineries from acquiring customers and especially from being able to enter a market. Those problems are compounded by an environment of increased competition making the ability to interact and leverage customer relations one of the most important factors for success. Direct to Trade solves this problem by putting you together with your customer. Remember, it is easier to retain a customer than to acquire a new one. Without this ability you as a winery are recreating the sales cycle every vintage and every release. Don’t forget that most restaurateurs want a relationship with you as much as you want one with them.
Unless you focus on direct, you are dependent on others for your success. A success that is absolutely not guaranteed (I can tell you many stories of me working with a wholesaler who lost the one rep who loved to sell my wine and the next year I experienced dismal sales).
If you doubt the Direct to Trade channel you should look back in time when everyone questioned the Direct to Consumer channel. Look at that channel now . . .
Direct is the revolution - be part of the revolution.