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Matthew Mann
 
July 16, 2007 | Direct-To-Trade | Matthew Mann

Missed Opportunities: Direct to Trade

Anyone even remotely involved in the wine business knows this heavily regulated industry is going through a revolution of changing demographics and regulations. Never in the time since the repeal of Prohibition have we seen wholesale upheaval in the way wine is marketed and delivered to customers. When I was a practicing attorney people would comment how I must hate it when a law would change after I had spent so many hours learning its nuances, only to have it all wiped out by the stroke of a legislative pen. Well, any good lawyer can tell you the truth is they love it when the law changes. Change creates new opportunities - new rules, new forms, new interpretations…and of course, new billable hours.

In the same manner, new opportunities for wineries are being created almost daily by the whirlwind of legislative activity since the earthquake that was Granholm. And the beauty of it is you don’t have to be an attorney to take advantage of the new landscape! Yes, many winery sales and marketing people are aware of the shift of states to allowing direct shipment of wine to consumers. Many have welcomed the shift and jumpedon board to build impressive wine clubs and develop new retail customers throughout the United States. As I look around I realize how many are missing the boat in the groundswell of states allowing direct shipment of wine to retailers and restaurants in a growing number of states. Inertia Beverage Group (IBG) was the first to spot this new opportunity with our groundbreaking lauch of our Direct-to-Trade (DTT) initiative in New York and subsequent development of DTT availability in 10 states, most recently the wine-friendly state of Texas. But just how big is this market? And, how hard is it to crack?

It’s a BIG Market!

Tremendous growth in the U.S. restaurant business in the last decade is resulting in unprecendented opportunities for wineries; particularly in the upscale, high-end find dining segment that most small boutique producer’s desire. According to a December 2006 report by the National Restaurant Association, the 935,000 restaurants in the U.S. are expected to generate $537 billion in overall sales in 2007, up 5% from 2006. Fully 47.9% of the U.S. food budget is spent in restaurants. Good for them you say, but what does this mean to me? Well, how about this. The report states that a survey of restaurateurs indicates that 65% of fine dining, 50% of casual dining, and 37% of family dining restaurants expect wine sales to represent a larger portion of sales in 2007. And restaurant sales are where the best profits are made. A report on the U.S. wine market in the October 2006 Wine Business Monthly indicated that of the $25 billion in total wine sales, $12 billion was from on-premise sales, a number representing a 6% increase over the previous year. This number, nearly half of all revenue generated in sales, was accomplished by only one quarter of the total case sold. That translates into a higher per case sales average and higher profit margins, the perfect combo for the small producer. What’s particularly interesting is that of the Top 5 leading states in overall restaurant sales - California, Texas, New York, Florida, and Illinois (nearly 30% of the overall market), only Illinois is not presently available for DTT, a situation that may change in the near future depending on what happens with a bill currently pending in the state. One last statistic: 6 of the Top 12 states ranked for total consumption of wine between 1994-2004 (Anderson Economic Group) are currently available for DTT (including the Top 4) and more will be joining them.

How Do I Crack the Market?

It’s not as hard as you might think and the potential rewards make ito worth the undertaking. There are 10 states available for DTT right now at the IBG website: Arizona, California, Connecticut, the District of Columbia, Florida, New York, Ohio, Vermont, Washington, and Wyoming. Texas opens soon and others are on the way. While permitting and reporting requirements will vary by state, most require a minimal amount of time and the cost of entry is low. Just one example, Florida has almost no permitting costs or paperwork yet offers the 2nd highest rate of consumption, highest rate of growth in consumption, and a pool of over 30,000 on- and off-presmise licensees.

The list of state available for DTT opportunities is growing rapidly. Bills have passed in Illinois, Oregon, and Arkansas and are pending or due to be introduced in others in the movement towards more open wine trade. As wineries large and small try to find their place in the market and build legions of new fans, avoiding missed opportunities is one smart, effective and efficient way to do so.

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