Taking Control in the Unlicensed Marketplace
A wonderful blog post by Sheri Hebbeln on the WineDirect website this week discussed new marketing models for wine dramatically impacting the wine industry in the coming years. One particularly exciting model is the marketplace, wherein a collection of wineries offer their products under the banner of a well-known and respected third party marketer. The marketer can be a licensed wine retailer and operate under their own license or, it can be unlicensed, providing a platform for the licensed winery to market and sell the wine under their own licenses.
Amazon is probably the most prominent current example of an unlicensed marketer, but there are many others, with more on the way. Unlicensed marketers can be publishers of magazines, large retailers offering lifestyle products appealing to a demographic with similar traits to the wine industry, or some other media or online business. The key is the marketer has an established customer base that trusts their brand. By coming together in a marketplace under the banner of the marketer, participating wineries can access this loyal customer base, ultimately introducing a whole new group of prospective customers to the winery.
You Scared Me at “Unlicensed”
Marketplaces are a great concept and a winning proposition for everyone involved – winery, marketer and consumer. Still, confusion surrounding marketplaces continues, particularly those operated by unlicensed marketers. Since unlicensed marketplaces require the privileges offered by the winery's license, many wineries are naturally concerned that they meet regulatory approval. Years of uncertainty and conflicting messages from regulators has frightened some wineries considering working with an unlicensed marketer. That’s unfortunate, as the rules for working with an unlicensed marketer are now clearer than ever. It's a simple matter of knowing the rules and where the regulators draw the lines.
You Hold the Controls!
The underlying consideration for every unlicensed marketplace program is really quite simple: control. A license holder is the only party authorized to buy and sell wine to a consumer, so the licensed winery must control the offer and sale of the wine. The winery holds the controls, so long as they are willing to use them. Once this is understood, determining when an unlicensed marketing program strays into illegitimate territory becomes much easier. But what does control mean? Here are some guiding principles:
- Product offer and price: the winery owns the product, therefore, only the winery can determine which of its products to offer in the marketplace and the price at which that product will be sold to the consumer.
- Offer acceptance: a basic of contract law is offer and acceptance - the consumer makes an offer to purchase the wine, the winery makes the decision to accept or reject that offer. No sale is final without it and since only a license holder is authorized to make the sale, only the licensed winery can accept the offer.
- Transparency: is it clear to the consumer from whom they are purchasing the wine? In a crowded marketplace, with licensed and unlicensed players, it is essential the consumer know from whom they are buying. The marketplace website and sales receipts should clearly indicate the winery is the seller of record to the consumer.
- Funds management: the winery is the owner of the wine and the only party authorized to sell it, so any payment received from the consumer must be in the control of the winery. Admittedly, this can be something of a complex area involving questions regarding –
- who processes the credit card payment;
- where the money is deposited once the credit card is settled; and
- how each of the parties to the transaction ultimately get paid.
The short answer is the unlicensed marketer may collect and process the payment information from the consumer on behalf of the winery however, all of the funds received must be deposited to an account held in the winery’s name and, the winery must provide the instructions for who gets paid and how much. Any funds remaining after the parties, and all taxes, have been paid belong to the winery. Those terms can be worked out in advance in the marketplace agreement between the winery and the marketer.
- Fulfillment: delivery of the product is another hallmark of a sales transaction. Only the winery can make decisions on fulfilling the order from the consumer. Shipments will flow from the winery's designated fulfillment warehouse on instructions from the winery.
Operate with Confidence, Take Control
Even a high-level look at these principles makes clear the common theme of control by the licensed winery runs throughout the offer and sale of the wine in the marketplace. There is plenty of nuance in how these guidelines operate and it is a good business practice to have competent legal counsel with knowledge of marketplace models review any marketplace agreement before signing, just as you would any other important legal document affecting your license. Nonetheless, marketplaces will become more and more prevalent as an effective way to market your wines. Any winery wishing to increase DTC sales and enhance brand awareness would do well to learn more about marketplaces so they can participate in this growing sales channel successfully and with confidence. Take control!