December 27, 2012 | Matthew Mann
The growing DTC market
Most wine industry folks know there has been a continuous increase in per capita consumption over the last decade. They are also likely aware that direct-to-consumer (DTC) shipments of wine have grown as well, although they may not know by just how much. DTC shipments topped $222 million for the month of October 2012, a 13% increase over the same period in 2011 (Wines & Vines Wine Industry Metrics, November 15, 2012). They increased again in November 2012, posting a jump to $224 million, a 12% increase over the same period in 2011. Overall, the last 12-month period has seen a 9% rise from $1,327 in November 2011 to $1,442 in November 2012. (Wines & Vine Wine Industry Metrics, December 14, 2012).
What’s your DTC strategy?
These are tremendous increases, reflecting the impact of Granholm and as importantly, the influence of the internet and social media on the DTC sales and marketing channel. With this dramatic growth occurring all around us, when was the last time you looked at your DTC licensing strategy? Often, decisions about where to ship are made ad hoc, driven by customer requests rather than an analysis of costs and potential gains a considered DTC licensing strategy demands.
Many states, although certainly not all, require renewal of licenses in January or have licensing periods that mirror the calendar year regardless of when the license application is filed. This makes the New Year the perfect time to review your DTC program, its goals, and any prospective changes. When performing this review, stop and ask yourself, “Why am I not shipping to every state that will let me?” Often, wineries will just assume that shipping “everywhere” is too expensive, too hard, or just plain old too much work. If for no other reason than simple due diligence, that approach should be reconsidered and an objective look taken at what is required to ship to as many states as possible.
Anywhere, everywhere…legally, of course!
Many wineries might be surprised with the feasibility of taking the “anywhere, everywhere” approach to DTC. Rather than approaching the DTC strategic analysis from a “least to most” perspective, starting with a few states and selectively increasing them as demands from customers increase; instead take the opposite approach and start with all legal states and adjust down from there, if necessary.
Some may think the “anywhere, everywhere” approach is foolhardy, as the perception is some states offer such low prospects for any type of volume sufficient to justify the cost, but that is not necessarily the case. Cost of entry should not intimidate a winery without first exploring the “anywhere, everywhere” strategy. When compared with the cost of accessing traditional distribution channels, it’s actually a pretty good value.
Best states for the “Anywhere, Everywhere” winery: 38 total
Any and every state allowing online DTC shipments
Total cost = approximately $7,908
Market size = 88% of U.S. consumption
Don’t let the complexity of filling out the applications overwhelm you. Most states ask for the same type of information on your winery. Once you’ve collected it for one state, it will be readily available for all of the others. And report filing is not as burdensome as some suggest, as many states now permit annual filing for wineries whose sales volume to the state is low. If you’re filing monthly, it means you’re selling a lot of wine. A nice problem to have!
Why would I want to do that?
If viewed objectively, an “all-in” strategy may not be a bad idea. Casting a wide net catches more fish; more consumers equal more potential buyers. There is less competition from wineries unwilling to access small consumption states, making your wine more desirable to consumers in those states. Finally, and probably most importantly to the bottom line, many third party marketplace operators require participating wineries to be available in a minimum number of states. The more states available, the more desirable your winery becomes to such marketplaces. And the more wine you’ll sell!