The Sobering Realities of Selling Wine Online Mar 1, 2001 12:00 PM
, By Moira Cotlier
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They say two businesses that do well in hard times are bars and
liquor stores. But that rule apparently doesn't apply in
cyberspace.
Online alcohol seller Drinks.com closed its doors in November;
competitors Send.com and Liquor.com shut down in January. Also in
January, Wine.com laid off 75 employees — 25% of its staff
— citing an overlap following its November merger with
WineShopper.com.
“We've been around since 1995…but we're not yet
profitable,” says Scott Radcliffe, spokesperson for Napa,
CA-based Wine.com.
The struggles of pure-play wine sellers may simply reflect the
overall shaky state of the dot-com world. “The jury is still out
as to the viability of a pure-play Web business,” says Adam
Strum, chairman/founder of Hawthorne, NY-based Wine Enthusiast Cos., a
wine accessories cataloger and publisher of Wine Enthusiast
magazine.
Indeed, “it's not easy for a pure-play to create brand
awareness,” says Joshua Wesson, cofounder/co-CEO of New
York-based wine marketer Best Cellars. The company, which operates five
stores nationwide, has had a Website for two years, but customers can
only phone in orders. This spring, though, Best Cellars is launching an
e-commerce-enabled site, Wesson says, and it plans to mail a print
catalog next year.
A license to ship
Some of the online wine marketers' woes, however, may be particular
to their niche. Selling alcoholic beverages directly to consumers poses
unique challenges — namely, stringent shipping regulations.
“If you're a winery or wine retailer, you can't ignore the
reciprocity laws,” says David Pearce, president of Canton,
MA-based Geerlings & Wade, a cataloger/retailer of wine and wine
accessories. “Reciprocity means that if you hold a winery or a
retail license in any states, you can ship directly to the consumer in
those states. But there are limitations, such as what quantities you
can send, and those limitations vary by state.” Geerlings &
Wade has retail operations, which double as warehouses, in 16
states.
If a company does not have a retail or winery presence in a state,
it must abide by the three-tier system of distribution — a
holdover from the repeal of Prohibition. In the three-tier system, an
alcohol warehouse or winery must sell to a wholesaler, who then sells
it to a retailer, who sells it to consumers.
Without stores or much of a physical presence in any states,
pure-play wine marketers are less likely to have winery or retail
licenses, making them dependent on wholesalers. “All of our wine
is in a central warehuse,” Wine.com's Radcliffe says. “We
pick and pack the orders and send them to a wholesale partner who then
sends the orders to a retailer [near the the customer] who can deliver
it or hold it for the customer to pick up.”
Each middleman, of course, takes a bite out of the marketer's
profit. “The three-tier system sets a high barrier to
entry,” Radcliffe says. “It takes establishing a nationwide
network of relationships.” What's more, the system increases
shipping time. “A customer waits a week to two weeks in many
cases for his shipment,” Radcliffe admits.
And if a customer has to wait that long, or if he must rely on his
local liquor store to receive the order, “then why should he go
online or shop by catalog for his alcohol at all?” says Judith
Langer, senior vice president/director of the Roper/Langer qualitative
division of New York-based consultancy Roper Starch Worldwide.
