The Changing DTC Landscape

Dear Client:

Direct-to-consumer wine growth began to level off in 2018, according to ShipCompliant’s annual DTC report. The slowdown is partially thanks to the fact that the channel can’t rely on opening up new markets as heavily as it did in the past. Instead, the channel will have to rely on organic growth, per the report.

DTC wine shipping is currently available in 45 states. While there are still new markets that can come online, ShipCompliant says the holdouts (AL, DE, KY, MS and UT) represent just about 6.2% of the US population and would add an estimated $60 million to $90 million to the value of the channel, “a small percentage of the whole,” per the report.

“Because of this, the channel will likely sustain healthy, but slower, growth in years to come.”

So what else can we expect in the future?

MORE COMPETITION. The channel is likely to see an increase in competition, particularly through the subscription model, which includes new independent wine clubs, meal delivery companies with a wine component, grocery delivery, and online marketplaces like Drizly and Minibar.  

ShipCompliant also notes that the outcome of the current Supreme Court case [see WSD 01-16-2019] may open up interstate retailer shipping, adding even more competitors to the DTC market.  

MILLENNIALS LOVE ORDERING ONLINE. Currently, millennials spend way less on direct shipped wines than older generations. But, they are “far more accustomed” to ordering all types of products online, which bodes well for the DTC channel in the long run.

“Wineries that redirect their marketing efforts toward a generation with different purchasing habits than boomers and gen Xers will be poised for continued growth among millennial consumers.”

PRICE DROP. The average price-per-bottle was up 2.4% in 2018, the most significant price increase since 2011, per the report. Historically, years with higher price increases are followed by years with flat/declining prices. Thus, “there is reason to temper optimism for significant growth” in the channel over the short term.

INCREASED REGULATORY SCRUTINY. As the channel grows, regulators are taking a closer look at the supply chain. As a result, ShipCompliant says to expect more reporting requirements focused on enforcing licensing and tax regulations, per the report.

For more coverage from the report, see WSD 01-23-2019 and WSD 01-28-2019.

CONSTELLATION BULLISH ON CANNABIS OPPORTUNITY

Canadian marijuana supplier Canopy Growth Corp. is on track to deliver a run rate of $1 billion by 2020 at the top line, according to Constellation Brands cfo David Klein. And Constellation expects Canopy to be accretive to its earnings in fiscal 2021, David said during the CAGNY presentation earlier this week.  

Constellation expects there will be pressure on Canopy moving forward to invest in intellectual property like brands, production capabilities and medical science, according to David. “But we believe there’s – if you understand that our base case is based simply on Canada and a few medical markets – there’s tremendous upside if major consumer markets like Germany or the US become legal for recreational purposes.”

You may recall, Canopy Growth also recently announced plans to invest between $100 million and $150 million on a hemp processing project in New York [see WSD 01-15-2019]. “And I probably don’t need to tell you that that can easily be translated into THC production when and if it’s legal on a national basis,” said Constellation’s incoming ceo Bill Newlands.

“We know some of the challenges and we know some of the hurdles you have to overcome to go from startup to corporation, and I can assure you, we are working aggressively to leverage all those strengths so that one Canopy plus one Constellation equals three,” said Bill, adding “This is a business that we expect to be an exciting growth profile and probably unheard of in our lifetimes.”

ROEDERER ACQUIRES MERRY EDWARDS WINERY

French wine company Champagne Louis Roederer has purchased Sonoma-based Merry Edwards Winery, known for its pinot noir, from Merry Edwards and her husband Ken Coopersmith. No financial details were disclosed.

The purchase includes the Merry Edwards brand, inventory, winery and 45 acres of vineyards, per the SF Chronicle. As part of the agreement, the current staff will remain on board including head winemaker Heidi von der Mehden. Merry will also continue to work at the winery for at least a year.

Roederer also owns three properties in Mendocino County, Roederer Estate, Scharffenberger Cellars and Domaine Anderson, as well as wineries in France and Portugal including Domaines Ott, Chateau Pichon-Longueville Comtesse de Lalande, Ramos Pinto, Delas Freres and Champagne Louis Roederer.

BEER WHOLESALER EXPANDS INTO CRAFT SPIRITS

Houston-based beer wholesaler Silver Eagle distributors has announced the addition of four craft spirits brands to its portfolio, a new category for the company. Silver Eagle will now handle Texas-based Highway Vodka and 8th Wonder Distillery along with Boone & Crockett Club Whiskey from Indiana and Tattersall Distilling of Minneapolis.  

The wholesaler, which distributes to Houston and San Antonio, said that the items will be added by the end of the first quarter.

Silver Eagle is the largest independent Anheuser-Busch InBev wholesaler in the nation, so it’s likely no coincidence that Silver Eagle is getting into spirits shortly after A-B announced the acquisition of Cutwater Spirits earlier this week [see WSD 02-20-2019].

WSD BRIEFS:  

TARGET LAUNCHES NEW PREMIUM WINE BRAND. Target is launching its second line of bottled wines, called The Collection, which will include a cabernet sauvignon, red wine blend, rose, pinot grigio and chardonnay. You’ll recall, the retailer also has the California Roots wine brand, which is produced by Trinchero Family Estates and retails at about $5 a 750 ml. The new brand is sourced from Delicato Family Vineyards, per a release. The Collection will be available in stores starting March 3 and retail at $10 a 750 ml.

3 BADGE BEVERAGE CORP. APPOINTS NEW MARKET MANAGER. 3 Badge Beverage Corp. has appointed Stephen Gorman as southeast market manager for the mixology division. He will now oversee sales for the 3 Badge spirits portfolio in AL, FL, GA, MS, NC, SC and VA. Stephen was most recently state sales manager for the southeast region at MS Walker.

BAYOU RUM LAUNCHES MARDI GRAS EDITION. Bayou Rum has launched XO Mardi Gras in honor of the brand’s Louisiana heritage. The rum is produced through single-batch distillation in copper pot stills and aged in bourbon and sherry casks for six years and bottled at 80 proof. It is available at a suggested retail price of $80 a 750 ml.

JOS. A. MAGNUS & CO. ANNOUNCES LEADERSHIP CHANGES. Jos. A. Magnus & Co. has revealed details of its “aggressive national growth strategy” including expanding their leadership team as well as plans to close and refurbish its DC cocktail room, per a release. Ali Anderson has been promoted to gm of Magnus from her previous position as director of sales. Nancy Fraley will continue to guide the Magnus production team as Master Blender and create several special releases for 2019. Thom Spelde joins Magnus as vp of production, bringing with him more than 20 years of experience in the manufacturing industry to the company. Peter Boardman joins Magnus as distiller from Philadelphia Distilling Co. Both Thom and Peter will oversee production and the construction of a new barrel warehouse facility in Virginia to meet growing demand.

DOGFISH HEAD EXPANDS DISTRIBUTION TO NEW JERSEY. Dogfish Head Distilling Co. is expanding distribution of their entire spirits portfolio to New Jersey with the help of Hunterdon Distributing, who also handles their beer portfolio. The spirits portfolio includes Sonic Archeology, Compelling Gin, Barrel Honey Rum, Analog Vodka, and Roasted Peanut Vodka.

Until Monday,
Sarah

“The time you enjoy wasting is not wasted time.” – Bertrand Russell   

——- Sell Day Calendar ———
Today’s Sell Day: 16
Sell days this month: 20
Sell days this month last year: 20
This month ends on a: Thurs.
This month last year ended on a: Wed.
YTD sell days Over/Under: +1