Top Issues Impacting the DTC Channel
About five years ago, 90% of direct-to-consumer wine sales came from tasting room visitors and wine clubs. Now, that’s dropped to about 40% with the other 60% of DTC sales coming from online shopping, according to ShipCompliant general manager Larry Cormier.
CURRENT DTC LANDSCAPE. The bulk of DTC sales comes from mid-sized wineries, producing 50,000-100,000 cases annually. But there’s also the likes of Gallo and Constellation in the DTC game. “The attraction to DTC is the same for all sizes of wineries – the margins,” Larry tells WSD. “So DTC is attractive at the high end, and it’s almost the only option for the people at the small end. And then in the mid size it’s usually the biggest portion of their revenue and by far the biggest portion of their profits.”
Regardless of size, they’re all building out big e-commerce storefronts because that’s where consumers are buying more, according to Larry.
RETOOLING DTC MARKETING TACTICS. “There are fewer and fewer wine tourists. I think that’s a big concern of the wineries, especially in Napa and Sonoma, where they’re seeing less heads showing up in the tasting rooms,” Larry tells WSD, adding, “So there’s more emphasis on e-commerce. That’s driving a lot of changes within the marketing departments of the wineries.”
For instance, wineries are practicing more targeted marketing, which means they have to better understand individual consumers. “Now there’s a lot of focus on tracking all of those purchases, understanding who’s buying what, where, at what price, and then crafting marketing messages to those segments,” he says.
ENGAGING MORE MILLENNIALS. “The impact of millennials is one of the biggest competitive pressures, because everybody’s trying to figure out how to get that piece of the pie bigger,” says Larry.
“The obvious potential is there, but in the last, say, four or five years, there has been some disappointment in how fast the millennial segment has come into the wine market.”
But the good news is the average millennial is now about 30 years old, and historically, that’s the age the alcohol consumption scale tips more towards wine. “As long as the producers can meet [millennials] customer requirements,” like value and choice, then “I think it will be as big as the boomers by the time boomers have aged all the way out.”
THE RETAILER SHIPPING OPPORTUNITY. When asked whether the current Supreme Court case that could open up retailer shipping [see WSD 01-16-2019] would negatively impact DTC wine sales, Larry said it could actually be an opportunity.
“In some ways, it would be a mixed blessing for producers, because obviously, it’s going to be more competition. But for producers who are savvy enough to see it coming and work with the retailers, then it just becomes another channel of distribution for them to help them grow.”
FUTURE GROWTH. The channel is still growing off of a relatively small base. DTC sales passed $3 billion in 2018, while the overall wine market is at about $60 billion.
Moving forward, growth in the channel is “leveling off,” but ShipCompliant still expects that DTC sales growth will be in the 14-15% range. “That’s still pretty good if you look at the overall beverage alcohol market and the wine market growing at less than 5%,” says Larry.
TOTAL TAX AND TRADE TARIFF RATE ON US WINE TO CHINA TO HIT 98%
In the latest round of trade disputes, the Trump administration implemented another round of tariffs on $200 billion worth of Chinese goods on Friday, and President Trump tweeted that the “process has begun” to impose 25% tariffs on a further $325 billion in Chinese goods. China was quick to respond.
China plans to implement another 15% tariff on US goods including wine, effective June 1. This is China’s third round of tariffs on US wine, bringing the total tax and tariff rate to 98%.
“This is the third Chinese tariff increase on US wine in the past 14 months and with each additional round, it becomes more and more difficult to compete in the fastest-growing wine market in the world,” says Wine Institute chief Robert Koch in a statement. “It is imperative to resolve this dispute as soon as possible, so that our wineries do not suffer long-term market loss.”
“There’s definitely disappointment and frustration” in China, said Zhu Ning, deputy director of the national Institute of Financial Research at Tsinghua University in Beijing, reports Bloomberg. “We thought we were on a good path of making progress and having a deal.”
Of course, China isn’t the only one upping the ante. The European Union and Canada are also looking to implement another batch of tariffs on US goods, both of which already targeted US whiskey and are now looking to add wine to the list as well.
JUSTIN VINEYARDS & WINERY CELEBRATES 30th ANNIVERSARY OF CABERNET SAUVIGNON. Justine Vineyards & Winery is celebrating the 30th anniversary of Justin Cabernet Sauvignon with the nationwide release of its new 2017 vintage. The anniversary cab will be supported with new POS, digital advertising, social media and print ads. It is available nationwide at a suggested retail price of $28.
UV VODKA RELEASES UVGO CANNED COCKTAILS. Phillips Distilling Co.’s UV Vodka has released a ready-to-drink sparkling cocktail made. UVGO contains 150 calories and 5% abv per 12.oz slim can and will be sold in 4-packs with a suggested retail price of $10. The line will launch with four flavors: Blue Raspberry, Lemon Lime, Black Cherry and Pink Lemonade.
CASCADE HOLLOW DISTILLING CO. LAUNCHES GEORGE DICKEL BOTTLED IN BOND. Cascade Hollow Distilling Company has released George Dickel Bottled in Bond, the gm and distiller Nicole Austin’s first innovation since joining the company in 2018. The mash bill consists of 84% corn, 8% rye and 8% malted barley and it is chill charcoal mellowed. This limited release, 13-year-old whiskey is bottled at 100 proof and carries a suggested retail price of $36 a 750 ml.
BAREFOOT PARTNERS WITH MINDY KALING FOR BOXED WINE LAUNCH. E&J Gallo’s Barefoot has partnered with actress Mindy Kaling to launch “JOMO” ad campaign for its new boxed wine called Barefoot on Tap. This ad campaign encourages consumers to embrace a night in with a glass of Barefoot. A series of short videos will be released across social media, Barefoot’s website and Youtube. Barefoot On Tap is available nationwide in six varietals: Pinot Grigio, Chardonnay, Rose, Moscato, Cabernet Sauvignon and Pinot Noir. Each box holds the equivalent of four bottles of wine in an airtight bag and retails at $19.
“Once, during Prohibition, I was forced to live for days on nothing but food and water.” – W.C. Fields
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