Are wineries that sell direct ruthlessly competing with the clicks and mortar crowd?
That’s one of the questions David Williams poses in the latest issue of Wine and Spirit (UK). After taking the reader on an extensive survey of the past and present of online wine retailing, David asks whether the current buzz about wine/web 2.0 is fundamentally different from previous wine e-tailer failures.
Looking forward, David identifies direct-to-consumer as the third revolution in online wine sales. I think he’s absolutely right (I’d better, I’m betting our winery on it!). But he also thinks that direct-to-consumer sales will come at the expense of wine retailers and merchants, and Capozzi (that’s me) is held up as an example of a producer embracing the model and looking to cannibalize sales from clicks and mortar wine retailers.
Here’re some quotes for context:
…[A]ccording to Gormley, there is much more to come from the web.
“I think we’ve got an awfully long way to go,” he says. “What’s happened online so far has basically been improvements on the existing models of direct selling. But the real step change is still to come.”
Gormley reckons the seeds of revolution lie in the ability of consumers to make direct contact with their favoured producers, and to buy their wines directly from them – a kind of virtual farm gate, leaving retailers to act as “sourcing partners who basically just do the logistics”.
A virtual farm gate. I love that image. Rusty, creaky gate hinges and all. It conjures up the kind of one-to-one opportunities that direct interaction with wine lovers provides. Drop on by, have a chat. Maybe buy some wine. Lovely. Serene. Downright agrarian. Which is why the following juxtaposition is a bit jarring:
It’s a model that appeals to forward-looking producers such as Josh Hermsmeyer in California’s Russian River Valley. Hermsmeyer is well-known in cyberspace as the man behind the thoughtful pinotblogger site, which tells the story of his attempts to build his Capozzi family winery from scratch. And he is convinced that, for boutique fine wine producers if not bigger brands, the possibilities afforded by the internet could make fine wine retailers a thing of the past.
So, just for the record, I never said that I think fine wine retailers would be a thing of the past. It’s an interesting idea, but one that I completely disagree with, as you’ll see below.
I simply think that distributors and unnecessary middlemen that add no value will become a thing of the past. And even then, as David notes, I was only talking about small wineries. Big producers will always need distributors to move the volume of wine that they produce. For them, the distributors add value.
So Jill and all the rest of the awesome fine wine retailers out there, you can put down your knives.
More quotes:
“It seems to me that the change really will be at the high-end,” Hermsmeyer says. “Using social media, wine lovers who want low volume, artisanal wines will be able to go straight to the source and easily interact with the principals behind their favourite winery.
“Since the time and effort it takes to cultivate real, meaningful relationships with people doesn’t scale, I think this is where the small guys have a pretty sizable advantage over the big ones. Our customer bases are much smaller, so more personal attention can be paid to the folks who are truly passionate about our brands.”
Not everybody believes this is the future of wine retailing. As you might expect, Bennett thinks otherwise, and says: “There will always be a role for people like us who can give their authority on what we consider to be the best wines around. It’s very hard to buy direct in Burgundy, for example, unless you know your stuff.”
Bennett is absolutely correct. There will always be a role for people who have built up authority and trust with consumers to use their influence to recommend good wines. The wine world is way too cluttered and complex to navigate without some guidance. That guidance could come from a friend, a sommelier, a professional reviewer, a wine blogger, or a retailer. All of these folks add tremendous value. So, as long as the wine world stays complex and cluttered, they won’t ever go away.
More than that though wineries that rely on direct to consumer sales to make their business work would be foolish to view fine wine retailers as anything other than partners. Third party recommendations are crucial in the wine industry, and having a brand advocate that also happens to sell your wine is a powerful thing. Their passion and knowledge of wine will attract consumers and will help you grow your brand.
And as far as the internet goes, online tools are making it ever easier to create profitable relationships with such partners.
Retailers and Wine Bloggers as Partners
As just one example, imagine if every wine blogger suddenly became a tiny equity partner in your wine brand. If someone likes your wine enough to write about it, shouldn’t they be able to monetize their influence and get a cut of any sales that resulted from their recommendation? Isn’t this precisely what wine retailers do offline right now?
This isn’t a new idea, and it isn’t hard to implement. In fact I wrote about how to do it almost two years ago. People do it all the time with goods on Amazon. It’s called an affiliate program, and the web makes setting up such a system shockingly easy.
What’s holding back such a system from taking root doesn’t have anything to do with technology or the internet. It has to do with many wine bloggers viewing themselves as independent wine reviewers instead of independent wine retailers. The dominant wine blogging model is to be a small scale Robert Parker instead of becoming a small scale Kermit Lynch.
No Mini Kermit Lynches? Why?
Both Parker and Lynch have an unquestionable passion for fine wine. Both have acknowledged expertise. Both are well respected. So why aren’t there more mini Kermit Lynches out there?
No one who has spent the time to build up credibility with their audience is going to squander it by recommending a crap wine just to make a few short-term bucks. And if they do, they’ll quickly lose their influence and readership anyway. The blogoshpere is self-correcting.
So what gives? It’s a rhetorical question obviously, because I really don’t know the answer.
All I do know is that direct-to-consumer will be much more profitable for wineries if they can build their own Long Tail network of micro-retailers and blog partners.
And that means partnering with wine retailers of all shapes and sizes, both online and off, not trying to kill them.
That’s my take at least. What do you all think? All comments welcome.
Okay, Josh…I guess I’ll put that knife down!
Interesting article on what looks to be an interesting article. I look forward to reading the source material, and I plan to take a look at your June 30, 2006 piece as well.
I think you’re right that there’s great potential for partnerships between bloggers, wineries and retailers. I hope that the experimenting I’ve been doing with these sorts of partnerships will yield positive results, though the jury is still out!
Thanks for the insightful piece.
Jill
I agree that there are great niche opportunities for wine producers to sell direct. It is already happening in other gourmet foods (e.g. Fairytail Brownies, Boston Coffee Cake, etc.). Unfortunately there is a lot of work to be done to change legistation related to wine shipping before this really takes off, in my opinion.
I would also concur that the affiliate model has been underlevereaged in the wine space.
Thanks for not slashing me Jill!
I saw that you did a promotion with Jeff at Goodgrape. That was wicked cool IMO. What other ideas do you have? How could a winery better partner with a retailer like yourself?
Tim,
Mmm Boston Coffee cake.
The shipping is definitely an issue. Did you know that technically (they don’t usually enforce the law) you have to pay a license fee just to sell your wine to your friend across the street? Luckily affiliate programs don’t involve any shipping for the blogger. The winery handles all the compliance headaches as well as the shipping.
Thanks for the comments and the kind words!
very interesting perspective and a very insightful comment regarding bloggers as either micro-reviewers or micro-retailers
I will definitely be thinking much more about that now, but as much as I would like to see more of the latter, I think that our general cynicism means that most will be too afraid to try it.
Thanks for the comment Robert. Great post recently on blog comments BTW.
I’m not sure what the bloggers are afraid of. Everybody knows they are bought and paid for already, right? http://fermentation.typepad.com/fermentation/2008/04/wine-bloggers-a.html
Josh, it sounds like we have the same business plan.
Noble Pig,
Uh Oh! Competition!
Quick, get a knife!
Well, god forbid anyone actually makes a living from blogging! That would utterly ruin it.
Oops, here we go talking to each other again !
Josh, this is a great post.
I do agree that partnering with retailers of all kinds is very important for a small winery specifically one that is just starting to build its brand.
Regarding the possibility of bloggers turning retailers… an intriguing question comes to mind. Would you as a small winery who’s working hard to build your brand, be willing to “take the punch” from the blogger-turned-retailer who posts a “just-okay” review about your Pinot? You may disagree with the review but you had agreed to let the blogger write an independent review based on his/her tasting experience. And somehow you paid for this review. On the flip side, will the blogger remain honest and truthful to his/her readers by reviewing a wine not so favorably despite the fact that he/she is collecting a small profit from the sale of the wine?
I don’t know the answers to these questions myself.
A parallel could be drawn with the traditional retailer, and I have been told several times at the local retailer… <>, but a blog is in writing and usually bloggers review wines in much more detail than the local wine retailer. A blogger’s opinion, especially from a knowledgeable one with thousands of readers, carries a lot more weight… IMO.
…and I have been told several times at the local retailer… “Take this wine, not that one”
Marco,
Thanks for the comments. It’s a great question and I think it has two answers. At least these are my two answers. Folks with more experience might respond differently.
1. If you aren’t prepared to get negative, or just OK reviews as a winemaker, then you aren’t cut out to be a winemaker. Not everyone is going to like your juice. If everyone did, what a boring monoculture we’d be living in. You don’t need everyone to like you, you just need a few people to *love* you. Passion helps.
2. In my experience, affiliates don’t often post reviews for things that they think are average. They simply don’t post about them at all. Consider: they aren’t strongly recommending the wine so they can’t expect much action on the part of their readership. No action = no affiliate cash. Affiliate programs are really for cases when you have a wine you want to desperately recommend to your readership and you’d like to monetize your influence. And your influence is finite, so you won’t risk wasting it on a wine you secretly think is just OK.
So bottom line is: I’m not really worried. But then of course my marketing plan is much larger than just affiliates and I plan on making some of the best pinot you’ve ever tasted.
So there’s that
Thanks again for the comments and the kind words!
Hi Josh,
1. Agreed.
2. I understand that is how affiliate programs work but several wine review bloggers today do occasionally write less favorable reviews of a wine. So, not writing a “just okay” review because they are receiving a cut would be a change in their approach. I’m not disagreeing with the idea, in fact I like it and think that it should be explored further. I just think the issue of how less favorable reviews are handled could be a barrier for an honest and independent blogger to somehow partner with producers.
Hey Marco!
Thanks for the conversation!
I think the barrier you mention has to do with bloggers modeling themselves after wine reviewers instead of wine merchants. I’m arguing that you can advocate passionately for a wine AND make money. Kermit Lynch and every other wine merchant is my example.
The trick is to review wines from affiliates that you are passionate about. Then you make it clear that you are providing an affiliate link. What you should never do is shill for a wine you aren’t passionate about.
Kermit Lynch made his name by only carrying wines he was passionate about. He didn’t stock his shelves with wines just because they sell well.
Because of that, he earned a reputation as a straight shooter. No one felt like they were getting sold a wine Lynch wasn’t a fan of himself. That is the model bloggers should aspire toward IMO.
If a blogger changes a “just OK” review to a “very good” one just to make a quick buck, he will eventually lose his sway with his readers, and will lose in the long run.
It’s not that I don’t realize that people have objections to getting paid for their expertise and influence. It’s just that I don’t understand it. Don’t sell out, be transparent, be passionate, and you’ll be fine.
Great to bounce ideas off you Marco. Thanks again.
Josh,
I think your “vWineShop” idea is excellent. It gives small producers a form of retail distribution but with better margins than they would get with bricks-and-mortar shops, not to mention distributors - and that margin is critical to small producers given winery economics as they are today.
A benefit to consumers would be the potential of these vWineShops to focus on very specific wine types and styles, so if you have a preference for, say, super intense unoaked Sauv Blanc, you could find a site to steer you to a short list of some stellar examples quickly.
Do you see an issue with the possibility of lack of acceptance based on the possibility of financial bias? I have heard several people deride one large review site because “advertisers get better review scores” - probably not true but I hear it quite a lot. I could see the same kind of credibility issue if it becomes circulated that a vWineShop only mentions wines that pay a “premium commission”.
Hi Eric!
“Do you see an issue with the possibility of lack of acceptance based on the possibility of financial bias? I have heard several people deride one large review site because “advertisers get better review scores” - probably not true but I hear it quite a lot. I could see the same kind of credibility issue if it becomes circulated that a vWineShop only mentions wines that pay a “premium commission”.”
But a vWineShop isn’t a wine review site, it’s a wine retailer. No one has ever accused Kermit Lynch, or your local wine retailer of credibility issues because they are clear that they are making money off the sale of wine.
I know it’s hard to think this way because he casts such a huge shadow, but the dominant model for blogging needn’t be Robert Parker.
You can build a readership recommending wines AND get paid a commission for each sale, as long as you are authentic, transparent and add value.
IE, you can’t recommend a bad wine and expect people to trust you. You can’t give a glowing review to a mediocre wine and expect people to think that you are on the up and up.
So don’t do it! Your readership is your greatest asset, and squandering the long term value of it for some short term gain is pretty silly.
Thanks for the discussion Eric! I hope someday soon more bloggers will look to partner with wineries like me and monetize their influence.
Josh,
Quickly, the curatorial program I have going on includes Jeff at Good Grape, Dr. Debs, Catavino and others…basically, I partner with bloggers who get to be guest wine buyers for domaine547. They lend their expertise in a given area to my store which has plenty of holes in inventory to fill…I’m just learning about wine myself, and I try not to stock things I don’t love or have experience with (Kermit Lynch model!). So bloggers such as Catavino, with their deep understanding of Spain and Portugal, was able to guide me to wines I may not otherwise have been aware of. Jeff pointed me to producers whose wines weren’t readily available in Los Angeles. It’s been a great experience from my end, and hopefully from the blogger end as well.
As for wineries and retailers, that’s an area I haven’t totally explored. I’ve spoken with Jeff Stai about doing an El Jefe blogger pack which would include a Twisted Oak wine along with a wine from the Rhone or Spain that serves as an inspiration point for what they’re doing at his winery. But with wineries I find that most of the things I do are old fashioned, non-web events like wine dinners and tastings…not exactly new ground being covered there. Maybe one day the lighting bolt will hit me. But so far?…
Thanks to social media small wineries can now sell direct. As you noted bloggers is one option but there is another - direct relations through social networks.
Seems there is a new evolving trend on MySpace - hundreds of small wineries open up their profiles and actively conducting relations with hundreds of thousands of their fans. The potential is much bigger where over 3% of total members (over 3 million) clearly state on their profile their interest in wine.
You can find a full list of MySpace wineries, detailed statistics and useful tips on:
http://www.beesandpollen.com/st/blog_wine.aspx