Wine.com’s business is built on a product requiring slow growth and constant nurturing. But in recent years its sales have looked less like a tender grape vine and more like unstoppable kudzu.
When the company started selling wines online in 1998 as Portland, OR-based eVineyard, it took in less than $2 million its first year. A few years later during the Net bubble bust-out, the company bought the name and assets of unsuccessful rival Wine.com and began some serious growth, adding more product, more regional distributors and sales certification in more states. Last year, Wine.com was visited by more than 2 million surfers, shipped product to more than 100,000 customers in 36 states and booked $32 million in sales—a 40% increase from the previous year.
That kind of growth is great. But even for a privately-held company like Wine.com, it also poses a dilemma: How do you keep it up? In this case, the answer was by becoming a “trusted partner” to one of the most trafficked and most trusted names in online retailing: Amazon.com.
For all Wine.com’s success, online wine sales are still a drop in the snifter compared to total sales from brick-and-mortar retail outlets. As little as 1% of the $22 billion in wine sales last year came over the Internet, according to George Garrick, CEO of Wine.com. And yet behavioral studies show that the majority of customers who buy goods online also consume wine. The problem is in convincing people to combine their shopping and imbibing habits.
Wine.com could do it alone, and might even produce those great growth numbers again, Garrick says. “But frankly, we want to grow faster. This Amazon deal puts us in front of millions of new buyers who didn’t even know we existed.”
Wine.com also calculated the cost of growing organically, by driving more traffic to its Web site, and concluded that it would gain reach more cheaply in the long run by growth through an affiliation with Amazon.
The company is certainly not writing off other marketing channels as avenues to growth. It will continue with search engine marketing and e-mail offers, and hopes in the future to build more features into its Web site that highlight wine education and the wine community. Wine.com also has enhanced its product line to offer gift certificates, special gift baskets, wine collections and monthly wine clubs, including two with celebrity names: pro golfer (and vineyard owner) Ernie Els, and TV restaurateur Rocco Di Spirito.
“We had to look at what it would cost us to grow direct, versus doing it indirectly through a partnership like this,” Garrick says. “By striking a revenue-sharing deal with Amazon, we’re saying that we think spending the money this way will produce better growth in the long run than trying to do it on our own.” Wine.com has not released financial details of the Amazon partnership.
Garrick says that being able to call itself a “trusted Amazon partner” on its home page also gives Wine.com an added measure of credibility—a bit of big-brand cachet that can’t hurt when you’re trying to persuade customers to change their buying habits.
And Wine.com believes a large number of consumers are ready to make the switch from buying wine at their local outlet to Internet purchasing. Most online shopping is done for three reasons, Garrick says: better selection, convenience and reduced prices. Wine.com can offer customers the ability to search navigate quickly through its approximately 14,000 offerings, reading house recommendations and reviews from customers and getting a short course in wine appreciation with the click of a mouse. No smarmy clerks, and no fear of being steered to a vintage the retailer is trying to unload. With its “virtual inventory”, Wine.com doesn’t send a request to the distributor until a customer places an order.
As for convenience, wines are delivered within a few days, so unless customers are looking for a bottle to bring to a party that night, they should be happy to let FedEx do the lifting and carrying. And while Wine.com is not less expensive than a local retailer, it’s not more costly. “For all these reasons, most people will find that buying wine online is a better way to buy,” Garrick says.
And a recent development in the Supreme Court, of all places, may help encourage the online wine habit. The justices ruled in early May that states cannot bar out-of-state wineries from shipping product into their borders. While the ruling only applies to states that allow wine producers to sell directly to consumers without going through third parties, it’s assumed that this will help fuel an increase in the number of wineries hawking their vintages on the Internet. That should help enlarge the market for online wine for everyone—Wine.com included, Garrick says.
“The majority of the industry will continue to sell through the three-tiered system of wineries selling to wholesalers selling to retailers,” he said when the decision was handed down by the high court. “Wine.com continues to be the only legally operating Internet wine retailer with both a mainstream supply of brands and vintages and the legal ability to ship to the majority of the U.S.” Company officials say their network can now sell wine to about 85% of the U.S. population.
The affiliate arrangement is different from others that Amazon has with other retail partners such as Toys R Us, Office Depot and Target. In this case, Amazon visitors who click on the “wines” category in “gourmet foods” are directed to a site operated by Wine.com, not one administered by Amazon. The site has the exact look and feel of Wine.com’s home page—except for the “Welcome Amazon Visitors” headline and the special offer of $10 off their first order of $50 or more.
Garrick says the unique arrangement that directs visitors back to a landing page on the Wine.com site is due to the fact that selling wine online is regulated on a state basis. That means that retailers can only ship wine within a state if they have a state license, and if they source their wine from distributors within the state. The Web site must only display inventory that’s available to customers in the state you’re shipping to; Wine.com visitors customize the products on the page via a pull-down menu of destination states.
“While we would like to take advantage of the personalization Amazon builds into its Web sites, they don’t have that capability to display inventory based on shipping destination,” Garrick says. “They don’t need that for any other category. So we’re the only retailer where they link directly off to our site.” Wine.com also employs a software application that checks public records to make sure that the person purchasing wine is of legal age—something else that Amazon does not need to worry much about.
It’s not Amazon’s first foray into selling the fermented grape. Five years ago, the company spent 430 million for a 45% stake in Wineshopper.com, which eventually declared bankruptcy after merging with another online wine retailer.
“We didn’t make the Amazon connection to the exclusion of other growth efforts,” Garrick says. “We’re pursuing a mix of different marketing alternatives. But this single deal gives us the ability to reach millions of new customers. From Amazon’s standpoint, it gives them a chance to sell a highly regulated category which they otherwise couldn’t sell, and which their competitors still can’t sell.”
