Wine Seller

THE BUSINESS OF SELLING WINE over the Internet has been hit by the economic downturn just like other online endeavors.

Geerlings & Wade, the leading direct marketer of fine wines and wine accessories, has not been spared. It has suffered dropping sales and in April its stock, which had been selling at under $2 for most of this year, was moved to Nasdaq’s small cap market.

But Canton, MA-based Geerlings & Wade has a plan to address the current challenges. It is revising last year’s strategy of mailing more to both acquisition and house files — curtailing that activity while hoping for increased response rates.

“Obviously the goal is to get the same performance on less mail,” says Eric Welter, Geerlings’ vice president of marketing. “That’s our number one area of concern.”

Geerlings is focusing like a laser beam on turning one-time buyers into frequent buyers. That means concentrating on current customers. “We’re focused on maximizing lifetime value of these customers,” says David Pearce, the company’s president, CFO and CEO.

Geerlings is looking to its online channel (www.geerlingswade.com) as a cost-effective way to generate business.

The online wine market in general has been volatile. In May, Wine.com ceased operations and some of its assets — most importantly, the Wine.com URL — were bought by its smaller competitor, eVineyard. Wine.com had bought Wineshopper.com last year.

For 2000, Geerlings had a net loss of $471,000 — an improvement over 1999’s loss of $1.5 million but not as welcome as 1998’s net income of $1 million. In 2000, decreased sales (to $37.2 million) resulted from, among other things, halting outbound telemarketing and weaker sales from its holiday catalogs, the company says.

Internet sales accounted for only 5.3% of revenues in 1999 but jumped to 14.2% in 2000. Even with disappointing response rates in this year’s first quarter, sales from e-commerce transactions — most coming from existing customers — increased by 22.5% to $1.2 million from last year’s first quarter.

The more attractive environment for online advertising is allowing Geerlings to focus on that for the first time; it is starting to advertise with the major portals and partner with some of the stronger dot-coms, according to Pearce.

Geerlings’ primary business is not for gift-giving but selling cases of wine. “Our products are used primarily for personal consumption as opposed to a gift site,” says Pearce. “We certainly have spikes during the gift-giving season.”

The company has a file of over 400,000 past customers and a house file of 12-month buyers of around 120,000. Geerlings’ average customer is male, 50 years old and affluent, with a household income of more than $75,000. The online customer is a bit younger and less affluent. The average order size is $135 dollars and about 1.2 cases.

Geerlings enjoys a whoppingly high margin: gross profit as a percentage of sales has been over 50% for several quarters, including this year’s first quarter.

Geerlings’ channels are mail, phone, online and walk-in retail at its distribution centers. It is focused on bringing together this multichannel approach. Unlike many other online marketers, Geerlings uses key codes so it knows where Web customers have learned about an offer.

The online inventory is tied in real-time to the company’s other channels so that, for example, if a phone rep sells the last bottle of a particular Bordeaux, it is automatically pulled off the Web site.

Since it started as a cataloger 16 years ago, Geerlings’ selling point was to take the intimidation out of buying wine. So its communications — including online — contain a lot of text to explain about regions, vintages, matching wine with food and other concerns.

“In order to sell wine through the mail and online,” says Welter, “we feel if you can’t taste it you have to be able to see a label and read about it.”

The Web site has a “wine wizard” tool to help customers find the right bottle. They can also browse wines by type/varietal, region, personality and price. In addition, the site has a popular food/wine pairing feature. “Down the road,” says Pearce, “we’re going to be able to personalize the Web site and try to upsell to customers when they’re browsing.”

A major strategy for Geerlings is timing its direct mail with its e-mail program. That’s more complicated than it sounds. To comply with the heavy regulations for direct marketing of alcohol, the company ships to 30 different states from 16 different licensed retail facilities. Different states have different laws around the promotion of alcohol so it must create from seven to 16 versions of a given mailing. It began working on this with Lexington, MA-based e-mail marketing company e-Dialog about a year ago.

Geerlings has upwards of 75,000 e-mail addresses and it does a lot of mailings. Every two weeks it mails out a brochure featuring one wine, with eight others listed on the back. These are followed by the e-mails (text-only, HTML and AOL), of which it sends about 50,000 per round. This is in addition to other e-mailings Geerlings does. For example, when it sends an e-mail with wine accessories only, it goes to the whole e-mail address file.

“Each direct mail mailing that has an associated e-mail looks like an entire mail schedule for some companies,” notes Welter.

He adds that the company is seeing a “very, very high conversion rate” from people who get both e-mail and direct mail, but he declines to be more specific.

One convenience e-Dialog offers is that e-mail recipients can hit reply, enter the number of bottles or cases desired, and click send. That’s called making it easy for the customer.