July 7 2010
Quick thoughts on wine news from the last week …
Poof! Goes the Wine Deal Web Sites
“Now you see it, now you don’t.” That is the sales premise of the flood of “one wine deal a day” flash sales web sites that have sprung up over the course of the last four years with the economy contributing to the development of a number of sites in just the last two years. Ironically, “Now you see it, now you don’t” can also describe the long-term viability of most of these sites, as well.
You can now be sure that a shakeout of these sites is imminent.
Woot.com was the originator of the concept of one screaming wine deal a day. They were followed shortly thereafter by Wines til Sold Out, the now defunct Radcru.com and then Winespies.com. What followed in the wake of these companies has been a rash of “me too” imitators trying to capitalize on a combination of excess inventory in the wine supply-chain and consumers looking for a deal.
In addition, the concept has been co-opted by dozens of other companies who are not principally in the wine space, but offer deep discounts on luxury goods, including wine – companies like Gilt Groupe and Rue La la and others.
Specific to wine, Cinderella Wine, Winery Insider, One Wine One Deal, and Wine Heist all play in this space, in addition to a rash of others. Anecdotally, I have heard that upwards of 40 of these sites exist.
The consumer-facing business model is simple enough—usually there is some sort of free email sign-up “membership” element and then one wine deal at a time with a time limitation, sometimes one day, sometimes up to a week. The wine on offer is at a significant discount from retail price. Sales copy varies from site to site ranging from the compelling to the hackneyed.
The short-term value is that the consumer gets a “deal” and the wine brand gets a sale with some level of brand protection given the membership and non-broadcast nature of the advertisement.
However, the questions I have related to these sites are numerous:
• At what point does the consumer get numb to wine deals in general?
• Is there a potential degradation to the wine brand in a fire sale?
• Does commoditizing wine with price as the activation lever create long-term, conditioned harm to the wine buying market?
Just as major label clothing brands like Ralph Lauren have segmented their clothing offerings so I can buy a Polo shirt for $65 at Nordstrom, and a Chaps shirt at Kohl’s for $14.99(probably made at the same factory) is it manifest destiny with wine that second labels are going to increase in importance as production in the upper echelon adjusts to normalized market demand?
Paul Mabray, Chief Strategy Officer at VinTank doesn’t anticipate wineries increasing risk with second labels when he noted in an interview:
“The notion of ‘flash sales’ of super luxury products ($40+) does have a life span. As demand shrinks (leaving excess inventory that requires these types of channels), the wineries generally reduce production to match market needs. I would expect that in a 12 - 36 months the pool of excess inventory of these types of wine reduces and the ability for these wine sale sites to source in the category dries up. At that point, these companies will need to move to a different product type (International?) or change their value proposition (e.g. great prices of upcoming wineries).”
Specific to the wine sale sites themselves, how much longer are the number of entrants in the race viable before a shakeout occurs and a winery is on the hook with outstanding receivables?
I have always followed the Jack Welch (former CEO of GE) school of thought – if you can’t be number one or number two in your market, then you’re in the wrong market (paraphrased).
I watch trends closely and the surest sign that a trend has reached its zenith is when an acquisition occurs, or a late adopter gets into the game. The wine business has seen both instances occur within a week.
If I were a winery, I would pay close attention to the tenured players and let the rest of the inquiries to “flash” sale a wine quietly go away, because the majority of these “flash sale” sites are a “flash in the pan,” not long for the world.