November 29 2006
At Good Grape, I spend a lot of time talking about things that I would like to see in the wine industry—occasionally on the winery side, but mostly from a consumer perspective.
I am, first and foremost, a wine enthusiast and a consumer.
One of the things that I would like to see from a consumer perspective is a greater abundance of boutique, artisan wines from small producers—that beautiful Pinot from a winery that does 1000 cases. The notion that a ½ dozen bottles show up at your local wine shop and if you don’t grab one now, you may never see it again.
Modern day distribution currently manages all wine at retail and restaurants. This limits the opportunity for our aforementioned 1000 case producer because a couple of good placements at restaurants will blow through that inventory before the restaurant even has time to reprint the wine list to feature it. This doesn’t even consider normal retail placement.
On the flip side, the above example assumes the best—sales. But, distributors don’t generally like to take in inventory on something unproven, tying up capital along the way that can quickly turn into dead inventory and lost revenue. And, distributors would also prefer it if there was something of a ready market for the wine—a couple of winery connections at a white table cloth restaurant or the like. This notion kicks off a chicken/egg conundrum that is very difficult to overcome—what comes first an account to sell to, or the wine to sell?
This is simplistic, but the net-net of the situation is, in most cases, small producers have been much challenged with not being able to secure distribution for their product in most major markets—Indianapolis included.
But, in ecommerce circles a significant splash has been made with a theory called “The Long Tail.” The Long Tail suggests that the future of commerce is in the economics of abundance. Therefore, the fact that labels, production and all measurable metrics in the wine industry is growing is a strength, not a weakness.
These growth metrics are a strength because just like Amazon.com with books, NetFlix with movies, and backlist music on iTunes, the Internet gives consumers/retailers/restaurateurs the power to find a niche item and buy it. For book lovers, gone are the days of scouring city bookstores looking for the lone copy of a book printed in 1986, ending in futility and frustration. Now, you just go online to Amazon.com and the book you are looking for along with 35 similar titles are all available for your immediate purchase. Dwindling quickly are the days when business was constructed on the premise that 80 percent of sales came from 20 percent of the product.
In a similar vein, wineries, should, finally, be able to deliver their wines, not only to consumers who want it, but also retailers and restaurateurs, as well. The Long Tail of wine is here. But, how will it be implemented?
Recently, I made a foray into the wine industry joining a smart bunch of folks at Inertia Beverage Group, a technology company that enables wineries to sell to and manage direct customer relationships via the use of our management and ecommerce solution.
My responsibility, along with a couple of colleagues, is to get our direct-to-trade initiative off the ground. Over the past two months or so we’ve been organizing and polishing the foundational elements that have been cultivated over the last year. At its essence, the direct-to-trade initiative picks up where the direct-to-consumer business leaves off and gives the winery the ability to sell direct to a retailer or a restaurateur using Inertia’s proprietary system and ecommerce capabilities.
It’s a cutting-edge, game-changing, paradigm-shifting, fundamentally different way of doing business. And, we think the growth opportunity will be significant—creating an entirely new category in the wine business.
The Long Tail in wine is the opportunity for small, boutique producers to have a sales channel that enables them to sell to a customer that is seeking that wine—a consumer, a retailer or a restaurateur.
Decanter.com ran a short piece on the initiative on November 28th. The link can be found here.
The official announcement/press release will occur later this week.
The upside to this program is you might think that this would be a threat to the three-tier distribution system, but, in fact, it’s a benefit. In many states Inertia is partnering with a distributor to aid in the administration of the program and the response from distributors has been strong because they see the value in allowing small brands access to the market so they can grow, without the risk of them having to take on inventory.
In our model, the winery fulfills all sales direct and we call this the “virtual inventory model.” The distributor participates, ecommerce facilitates the transaction, the winery gets a sale and sends the product.
It was an “a-ha” moment for me, too.
Eventually the winery might grow to the extent where they will need traditional distribution services and, oh, yeah, they would be in a position to have access to a distributor that has been a part of the ecosystem fostering a friendly introduction and, potentially, allowing those winery brands to take their sales to the next level with more “on the street” sales horsepower. We call this “brand incubation.” Wineries are developing and growing their brands.
It’s a win-win-win for everybody using some smarts, ingenuity, and good relationships with wineries and distributors while rethinking the process.
I’ll have one or two other posts on this because I truly think it’s relevant, but, for now, the readers of Good Grape are getting the 100,000 foot overview and a U.S. wine blog world exclusive on this endeavor.
I’m sure you’ll excuse me for a moment while I pour a glass in celebration of boutique wine, The Long Tail, good people and technology.