After the Dust Settles …

If I were a small producer, say fewer than 5,000 cases, running my business via sales from the tasting room, wine club shipments, online commerce and spot distribution in a few states, I would use this time to build a beachhead in new markets.

All things considered, instead of frittering on Twitter, I’d work on retail accounts in new places.

By the numbers, the top 30 wine companies in the industry represent over 90 percent of the U.S. wine market by volume, according Wine Business Monthly.  According to Wines and Vines Magazine there are over 6,200 wineries in the U.S.  These two facts combined very plainly explain the sales problem gripping the wine industry:  there are too many wineries fighting for a very small percentage of the domestic wine market.

Because traditional distribution seems closed off to new brands with uncertain velocity turns, is there more reason why the Inertia Beverage Group Direct-to-Trade program makes good sense?

Direct-to-Trade remains a very misunderstood solution for the industry.  Were it understood, what Inertia has done and is planning to do would not create derision, but instead applause. 

This is okay, of course, because it gives the savvy wine marketer time to work by the cover of other people’s confusion.

In the bad breath blowback that got personal amongst anonymous sources in the New Vine Logistics (NVL) meltdown and acquisition of assets by Inertia Beverage Group (IBG), a very important point has been missed – this combination of technology and logistics infrastructure can be very good for the wine industry.

And, admittedly, I missed the bigger picture on this one.  In previous commentary about IBG and NVL I missed wide right in my field goal attempt at postulating their acquisition motives.

The net summary is I suggested that IBG’s interest in NVL was potentially a direct correlation to NVL’s compliance software and nascent relationship with Amazon.com.  While that may still hold true, I missed a larger strategic component. The completed acquisition now points to a vertically integrated solution for the wine industry that combines direct-to-consumer and direct-to-trade software and shipping logistics.  Compliance?  Yeah, they can do that to.

This is a very good thing.

I recently had the chance to meet Ted Jansen, CEO for Inertia, and catch-up with former colleague Mitch Schwartz, VP of Sales, and I received some additional clarifying answers to questions by email.

I found Jansen to be a thoughtful, amiable (albeit reserved) businessman with a sharp intellect.  It’s important to note the tangential aspect of my interaction because I believe it plays to a deeper core of some of the issues that have bubbled up around the handling of the NVL saga by IBG.

Coming from outside of the wine industry and having navigated the perilous waters of the incredibly competitive travel business, Jansen strikes me as very similar to many other leading executives in other industries – he’s strategic, has a vision, and views business as a competitive sport; a Texas Hold’Em game whereby you don’t place sequentially larger bets against the flop unless you know that the cards your holding can win the pot.

Texas Hold’Em is a game of strategy.  Unfortunately, while good business, this flies counter to the very parochial, collegial and transparent aspects of much of the wine business.

By way of background, I should reiterate that I am a former employee of Inertia and worked with and for Mitch Schwartz.  I remain cordial with several people at the organization (including Mitch); but, I have no particular affinity for the business outside that of curious observer for the piece of business that I directly impacted – the Direct-to-Trade program.

According to Schwartz, the Inertia Direct-to-Trade program will be available in 20 states by Mid-2010, up from the current 12.  This access to market will address over 85% of the wine consuming marketplace.

Effectively, what the Direct-to-Trade program affords is a small winery to get access to new markets – again, currently 12, growing to 20 states.  Using the Direct-to-Trade system as a technology enabler, a winery can now directly reach out to restaurants and retailers and have that trade account purchase wine legally via Winerevolution.com.

With the assets from the New Vine acquisition, that order can be fulfilled directly from Inertia (or a company of the winery’s choosing) in California, or a winery could stage wine at a regional hub with an Inertia partner, either a distributor who can pick, pack and deliver or another partner like Copper Peak, who has a wine quality warehouse and partnership with MaterialLogic based in St. Louis.

What remains unclear is the distributor “virtual book” program referenced in several media outlets.  While the program itself is clear – distributors can sell wines they don’t have to stock in inventory, what is unclear is whether Inertia will make the move to customize a personalized version of Winerevolution.com for a specific distributor in a specific geography.

If that’s the case, watch out. 

While it has been a long-time coming, the acquisition of the New Vine assets crystallizes significant potential for the Direct-to-Trade program – potential that can act as a complement to the traditional three-tier system, giving access to market to wineries who were previously shut out, creating an end-to-end solution for a channel of business that desperately needs it.

My bet is that any existing hardship people have will resolve itself as the organization goes through a rebranding exercise this fall.  With a fresh coat of paint, 12 months from now, I suspect that Inertia and New Vine will be faded memories and the new entity will be providing significant value to wineries, and ultimately end consumers.