The wine industry is finding fertile soil in omnichannel e-commerce. The coronavirus pandemic shifted consumer wine buying from the tasting room to the living room. In turn, direct-to-consumer (DTC) and e-commerce sales flowed through wine producers’ expanding omnichannel offerings. Like many industries, the influx of online sales required an adjustment to fulfillment and distribution processes. For wine and spirits, automation and processes to execute at piece, case, and pallet levels for quick and efficient customer distribution are essential.
What does the future e-commerce and DTC landscape hold for wine producers and retailers? According to IWSR, a leading beverage market research firm, by the end of 2021 the U.S. is projected to surpass China as the leading e-commerce alcohol market. As the total U.S. alcohol e-commerce market grows six-fold (from half to double of China) between 2019 and 2024, IWSR forecasts the DTC channel to grow by nearly $3 billion between the same period, a CAGR of 24%.
“Consumers’ increasing proclivity for online purchasing has been driven by necessity in recent months, but these purchasing behaviors are here to stay. As brand owners increasingly invest in the channel, markets must be assessed on their own merits with a bespoke developed strategy,” says Guy Wolfe, strategic insights manager at IWSR Drinks Market Analysis.
Wolfe says this is particularly important as the channel for alcohol e-commerce grows and the potential for government regulations evolves.
“This year, there has been a huge increase in awareness of alcohol e-commerce among U.S. consumers, while some states have relaxed legislation to facilitate online sales and home deliveries. IWSE consumer research data shows that in the U.S., 44% of alcohol e-shoppers only started buying alcohol online in 2020, compared to 19% in 2019,” says Wolfe.“Growth is largely being driven by the omnichannel segment as supermarkets and traditional retailers seek to rapidly enhance their online offering,” he adds. “On-demand players are also expected to gain significant share.”
A deeper dive into the drivers of wine e-commerce reveals that the shift to online buying is here to stay.
Prior to 2020, the wine industry relied on several channels for omnichannel fulfillment and distribution. The on-premise tasting rooms, wine clubs, in-person/online offerings of grocery stores, big-box supercenters, and specialty alcohol retailers (e.g., Total Wine), as well as online alcohol marketplaces (e.g., Drizly), provided customers with several channels to purchase wine.
However, the coronavirus pandemic upended the wine industry. Wineries closed their on-premise tasting rooms and consumers retreated from in-person retailers. Conversely, omnichannel e-commerce led to a market shift in wine buying. Tom Wark, executive director at the National Association of Wine Retailers, outlines several trends that are likely permanent fixtures in the wine industry.
Sustained online buying. In their 2021 Direct-to-Consumer Wine Shipping Report, Sovos ShipCompliant and Wines Vines Analytics states that in 2020, the volume of winery shipments increased 27% year-over-year, representing the largest increase in the report’s 11-year history. The increase was largely driven by quarantined Americans who migrated to the online channel.
Wark witnessed the same increase of online wine buying, with many small- to medium-sized wineries pushing e-commerce sales. Only a fraction of wine retailers were focused on e-commerce prior to the pandemic. Specialty retailers already had an e-commerce component in their sales channel.However, Wark says it was the emergence of new consumers entering the online wine channel that led to an overall surge in e-commerce sales. Many new customers were younger than the average buyer and preferred less expensive wines compared to the typical sale price. In fact, the Sovos and Wines Vines Analytics report cited a 9.5% decline in the average price per bottle shipped.
What does this mean for the wine industry going forward?
“We believe a portion of the customers new to the online wine sales channel will remain loyal consumers,” says Wark. “We can also presume that 2022 online sales for wineries and wine retailers will be significantly higher than 2019, the last normal year to compare against. “With more people working out of their homes permanently, it adds a measure of increase to online sales of alcohol and other products,” he adds.
Reevaluate shipping regulations. While wine e-commerce increased in 2020, there were no changes in shipping regulations to make interstate sales more convenient, says Wark. Currently, he says only 16 states (including Washington, D.C.) allow out-of-state retailers to ship wine into their states, while 45 states allow wine shipments from out-of-state wineries.
“All alcohol legislation is conducted at the state level,” says Wark. “We are seeing a number of state bills allowing distilleries and breweries to ship interstate. This is a big change and a trend we’ll continue to see moving forward with some velocity.”
Wark explains that states are supportive of microbreweries and small distilleries understanding that many are family-owned businesses. These establishments are hampered by traditional alcohol laws because of the requirement on how to sell. A $50 bottle of whiskey sells to a wholesaler for $25 before it’s marked up to $35 to a retailer, which in turn sells it to the end customer for $50.
“There is a significant amount of legislation meant to be protectionist in nature to protect local companies from competition,” says Wark. “If Texas, New York, Illinois, Massachusetts, North Carolina, and a few others changed their laws allowing consumers to receive shipments from out-of-state retailers, it would double the amount of wine that’s shipped interstate. That’s how big the marketplace is and how underserved it is because of discriminatory regulation.”
Increased consumer outreach. The pandemic and resulting e-commerce boom caused wine retailers to invest in or augment their online offerings to attract new customers. Wark says many wine retailers never had a business model that accepted online orders. However, they’re now making the investment in the digital infrastructure to enable online wine purchases.
“There are several online tools targeted toward wine retailers that are slick and consumer-focused,” says Wark. “More time and effort is expended toward direct consumer outreach through e-mail and also text messaging. “Also, wine retailers are beginning to offer local deliveries, a service that adds to their omnichannel offerings,” he says. “This level of investment in digital sales and marketing was not present pre-pandemic.”
Shift in consumer market. Who is buying wine and how much are they spending? Historically, consumers who buy directly from wineries are older because they have more disposable income. That’s changing.
Baby boomers dominated the wine marketplace, says Wark. However, their wine cellars are now full. Younger generations are now entering the wine market but at a different price point. Wark says the average bottle of wine purchased and shipped from a winery is $35 compared to an average price of $8 when sold from a grocery store.
“The wine industry is looking to Generation X but also millennials as a growing customer base,” says Wark. “Millennials are a different consumer generation, however. They grew up with more choices than baby boomers did. Therefore, the wine industry must work much harder to attract millennials to their offerings because there are so many more choices. “The market dynamics are now different, and it will be interesting to see how wine fares over the next 20 years,” says Wark.
