Back to Paper 4: This week, we’re focusing on the consumer, specifically direct-to-consumer (DTC) sales.
2018: Where are direct to consumer wine sales increasing and why?
It’s essential here to define DTC — as narrow as winery-direct sales, extend to include more club models and mailing lists? There’s also a need to include relevant market data (for the US: the SOVOS Direct to Consumer Report provides annually updated data). For example, many US wineries sell DTC; but did you know the DTC model accounted for 10% of domestic US retail wine sales in 2017, totaling nearly $2.7 billion (+15.5% annual growth)? [SOVOS 2018] The report predicts that primary growth in off-premise sales will continue to be from DTC channels, as the wine industry as a whole evolves, e-commerce continues to grow, and regulations adapt. Just look at how industries have led that trend (Warby Parker for glasses, Harry's razors, etc.) The Australian winery-direct/cellar door sales industry is enormous as well and important to look at as well.
Knowing data from multiple markets (think back to our China question!) would be necessary as well, as well as whether you’d include other models like wine clubs (Viticole, Winc) and mailing lists (Hawesko in Germany runs massive mailing list programs, buying directly from wineries and selling to consumers — would you include this in your scope?) How do direct to consumer wines sales impact the more traditional channel sales? How are non-domestic brands impacted? What’s the benefit for a large versus small brand? How does legislation impact these sales (shipping is big!)?
Given some of these prompts... How would you define your terms and scope? What examples would you look at? Looking forward to responses!
Sabrina Lueck Kelli White
Hoping for some informative replies as this is what we are currently covering in D2
Here is my brief overview diving into the topic; note, I homed in on winery-direct sales to focus the argument.
What it is:
Direct to consumer (DTC) sales are sales that sell directly to the consumer, often bypass traditional import/retail routes to market, which may include cellar door, wine club, mailing lists, winery websites, events, and mail order sales. This DTC model places a winery brand at the center of the sales discussion, rather than at one end of a long supply chain and connects the brand to the end consumers in an intimate way. With the increase in enotourism and investments in hospitality infrastructure and event programming, it can be a way for a winery to see return on these investments in a direct and meaningful way, as well as to increase margin on bottles sold. For the consumer, while it is not more economical especially given high shipping costs per bottle, it provides access, experience, and assured provenance. This essay will take a look at multiple markets where DTC sales have both been historically important and on the rise.
Where: Essay takes a look at U.S. market (dominant market driver), Australia (increasing), European market, notes on China as well
China: TBD if the below could be included (perhaps not in the scope defined above, but I've included for review)
Thanks for this amazing outline, Sarah! The "why" of this question is pushing my thinking to more structural causes.
I added in some additional thoughts/data points:
Why are they growing in the U.S.?
The more difficult the route to market, the greater the incentive for wineries to invest in direct to consumer sales.
Direct to consumer sales at the tasting room are often regulated– licenses may limit the number of consumers a year, the hours a tasting room can operate, and whether food service or specific types of events are allowed.
Visits to wineries in Napa, Sonoma, and other more established regions are slowing while regions such as Virginia with more permissive licensing are growing. This does NOT correlate with DTC sales directly though as Wines & Vines reports strongest 2018 DTC growth in Sonoma (+19% Volume) and Oregon (+19% Volume)
High proportion of DTC Sales, example, Virginia:
Growing DTC region, example, Bordeaux:
Chiming in on Ontario DTC. There is DTC from many Ontario wineries to Ontario consumers and many Ontario wineries have wine clubs as well. There is some DTC non-Ontario wine as well. Wineonline WineAlign, Gargoyle all ship cases of mixed wine. It’s a grey area. Technically, LCBO and some grocery stores are the only place where you can buy individual bottles of wine.
After an amazing trip to Australia for seminar, which included visits to surrounding wine regions, I wanted to include the following case study from d'Arenberg in McLaren Vale, which built a multi-million dollar "Cube" as tasting room and tourist destination which draws 1,000 visits/day during peak season according to their data since it opened in 2017.
The company divides their sales as follows: 50% export (90 countries); 30% domestic distribution; 20% cellar door sales (DTC wine club sales and mailing list 35.000 names, which they keep updated by scrubbing periodically).
At cellar door, they have three different order forms: one for the domestic market, which pulls from on-site inventory; then two with special order forms for mainland China and US visitors (together, their three biggest traffic groups). The forms for the other countries are actually developed with their import partners, with prices and margins decided upon prior to printing of the sales sheets, and shipping directly from the inventory in the home country (they use Old Bridge Cellars in Napa, CA). They fulfill orders from cellar door by actually taking the order, scanning the order form, then share with their partners for fulfillment. The sales form reflects stock that is in that market; this requires an amazing amount of coordination, as they must constantly communicate with the importer about the stock situation. Exact sales figures for sales not shared, but I think this is a tremendously powerful example!