Posted: Nov 15, 2017
Web marketplace ending, but company has resources and options for another wine endeavor
When Amazon sent an email in October letting wineries know it was planning to shutter its online wine marketplace, it triggered headlines announcing the online retail giant was giving up on the wine business for a third time.
But it may be premature to say the giant online retailer is out of the wine business. In fact, Amazon may now be poised to become a truly disruptive force in the North American wine market.
The latest effort was a marketplace in which wineries paid Amazon a fee (about 15% of the purchase price) for the ability to sell wine through the company's website. The online retailer never actually handled wine but left sales and fulfillment to wineries, which were promised their products would receive a vast new audience of consumers eager to buy and try new wines.
Amazon launched the service in 2012 and campaigned hard to get wineries to sign on to the marketplace. At Wine Business Monthly's 2013 WiVi conference in Paso Robles, Calif., the Amazon executive in charge of the marketplace, Peter Faricy, said the company was signing up about two-dozen wineries per week but would not disclose any details about sales volume. In a 2015 report by Wines & Vines, a company spokesman said the marketplace was being used by 1,000 wineries selling around 8,000 brands that could be shipped to 30 states and Washington, D.C.
Then, earlier this year, Amazon made a $14 billion move into the grocery business with its acquisition of Whole Foods. That purchase meant Amazon held retailer licenses, and the company likely anticipated having a "tied-house" issue of accepting payments from the wineries whose wines it had been selling off of grocery store shelves.
The marketplace would have to be shut down.
Jeff Carrolll, vice president of product and marketing for Compli, broke news of the deal in an Oct. 23 blog post, where he released a portion of the email Amazon sent to its winery partners informing them it would shut down the marketplace Dec. 31.
Speaking to Wines & Vines in early November, Carrolll didn't agree with the assessment that Amazon had just whiffed its third attempt at online wine sales. He characterized it as the sensible choice on how best to manage its wine investment.
"It became clear pretty quickly to everyone that they had a tied-house issue, and they had to choose between keeping the marketplace or keeping their Whole Foods licenses," he said. "That seems like an easy choice from my perspective."
Amazon did not reply to Wines & Vines' request for comment, and the company has not released any public statement about its plans for the future. The retailer is still providing wine through its Amazon Fresh and Prime Now services.
Carroll said the company may be developing some new service, in which consumers can buy wines from a broad selection for home delivery or pick up wines at a Whole Foods location. He said the marketplace had "inherent challenges" in that Amazon never had full control over fulfillment, and consumers didn't have the option of creating a mixed case to take advantage of the selection of wines for just one purchase and shipment. By acquiring Whole Foods, Carroll said Amazon "has to be thinking broader."
If any company has the resources and ability to create a logistics network to stock popular retail brands on shelves while operating a warehouse operation to ship higher priced, lower production brands popular in the direct-to-consumer channel, it could be the new entity formed through the Whole Foods and Amazon merger.
"What's interesting to me is if they crack that code of some kind of just-in-time delivery for a broader selection than what is currently available in liquor stores," Carroll said. "Nobody has really cracked that code, but the combination of Amazon and Whole Foods is pretty powerful..The big question for me is, 'Does it shake up the three-tier system a little bit?' And it's certainly possible."
As the Amazon marketplace winds down, it's also unclear if the website ever really was a major player in online or direct-to-consumer (DtC) sales. The company never released any figures on sales value or volumes. The site is filled with brands by some of the industry's largest companies, which had the resources to sell and ship through the portal even if it may have cost more than retail or direct sales. For smaller wineries producing higher cost wines at lower margins, the cost of fulfillment and the marketing fee posed challenges not always offset by growth in market share from new customers.
Tammy Boatwright, founder and president of the DtC consultancy firm VingDirect, said only "those few clients who used Amazon did appreciate the additional orders and the brand awareness."
Craig Leuthold, who owns the 80,000-case Maryhill Winery in Goldendale, Wash., with his wife, Vicki Leuthold, said he never sold much wine through the marketplace and described the system as cumbersome. He said the winery has a three-bottle minimum through its own website, but that wasn't an option on Amazon, and when you add in the cost of paying someone to process the order and a company to ship the wine, he never made much money from an Amazon sale. "We artificially elevated the prices, but the reality is you never really recoup it," he said.
Leuthold said he went to Seattle, Wash., for a pitch meeting at Amazon's offices and said they gave "a real good dog and pony show" about how listing his wines on the Amazon site would provide his winery with a whole new level of consumer awareness. "That never really panned out," he said.
If, following the acquisition, Amazon and Whole Foods can create an online and delivery system more successful than the marketplace, Leuthold said he wouldn't be surprised, but he's focused on building sales through the traditional tasting room route. He said it's definitely not getting any easier for a winery his size to find a wholesaler, so Maryhill is opening a second tasting room in Spokane, Wash.
The 5,000-square-foot tasting room set to open Nov. 18 will feature an outdoor balcony offering an expansive view of downtown Spokane and the Spokane River running through the city. The tasting room is part of a larger development called Kendall Yards, which includes other retail locations, grocery stores, restaurants and 1,000 apartment units.
Leuthold said when consumers taste and enjoy wines, they are far more likely to buy those same wines later in a retail outlet. Only about 5% to 10% of tasting room visitors join wine clubs, while the rest look for the same wines in retail. "It's really a win-win all the way around," he said. "You want to know what you're buying."
By Andrew Adams
November 13, 2017
Source: Wines and Vines
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