Shanken: Direct-Shipping, Part 2: The Retail And Wholesale Landscape

While wineries are hitting their stride with direct-shipping, retailers are facing resistance on the shipping front. Since 2005, the retail tier has witnessed a decline in the number of markets where they can legally ship from out of state, from 18 states to 14. Where enforcement was once lax in states where direct-shipping isn’t legal, most of those states are now toughening their laws or cracking down hard. Last year, UPS and Fedex announced they would end wine deliveries to all states except for the 14 where shipping is legal.

 

In Illinois, lawmakers have made it a felony for out-of-state retailers to ship wine into their state. The leading Illinois retailer, the 38-store Binny’s Beverage Depot chain, shut down all out-of-state shipping last year. “I believe in free markets and the free flow of goods and services across state lines,” Binny’s owner Michael Binstein told SND at the time. “Everybody loses, including Binny’s and its customers, when we get away from the gospel of free enterprise.”

 

Not surprisingly, wholesalers take a different view. Craig Wolf, who recently departed as CEO of the Wine & Spirits Wholesalers of America (WSWA), acknowledges that “the on-demand economy is here to stay.” Wolf says the best way to serve customers is through the three-tier system with sales through local retailers and options for home delivery. That approach, he says, “ensures quality and ensures local taxes are paid, local jobs are preserved, and product integrity is maintained. When a bottle comes through the three-tier system, we know it went from a reputable supplier to a reputable wholesaler and then to a local retailer who then delivers it, with ID checks and proper tax collection all through the system. You get all the assurances of the three-tier system, but you also give the consumer exactly what they want when they want it.”

 

Mel Dick, president of the wine division and senior vice president of Southern Glazer’s Wine & Spirits, also stresses the importance of the traditional structure for wine sales. “The three-tier system is still the most profitable and safest route to market for beverage alcohol suppliers,” Dick argues. “It prevents underage access and ensures tax collection. We think direct-to-consumer models are most successful and effective with companies that work in partnership with the three-tier system, such as Drizly.”

 

But retailers are seeking to change the laws in their favor, and are working through their state legislatures to try and do so. Over the past two years, direct-shipping legislation has been introduced in New York, Connecticut, Alabama, Maine, and Texas, and lawsuits have challenged restrictions in Michigan, Illinois, and Missouri. “The technology is here to stay,” says Daniel Posner, president of the National Association of Wine Retailers, and owner of Grapes the Wine Co. in White Plains, New York. “Consumers want choice. They want good selection, and they want good prices. They should be able to get that in 2018.”

 

“The combination of winery DTC plus retailer three-tier e-commerce can absolutely reach a 10% share in the long term,” says Rich Bergsund, CEO of online wine retailer Wine.com. “If we do this right, a lot of that 10% will be incremental industry growth—inspiring new, younger consumers to discover the wine lifestyle.”