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Direct-Shipping, Part 1: DTC Channel Goes Mainstream

September 19, 2018

Direct shipping of wine is now mainstream in much of the United States. Last year, volume of direct-shipped wine was up 15.3% to 5.78 million cases, with consumer spending growing 15.5% to $2.69 billion, according to the 2018 Direct to Consumer Wine Shipping Report by Sovos and Wines & Vines. The channel is on pace to eclipse 6 million cases and $3 billion in sales by year-end, to reach nearly 2% of the U.S. wine market in volume and 5% in sales. And those figures include only wines shipped directly from wineries to consumers—not wines shipped from retailers to consumers, which pass through the supplier and wholesale tiers. Those sales, according to Wine.com, are estimated at a further $1 billion.

Direct-to-consumer (DTC) shipments are now clearly part of the wine-selling landscape, particularly for smaller wineries. Since the Granholm v. Heald U.S. Supreme Court decision back in 2005, the number of states where wines can legally be shipped has risen from 31 to 46.

It’s a far cry from two decades ago, when the DTC channel was all but nonexistent. At the time of the Granholm decision in 2005, DTC still totaled only 500,000 cases. Today, smaller wineries are often content to stick with DTC and leave the three-tier system to larger players. According to the Sovos report, wineries with volume of 5,000-50,000 cases accounted for 43% of all DTC shipments and 46% of sales last year.

At Beckham Estate Vineyard in Oregon’s Willamette Valley, DTC accounts for about 85% of the winery’s 2,000-plus-case production. Co-owner Annedria Beckham has seen recent interest from wholesalers, but notes that a three-tier approach would likely require a shift in product range and pricing structure. “Distributors are our partners, and they’re out promoting our wines,” Beckham says. “But if we get on a great restaurant wine list and a customer then can’t find the wine in their local market, they’ll go directly to my website and order from me.”

Larger winemakers stress the importance of the three-tier system even as they work to develop a stronger DTC presence. “Three-tier is critical to our success, as is DTC,” says Peter Mondavi Jr. of Charles Krug Winery. “They’re complementary. The wines we’re selling for DTC are higher-priced, small-production items that don’t move very fast within the three-tier system.”

Natasha Hayes, vice president of marketing and direct-to-consumer for national brands at WX Brands, agrees that three-tier and DTC are symbiotic. “Usually what we’re promoting in DTC is not out in wholesale—labels that are unique and exclusive,” she says. “We’re building the brand out in wholesale with certain SKUs, and creating unique accessibility for wines that have limited access through DTC. There’s not much conflict.” WX Brands’ portfolio includes Bread & Butter, Jamieson Ranch Vineyards, Chronic Cellars, and others.

In the second part of this feature, we’ll focus on how the retailer and wholesaler tiers are adapting to the rise of direct-shipping.—Carol Ward & Kevin Barry

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