Insight & Opinion: The Wine Industry's Future is Being Delivered Straight Into Our Hands
August 06, 2020
When historians look back at today, it will be hard to miss the fact that the coronavirus has accelerated many trends, bringing them out of the background and into the mainstream.
A good example of this phenomenon is the rapid shift to remote work. Empowered by technology, more Americans are working from home than ever before, and some may never go back to their offices. Likewise, the wine industry is experiencing something similar when it comes to direct-to-consumer (DtC) shipping. With more people spending their time at home, deliveries have ramped up, and awareness of this important channel has increased exponentially – giving us a glimpse into the future.
Consider that even before the coronavirus broke out, DtC shipping was outperforming the wider wine market in terms of annual growth. And though it made up just 10.8% of wine sales prior to the pandemic, changing consumer expectations distinguished by the “Delivery Economy” were already pushing more to increasingly buy their goods online for the greater selection, flexibility and convenience afforded by ecommerce.
The coronavirus has rocketed that trend forward with record online sales offering producers a rare ray of light at a time when many are struggling to reopen. Today, DtC shipping has crossed into the mainstream, and while complementing three-tier distribution, this channel is helping wineries meet consumer preferences that were already apparent before the crisis.
Out of the Gloom, A Bright Spot
In an industry full of dark-and-stormy predictions, direct-to-consumer wine shipping remains a vibrant and profitable area for producers. Riding a wave of new markets, the DtC channel has averaged 13 to 18% growth increases over the past decade – hitting $3.2 billion in value last year, according to the 2020 Direct-to-Consumer Wine Shipping Report from Sovos ShipCompliant and Wines Vines Analytics.
And the latest mid-year update shows rapid growth through the first half of 2020 with almost 1 million more cases shipped from January through June than the same period in 2019, representing a 29% increase in volume and a 15% increase in value.
Historically, DtC has been the realm of small-to-mid-sized wineries, but that’s starting to change. Small wineries are still responsible for nearly half of all DtC shipments, yet the channel is attracting significant interest from America’s largest wineries, which increased the volume of their shipments by 12.9% and their value by 28.4% in 2019.
Despite pre-pandemic signs of maturation, the channel will likely continue to outpace the overall wine market’s growth for the foreseeable future. That’s good for both winegrowers – which can realize greater market access when avoiding the limits of the three-tier system, wherein large distributors and retailers focus on big brand names – and consumers who value the channel as a means of accessing brands not available in their local retailer or bottle shop.
For example, a consumer might buy an inexpensive and widely popular wine at a traditional retailer if they plan to bring it to an event that same night. In contrast, that same consumer might turn to the DtC channel to seek out a lesser-known brand from Oregon or Washington that cannot capture the attention of distributors.
In this way, the DtC channel can complement and supplement what distributors and retailers can’t or aren’t interested in handling, maximizing sales and consumer reach. Most consumers will continue to enjoy going to their local retail stores for recommendations and same-day purchases, while also enjoying the DtC channel as a valuable companion when seeking broader choice.
In addition, last year the Supreme Court ruled in a case with implications on the DtC shipping market. Just 15 states today allow retailers to make direct-to-consumer shipments. But in Tennessee Wine & Spirits v. Thomas, the Supreme Court noted that states cannot enforce laws that blatantly discriminate against out-of-state alcohol retailers, adding another arrow to the quiver of retail organizations when they challenge such laws in court. With clear legal precedent, there will be a large push in the coming years to adjust state laws, both by litigation and legislation, to expand the number of states where retailers can ship.
While this expansion will bring new kinds of competition to the existing DtC wine shipping market, it could spark a wave of new growth in a rising-tide-lifts-all-boats scenario – ultimately benefiting wineries with established DtC services and the end consumer.
A Glimpse of the Future
Due to the coronavirus pandemic, wineries have gotten creative in how they stay connected with consumers. For example, some are offering virtual pairings with movies and popcorn recipes. Others have established flat-rate delivery fees or created “wine survival kits” to help consumers overcome the challenge of social distancing.
As consumer awareness of the DtC channel grows, this presents an opportunity for wine producers to connect with and find new buyers. This growth in alternative sales can even support traditional distribution methods after the crisis, while catering to changing consumer preferences.
No one could have predicted the impact the coronavirus has had on the market, but if there’s a silver lining, it’s that it has accelerated adoption of a channel that will only grow increasingly important to the wine industry’s future.
by Alex Koral, J.D., Senior Regulatory Counsel with Sovos ShipCompliant
Alex Koral is senior regulatory counsel for Sovos ShipCompliant. He actively researches beverage alcohol regulations and market developments to inform development of Sovos' ShipCompliant product and help educate the industry on compliance issues. Alex has worked with the company since 2015, after receiving his J.D. from the University of Colorado Law School.