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Will the Future DtC Market be Global? 

by Andrew Adams
July 13, 2020

 

Adam Ivor sees a whole new world of potential wine sales that has been largely unclaimed by U.S. wineries.

Literally a world of potential sales, as he says wineries are missing out on selling directly to foreign wine consumers who have little to no access to the wines of the majority of U.S. wineries. Many of these consumers also aren’t blocked by the vast sea of red tape that inhibits direct shipments within the United States.

Ivor is one of the founders of the company Gliding Eagle, which he helped launch in 2015 with the goal of helping wineries and consumers ship and track wines internationally.

Gliding Eagle based in American Canyon, Calif., ensures secure and safe delivery of wine by tagging each bottle with a small holographic label and 12-digit alphanumeric code that is also tied to a case ID code. All that information is linked to the company’s shipping partner, FedEx, which moves the wine. The system allows international visitors who purchase wine at one of Gliding Eagle’s American clients to get it back to their home country quickly and securely.

That still represents the core of Gliding Eagle’s business, particularly getting wine into Asia, but Ivor said he strongly believes U.S. wineries could better connect directly with wine consumers in many of the world’s major wine-drinking nations. “It’s just the natural progression of the industry,” he said. “There’s a massive opportunity.”

And there’s only room for growth. According to the latest DtC data by Wines Vines Analytics/SOVOS ShipCompliant, shipments to non-U.S. destinations by U.S. wineries accounted for less than 1% of all shipments in 2019 and were worth $5.8 million. In comparison, shipments to Idaho were worth nearly twice as much at $11.4 million. Non-U.S. shipments did have the highest average bottle price $141, which reflects the cost of additional fees and duties and because it’s likely only higher-priced wines that are being shipped out of the country. 

Growth in DtC sales more vital than ever

Ivor described the potential of the overseas DtC market in a session at the 2019 ShipCompliant Summit in Napa, Calif., (this year’s summit will be held virtually on June 25 https://sovos.com/events/shipcompliant-wine-summit/) but he said there was limited to no interest from wineries in subsequent months.

Then the whole world changed, and in recent weeks, he said, he’s been in touch with several wineries interested in setting up a program to capture direct sales from other countries through their own websites.

He said it’s not just because of the COVID-19 pandemic, but also the pain felt by wineries when tasting rooms were forced to close because of wildfires or because the power was shut off to prevent wildfires. Consumer buying habits have also changed, and how people visit wine country has evolved. The traditional tasting room sales model is not as dependable as it once was. Visitation counts are down as consumers linger longer at fewer wineries when they do come to wine country. “You have to create new points of customer acquisition and access,” he said. “We have to change up distribution and the route to market.”

One winery that does have a simple, minimal-click way to process international direct sales is Opus One in Napa Valley. From the winery’s homepage, it’s just a few clicks to determine that the entire cost — including taxes, duties and fees —  to ship a half-case to Slovakia would be $2,764, to Malaysia $2,532 and $2,686 to the United Kingdom.

Opus One has an international reputation that is unmatched by most U.S. wineries and even most Napa Valley wineries. Through its Bordeaux-based distribution network, the wine is in 90 countries, and more than half of its annual production, roughly 25,000 cases, is sold internationally. When consumers can’t find the wine in their local market, the winery’s website (available in English, French, Japanese, Chinese and Spanish) enables them to buy it directly.

“This is not new business for us, as we have been managing our international direct sales since 2010,” said Christopher Barefoot, the winery’s vice president of communications and guest relations. (He said the website also had a German version at one point, but the winery determined that German-speaking customers were more often than not using the international English version.)

Barefoot said all international orders are fulfilled from the estate in Napa Valley and shipped via FedEx, which has integrated into its system the duties and taxes required. “This way we are able to clearly show the customer what the full costs will be, as well as permit them, where it’s legal, to prepay these duties,” he said in an email.

While he said he couldn’t disclose specific figures on sales, Barefoot did say Japan and Hong Kong represent a “significant” portion of total DtC revenues, and these have been growing by average order value even as overall international direct sales have softened a bit recently.

He said the one major market Opus One does not ship to is mainland China, as the nation has imposed limits on the value of wine shipped directly. China's limit on wine value is one of the barriers to international shipments, and some of the world’s top wine-drinking countries, such as Spain are closed to direct consumer shipments. Other major markets currently closed to consumer shipments include Denmark, Argentina, India and the Philippines.

Many countries also limit the amount of wine that can be shipped DtC, yet these limits generally only apply to that particular parcel so orders can be broken down into smaller shipments to ensure compliance. Germans can receive one case, or 9 liters, per shipment, while the limit on shipments to the UK is 100 liters and Japan allows a maximum of 18 liters per shipment.

Stop telling your customers 'no'

Sandra Hess, owner of the consumer engagement and direct sales consultancy DtC Wine Workshops, said there is huge potential in global DtC sales.

Hess said those managing a winery’s DtC team should ask themselves how often they’re telling customers “no” as in: “No, we can’t ship to Japan or France or Australia.”

If that is happening more and more, she said it was time to figure out how to serve those customers as there are now tools to make that happen. Most wineries may think foreign shipments are an option for the largest wineries, but Hess said it’s actually a better fit for wineries producing less wine at higher prices. Based on her own case studies, she said it appears to be a great option to incorporate into a winery’s DtC program.

She said one Sonoma County winery she has been in touch with is a regular stop for tour buses, which (when they could visit wineries) were typically half filled with international visitors. All those tourists were just tasting and leaving, and now the winery is working out a system to retain them as DtC customers. “I think it’s a very smart strategy to take even 5% to 10% and allocate it to a proven model,” she said. “It’s a wonderful next step to consider.”

According to a 2018 study by Visit Napa Valley, there were 3.8 million visitors to Napa in 2018 and about 20% of these were international travelers. Most of these were visiting from Canada (18%), China (17%) and the UK (14%) and on average they were 44 years old, spent $162 per day and visited four wineries.

Ivor said Gliding Eagle is working with around 140 wineries, mostly in Napa and Sonoma counties, with some in Washington and Paso Robles, Calif. The company’s largest market is Hong Kong, followed by Japan, the U.K. and other major Asian markets. Ivor said the average bottle price per shipment is $100, with an average order size of about two cases. He said with duties and taxes, global DtC shipments make the most sense for wineries producing wines at higher prices or roughly $40 per bottle and higher.

In an example provided by Gliding Eagle, the company can ship a mixed half case containing three bottles of Sauvignon Blanc costing $40 each, two bottles of Cabernet Franc at $80 each and a bottle of reserve Cabernet Sauvignon priced $160 to a German customer for $285 or 80% of the wine’s total retail price.

Gliding Eagle has also found some success with international e-commerce retailers that can now list U.S. brands as well as the total prices for home delivery. Ivor said this is proving to be a faster and more economical route to market than traditional exporting, with the consumer paying less while the winery is paid more and paid more quickly. “I’m serious. It’s easier for us to ship to Japan in two days than it is within our own country,” he said. “We can’t ship to Utah.”

This article first appeared in the June issue of the Wine Analytics Report, www.wineanalyticsreport.com


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