E-tailers offer choice consumers crave

Michael Osborn, founder and vice president of merchandising for Wine.com

JEFF QUACKENBUSH, BUSINESS JOURNAL STAFF REPORTER

Wine.com was born in 1998 as eVineyard, at the beginning of a three-year period that saw a surge in dot-com investment flood into the wine business.

Then came the dot-bomb technology stock slide of 2000–2002 and massive consolidation in Internet business as funding dried up. VirtualVineyards.com merged with Napa-based WineShopper.com as Wine.com in 2000. The following spring, eVineyard acquired the assets of Wine.com out of bankruptcy and moved from Portland, Ore., to San Francisco.

“Some tried to create a buyer’s-agent model, going back 15 to 20 years,” said Osborn, 46. “We sought local licensing to be a local retailer of wine.”

Today, Wine.com employs under 100, ramping to more than 300 to fulfill fourth-quarter orders. Since it started, the company has shipped nearly $600 million worth of wine. Shipments have been growing each year, reaching nearly 3 million bottles in 2014 alone.

Being locally licensed as a retailer and being close enough to get to most wine consumers has prompted Wine.com to set up seven fulfillment centers around the country, including one in Berkeley to serve the West Coast. Each center is technically a store, but it’s set up more for efficient pick-and-pack operations than walk-in sales.

Requirements for adult signatures for alcoholic-beverage delivery did slow Internet sales until date-certain and other delivery methods could be worked out, Osborn said.

He is set to be on the “Routes to Market” panel at the Business Journal’s Wine Industry Conference on April 24. Osborn spoke with the Business Journal about what’s behind a 43 percent increase in the number of wines the company is making available to California customers, potential for disconnect between wine-buyer “gatekeepers” and choice-hungry consumers, and early branding success found via wine storytelling over online chat.

What are the top challenges for North Coast producers to get wine to consumers?: We believe growth in the selection of wines is paramount for our growth and what customers want. They want a broad assortment. The days of a small curated list are all but over. At any one time right now, customers in California have access to more than 7,000 unique wines. With vintage changes and some wines coming and going, like single-vineyard and other releases not lasting over the year, we can have over 18,000 uniques [available] over the course of a year.

One thing our customers care so much about is choice. So many times wine stores ­— a grocery retailer selling wine or specialty retail — made a buying decision for the consumer. Wine merchants as gatekeepers made a decision for what consumers want. I’ve had buyers say, “My customers never buy $20 petite sirah.” But then you look at their shelves and do not see $20 petite sirah, so no wonder. I’m not knocking restaurants with a theme that calls for certain wines, but at retail there’s nothing worse than making decisions for the consumer. We want to and do offer enormous selection to consumers.

This year we plan to add 3,000 more wines to our California assortment. That is what is in our California warehouse and available to the West Coast. Our assortments in units and revenue — over 55 percent is imported and 45 percent is domestic. Nielsen for the trailing year is reporting 25 [percent] to 26 percent [of U.S. wine sales] is imported and 75 percent domestic, but we’ve always had more imported wine purchased by customers. We have lot of assortment of domestic wines, but at the end of the day our customers are finding their way to buy more imported wine. The broader market is dictated by what retailers are doing. They have [fewer] linear feet so decisions are made for value-priced domestic wine.

If the California assortment grows by another 3,000 wines, about 1,500 will be both imported and domestic. We’re led by a lot of research supplemented with trade data. The wines we offer are world-class wines on restaurant wine lists. We get input from wholesalers and wineries on fact-based information because that’s what is being poured by the glass and served at white-tablecloth restaurants in certain cities because that’s where consumers are being exposed to them.

In California, we can work with broader range of products. If a winery does not go with a wholesaler, it can work directly with a retailer like us. But the minute the wineries want the same assortment available to Texas or New York, the wineries have to have licenses in those states. If I want to offer Mendocino County pinot noir in New York, it needs to be already be available in New York. We can’t ship wine from California to those states without licenses, wholesalers and such things there. Again, gatekeepers and wholesalers are creating an assortment for them.

We can be influencers, but we can’t smuggle wine around. But we certainly can and do partner with wineries to do forecasting and preorders. But I want those same wineries to have accounts in restaurants and retailers. Our business model is not predicated on our being the only one selling.

How progressive are North Coast wineries in selling wine directly to consumers?: I’m not expert on their channel business. I encourage our customers to have a great website. Nothing replaces the relationship in tasting room, and that can last in decades. We all have memories of once being at a winery, but that was maybe 10 to 15 years ago. It’s about creating memories that later create brand loyalty, so they think of it when they’re making a selection at Wine.com or at a restaurant tonight or making a selection for business clients or friends.

Part of where we really shine is the ability for us to do servicing of customers who come to Wine.com, and that has made us the most-trafficked website about wine. They have come to know that we have fast delivery and have an experience that is repeatable. I do not think the winery-direct experience is directly competitive, but it is another experience. We try to make restaurants know about all wines, because consumers do not drink the same wine every night.

Our logistics centers offer the first delivery such as in California can be tomorrow, and more than half our customers can get it in next business day and 80 percent in two days. Contrast that with a Napa Valley winery that wants to ship to a Floridian wine, and it is on a truck for more than seven days. Wine is heavy and susceptible to heat and cold. In e-commerce, nothing is more challenging than something that is perishable. We hold wine during inclement weather. Last year with FedEx we became first their wine industry shopping client to open FedEx stores to receiving wine shipments.

Now it is more than just Kinko’s. There are more than 2,000 of those FedEx locations, and they’re open late hours and some open seven days a week. FedEx delivers to those stores first in the morning. So next-day service in August may not be a good idea when it would arrive at 4 p.m., but to pick it up at a FedEx office at their convenience helps with the age requirement to sign for it and with weather that is hot or cold.

Wineries don’t have the volume and experience for all the myriad of issues that come up with direct shipping. When consumers are at a winery, world-class memories are created. But for the fulfillment of the order for the relationship beyond that experience, we’re better at it. That’s a good reason why Nieman Marcus or Macy’s do well even when you can shop directly from Armani.

We had to overcome adult signatures and shipping. For so many years, a number of consumers questioned whether they could buy wine online.

What about alternative routes to market?: I don’t want to be the granddaddy on the panel who says routes to market do not need improvement. From a product perspective, you can argue you do not necessarily need new licensing or an underground railroad to move wine around.

One of the biggest things Wine.com added is storytelling. The second-best thing a winery can do on the property is provide complete information with winemaker notes, videos and photography. One of the problems the industry has been plagued with is best described by the analogy of the grade-school game of telephone. At the end, the message is quite diluted. Wineries, if they sell into wholesalers, end up making a presentation to senior executives at the wholesaler who share it with the sales team who take it to the retailer who take it to the consumer. The original message is either diluted or explained wrong.

We’ve tried to publish as much as can. We don’t have a tasting panel that stands in front of the customer. With the material and content getting more rich with better photography and video and interviews, it’s possible to give the winery a reach more than it had. The tech sheet published once to the retailer — they shouldn’t settle for that anymore. E-commerce uniquely has a lot more space to tell those stories than in stores or on the back label. I deal with wineries that in some cases have generations of making wine and come from regions that take more than a sentence to describe.

Is there a Need for gatekeepers for consumers who don’t know what they need?: One could say, so what with a big selection if the consumer is only going to buy one wine. A couple of things we do is a lot of email marketing, and we highly segment it based on stated or implied preferences based on consumer behavior. A lot of producers are making suggestions like around time of releases.

One thing we’re giddy about is the growth of the number of customers willing to chat with a wine expert. We’ve always had a call center open 14 hours a day via call centers in California and New York. It’s primarily for customer service in dealing with orders. Very few times, it is a call for advice-seeking.

A year ago we launched a call-and-chat-with-a-sommelier service, and it was not well-received either. So we launched live [text] chat last July, and we scaled it up to more than 10 live chat sommeliers during the busy time in December.

Well over 100,000 chats have been handled, and there were 1,000 today asking wine-related questions. Some are technical questions, because the team are current and former restaurant sommeliers, and a couple are 18-year veterans. What’s interesting is the kinds of questions, which tells me that anonymity is important. Chat is easy, because it’s on your terms.

The team is getting calls getting novice questions to expert questions. People are asking for advice in sending a gift. Some are at restaurants and say they are making a choice between two wines. We love to give advice to make a purchasing decision or make a choice to help them get over a hurdle.

It’s the equivalent of finding a wine steward in a brick-and-mortar grocery store. We’re in a market where there are a lot of wine stewards in grocery stores, but that’s only for a period in many stores. We’re willing to take phone calls and do. Even email is secondary, because you’re sending a question off and waiting for response. I think we have found the magic here. We’re fortunate to be based in San Francisco where we can get expert talent.

If we did not start with a broad enough assortment to find what people looking for, we’re not great stewards of the industry. Having great assortment helps us be better at making direct recommendations.

Is there a saturation point for wine direct shipping?: Wine e-commerce is one of the most underindexed hard goods segments in e-tailing. We haven’t yet had the experience where customers would say, “Why would we ever buy wine in a grocery store?”

When it comes to footwear and apparel, easily those are categories that should not be well-penetrated, because you need to try it on, and sneakers vary in size. But Nordstrom and Zappos have figured it out with free shipping for delivery and return.

Wine is under 2 percent [of sales are direct-shipped]. There are indications not enough consumers have changed out prior habits. Some wine e-commerce is done poorly, like not knowing when a shipment will come then you need to be home to sign for it. Our biggest development project last year was opening up direct-to-store. There was greatest adoption by new customers than existing consumers who have already figured it out.

In other parts of the country, people are not familiar with buying wine online. We’ve had a store in Boston since 1999. When Massachusetts law recently opened up to allow consumers to buy wine from California wineries, consumers went online and found that they have always been able to find wine but only were able to buy it directly from wineries within Massachusetts.