Joe Waechter came to the CEO role at WineDirect, a Napa-based direct-sales technology company that offers software and services for e-commerce, regulatory compliance, marketing and winery management, five years ago after wearing hats in venture finance and global parcel delivery.
For a decade before that, he was managing partner of California Pacific Capital, a early-stage-funding firm he started. And for 15 years leading up to that, he was president and CEO of DHL Worldwide Express.
In the time since Waechter arrived at WineDirect, the company changed its name from Inertia Beverage Group to WineDirect, acquired major winery e-commerce engine Vin65 and saw revenue soar to $50 million a year from $5 million. The volume of wine sold through its fulfillment, e-commerce and telesales operations has grown at 40 percent-plus annually for the past five years, passing $500 million last year and nearing an estimated $700 million this year.
“In our company, we certainly want to sell our product,” Waechter said. “More than that, we want to sell more wine and more wine online and grow the direct-to-consumer business.”
He is set to speak on the “Routes to Market” panel at the Business Journal Wine Industry Conference on April 24. Waechter spoke to the Journal about the impact of younger consumers shopping for wine online, popularity of third-party resellers and increasing e-marketing savvy of small- and medium-sized wineries.
What are the top challenges for North Coast producers to get wine to consumers?: Winery producers are very familiar with the traditional three-tier [alcoholic beverage distribution] system. As a group, selling online and being good e-tailers and e-marketers is new to them, and they’re learning. Third-party resellers like Wine Access or Naked Wines are very good in reaching wine buyers online. Wineries are taking notice of what’s happening and gaining those skills.
We’ve see online direct-to-consumer sales growing, and there has been a big change in the last several months. In e-commerce, October through December is 40 percent of the business, and January very slow. This year we moved more wine in January to March than in November and December.
Driving it is, first, a good economy. Second, three years ago 9 percent of our orders were through mobile devices, and now it’s 35 percent. Every time I look at it, it’s up a few percentage points. That suggests a younger consumer. Third, third-party resellers like Club W, WineAccess and Naked Wines. Growth from these two places has not been from big wineries but medium- and smaller-sized wineries. They have not traditionally reached consumers but through winemaker dinners and such events, but they are learning how to sell wine online.
What happened in January–March surprised us. Online sales of wine has crossed a chasm, and it is really starting to take off here.
How are wineries learning to sell online?: My mission in life is trying to sell more wine online. We do a roadshow every month in different wine regions of California and go through best practices on selling wine online. UPS joined us in a roadshow recently.
While wineries are learning through efforts like that, many people who thought wine online would never happen are now hiring expertise from outside wine. One of our customers hired expertise from Pottery Barn. Cornerstone in Yountville is killing it in online sales, using geo-fencing and Twitter every hour. Competitors are noting it and starting to mimic that, and good things are happening for them.
How are you addressing these marketing challenges?: One big thing we have not talked about [yet here] is regulation. In 2005 when the Granholm decision came down [banning states from treating outside wineries differently in direct sales to consumers], sort of not a lot happened. … Now 43 states allow direct-to-consumer sales.
A younger consumer at 20 is not buying wine, but in their late 20s or early 30s they are buying wine online. We’re providing tools like customizing email to make it personal. If you send a blast out, the typical open rate is 25 percent, and if you personalize it, that goes up to 58.
We have adaptive design in our systems, so it looks good on a laptop and mobile device. We encourage clients to think mobile-first.
In talking to wineries at our roadshows we found that if they give 20 percent off on an A test and on B give free shipping, then B will kill it [in higher sales], no matter the discount.
For books and music, about 90 percent is sold online. Fifty percent of electronics are sold online. Twenty-one percent of apparel is sold online, and that has allowed small merchants to offer unique fashions and compete better. If you take tasting rooms out [of direct sales to consumers], less than 3 percent of wine is sold online. There’s no reason that can’t be 8 to 10 percent, but it probably won’t be more than that for while.
The three-tier system will likely be that way forever. Younger consumers don’t want brands in the store rammed down their throats. They want choice and a way to communicate with [producers].
If go to a tasting room or go on a tour, you will hear about the winery and how the founder came from Italy and the vines are this clone. On mobile it does not work. The tasting-room experience doesn’t work online. For visits to a tasting room, the winery is talking about “me,” but online they need to talk to “you,” the consumer. Both are important.
Originally, wineries went online and told the same story as in the tasting room. On mobile devices, consumers do not have time for that and for scrolling around. We say to our customers, give an offer on every page. The buy button should be the biggest button on the page. Zappos has that, and it’s a different color.
How progressive are North Coast wineries in direct sales?: They are as progressive as anyone. At a roadshow in Ukiah, we had 50 wineries attend, and they were very interested in what was going on and were seeing the same level of growth we have seen. We do not look at it by region but on the size of the winery. We have the medium-sized single-brand winery and then the really small winery. The medium group is really growing online because it is really their only channel and are adopting it quicker. The big guys’ focus is the distribution network.
How much of a difference is there in direct sales for producers in lesser-known wine regions or without estate facilities?: The difference is if the winery is in lesser-known regions. Napa Valley has 5 million tourists a year, and tasting rooms are packed on Sunday. But if you’re in a smaller area, that’s hard to come by. Smaller producers are not getting calls from distributors, and if tasting-room visitors are not there, they have to do something.
I have a customers in Oregon where [direct marketing] is important because they are in an area without lot of visitors and not a lot of distribution.
The younger crowd is driving mobile sales because they want choice. They don’t want the top 40; they want to discover artists they have not heard of. And they want to have a bottle on the table and say you can’t get it. It says something unique about me. If you can figure out how to make that happen, you can be successful.
Is there a saturation point for direct-shipped wine?: I don’t know whether it will plateau at 10 percent direct to consumer or not. Buying from retailers and through three-tier will be the largest percentage of sales. Look at other industries and other states. Shoes in last 10 years have been online, and that has enabled lot of boutique producers to get product to market. We’re taking our cues from that.
Are regulations and weight the limiting factor for direct shipping?: Regulations have been relaxed in many states, and we’re overcoming them with tools and technology. One of the problems with wine is you need an adult signature. With technology we’ve added the ability to send the consumer a note that the driver is on way to you, so you can say to come to my office or come at later time.
It is expensive to ship wine. It sure does not make sense to ship one or two bottles. If you’re in [parcel shipping] zone 4, it costs $18 to ship bottle, but the good news is it costs $25 to ship a case. The margin on the last bottle in a case can pay for the cost of shipping. Our customer knows what costs are, and we have ways to show the break-even point for shipping.
The problem is Amazon and others have educated customers that free shipping is the norm. In the wine business, we have to say “shipping included” or “1 cent shipping.” We’ve done A–B tests and found “free shipping” wins every time over a discount.