Direct to Consumer (DTC) shipments by US wineries grew at an impressive 7.5% in 2013, hitting a record $1.57 billion, according to the 2014 Direct to Consumer Wine Shipping Report developed by ShipCompliant and Wines & Vines. Total volume was 3.47 million cases, up 9.3% over the prior year. By comparison, according to Nielsen, wine sales in the off-premise channel (e.g. grocery stores, mass merchandisers, liquor stores, etc.) experienced value growth of 4.5% and volume growth of 1.3%.
To learn more about the dynamics of this increasingly important sales channel, VINE TALK interviewed Jeff Carroll, Vice President of Compliance and Strategy for ShipCompliant, a company whose products and services help wineries manage the complexities of DTC shipments by automating the compliance and fulfillment process.
VT: What is driving the growth of the DTC sales channel?
JC: More and more, the United States is becoming a wine-drinking nation. We have become more adventurous in our tastes and are seeking unique culinary experiences—and this includes wine. The growth of the DTC channel is a function of many things. First, of course, is access to information and communication that the internet makes possible. Second, wine tourism has increased significantly and folks who have visited and established relationships with wineries across the country want to extend that experience by continuing to purchase the wine. Finally, the distribution bottleneck that has resulted from both the explosion in the number of small wineries and the consolidation of the wholesale distribution channel has forced many wineries to expand their DTC sales in order to survive.
VT: How do consumers and wineries benefit from DTC wine shipping?
JC: American wine consumers have become very sophisticated over the past 20 years, and at the same time, the number of fine wines in the marketplace has exploded. DTC shipping gives consumers access to many thousands of wines they can’t purchase locally and puts them in touch with the entirety of the American wine marketplace. For wineries, particularly small- and medium-sized wineries, DTC sales often mean economic survival. With so many small, artisan wineries in all 50 states, it’s nearly impossible for these wineries to find meaningful distribution through traditional channels. DTC allows them to sell their wines to consumers across the country in a profitable and sustainable way, while at the same time building their brand and creating the consumer pull that will make their wines attractive to wholesalers and retailers if they choose to go that route.
VT: What is the profile of the typical DTC wine shipment customer?
JC: Typically, DTC sales are predominantly driven by middle-aged, middle-to-high income males located in metropolitan and suburban areas, according to our data. Additionally, the typical per bottle price paid is much higher (roughly $38 per bottle) than it is for the overall wine market. It’s changing ever so slightly now as Baby Boomers, who dominate DTC purchases, are starting to slow their buying and Millennials are starting to buy more.
VT: Have you observed any regional patterns or trends associated with the DTC sales channel?
JC: A future project at ShipCompliant involves looking at the detailed demographic breakdown of DTC buyers, and we expect that will show some very interesting patterns and trends of value to marketers. However, based on our current research, we can say this: Wineries in the Napa region dominate the direct shipping marketplace, accounting for nearly 50% of the total value of the DTC-shipped wine in 2013. This has a great deal to do with the fact that consumers are willing to pay much more for Napa County wines. That said, our data also tells us that wineries from Sonoma County and Washington State have seen steady gains in the volume of wine shipped direct to the consumer since 2010.
As for where wine is being shipped, as you would assume, the most wine is being shipped to the states with the largest populations: California, New York, Texas, Florida and Illinois. However, when you look at which states have the most wine shipped in on a per capita basis, it looks a little different. The top five states for shipments on a per capita basis are the District of Columbia, California, Colorado, Washington and Connecticut.
VT: What future do you foresee for DTC wine sales?
JC: We don’t expect much slowing down of the DTC channel any time soon. Certainly unforeseen regulatory challenges could arise, and general economic trends impact wine sales as they do any other consumer good, but in general we don’t see any serious institutional obstacles to continued expansion of DTC sales.
Jeff Carroll, Vice President of Compliance & Strategy for ShipCompliant, is the Product Owner of ShipCompliant Direct and ShipCompliant eGov. He also manages the Research and Industry Relations departments at ShipCompliant. In this role, Jeff is charged with overseeing the direction and update of ShipCompliant products and services that allow producers and importers of alcoholic beverages to accurately comply with thousands of state and federal alcohol laws and regulations, and to ship and distribute their products efficiently.
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