Why we at Sommly believe the future of wine is online
It’s no secret that tech has changed the world as we know it. Just like everything else, the digital age has ushered in a new era of wine exploration and selection, changing the way we discover, select, purchase, and receive the wine we drink.
The online wine shopping trend has been largely driven by digital commerce sites, pioneered by brick-and-mortar retailers and native eCommerce retailers which make it easier than ever for consumers to access wines from great vineyards from around the world. Many wineries have also made an eCommerce investment, so that customers with which they have an existing relationship can order wine from the winery’s website without physically visiting the tasting room.
Accelerated by the pandemic, online orders for wine and other beverages experienced exponential growth, i.e. “ten years’ growth in three months” per eCommerce and alcohol delivery pioneer Drizly. See below chart courtesy of SVB’s annual State of the Wine Industry report. While the category overall topped 4 million monthly buyers, wine led the pack reaching almost 3 million shoppers in the March/April 2020 timeframe as shoppers started to shift these purchases from restaurant and physical retail to online.
At first this looks like a temporary shock, but consider that since late 2020 (where this chart ends) United States Wine Sales have continued to grow, increasing 11% year-over-year. At the same time DTC Shipments have increased 14% year-to-date as compared to November 2020 and are on pace to exceed $4 billion annually, per Wines Analytics.
But what are the tradeoffs for the wineries that sell retail via these online channels?
Most people don’t know this fact but when you buy a bottle of wine through any channel other than on-premise at the winery or via the winery’s website — the winery only keeps a fraction of the gross margin. This is due to a structure the US has in place called the “three-tier system” which has a history dating back to the 1930s.
The fallout from Prohibition and the 21st Amendment created a mandatory three-tier system in the United States for the sale of alcohol as well as regulations that vary state-by-state and govern the inter- and intra-state sale of alcohol. Because of the three-tier system wine must be sold through an in-state wholesaler or distributor in each state before it gets into the hands of a retailer or consumer. This is even true for the digital natives, i.e. the wine.com’s of the world, who act as a digital marketplace for your local wine store selling through the three-tier system.
You might be wondering, how is Sommly different from the household names such as wine.com, Vivino and totalwine.com that already offer wine for sale online? We do offer an easy-to-use platform to browse, review and shop for wine.
But we are differentiated because we built the platform to be accessible for wineries of all sizes, which means you can find scarce, artisanal wine on Sommly.com. This sub-category of wine is often only available at the winery because these wineries favor quality over quantity and therefore cannot afford to sell through the three-tier system, which only makes economic sense at very high volumes. And by choosing to shop for wine on Sommly’s platform, producers experience more favorable margins, since you’re buying directly from them, i.e. none of the profit erosion we mentioned earlier.
Thankfully, US alcohol shipping laws have relaxed in recent years (yet another trend that’s been further accelerated by the COVID-19 pandemic), and in most states you can buy wine directly from wineries that are licensed to sell to your state, and have it shipped to your doorstep.
Creating a digital marketing and multi-vendor direct-to-consumer eCommerce experience isn’t a new idea in other industries – in fact there are dozens of examples dating back well over a decade. We are excited to be a part of the digital transformation in the wine industry, following in the footsteps of trailblazers such as Etsy (founded 2005), Ebay (founded 1995) and AirBnB (founded 2008).
One thing that I personally love about the digitization of all things wine, is that over the last 18+ months of the pandemic, I was able to not only maintain but strengthen the personal connection I have with the wineries that leaned into online, creating virtual tasting experiences, announcements, Zoom meetups, catered pairings, games of bingo and the like — while it was impossible to meet and drink wine together (stay tuned, more on that in a future post).
But in the meantime, get out there and support local wineries by connecting IRL or digitally, and by purchasing your wine direct!