Can wine be fruitful?

Jan 01, 2000 10:30 PM  By

In November, two Internet wine merchants, Wine.com and Send.com, announced huge infusions of venture capital totaling $90 million. A third marketer, WineShopper.com, launched in December with the help of $46 million of its own venture capital. While financiers backing online firms is hardly unusual in the current e-commerce boom, consider that interstate direct shipment of wine is illegal in 24 states – and a felony in five of them.

Indeed, print and online catalogers of wine must negotiate a morass of regulations that differ from state to state. But these marketers consider the reward – a share of the consumer wine market, which is estimated at $300 million-$500 million – worth the difficulties. Web investment tracker Red Herring estimates that $150 million of this business is transacted online, but that figure is expected to soar, abetted by an increase in per capita wine consumption every year since 1989, as well as by the overall expansion of e-commerce.

To ship or not to ship

To ensure compliance with varying state regulations, some wine marketers do not ship products themselves, instead acting as middlemen between customers and local retailers.

“We’ve struck a contract with Wine and Spirits Wholesalers of America, with whom we’ve created a network that includes a wine locator database,” says Suzanne Gannon, spokeswoman for San Francisco-based WineShopper.com. This nationwide network of wine wholesalers supplies lists of its members’ inventories to be fed into the database. The system then qualifies online shoppers by their delivery state and displays only those wines available through that state’s distribution network. What’s more, WineShopper.com does no shipping. Instead, it uses local retailers to fulfill orders, based on the wines available to them through their wholesalers.

Send.com doesn’t ship product either. The Waltham, MA-based company (known as SendWine.com until it began selling other high-end gift products as well as wine) works with retailers to deliver wine in 29 states. Customers who order a specific vintage from Send.com may not receive exactly what they ordered; the firm allows the retailer to select the specific wine and notifies buyers that the product will be comparable to what they requested.

Geerlings & Wade, which bills itself as the largest direct marketer of wine in the U.S., does ship directly to consumers. Because of local regulations, however, it can do so only in 28 states (the firm has stores in 19 states). “But the states in which we can ship make up 85% of the wine market,” says Jay Essa, president of the Canton, MA-based cataloger. “We operate within the three-tiered system. What we buy goes from a winery to a wholesaler to us.”

Geerlings & Wade is so sure of the viability of the online wine market that it launched Winebins.com in November. The company already had an eponymous Website, which in its three years has grown to account for 10% of the company’s total sales. But Winebins.com sells 1,000 national brands of wine in addition to the labels available on the original site and in the print catalog.

- Limited-quantity direct shipments legal: AK, CA, CT, DC, HI, IL, MI, NE, NV, ND, RI, SC (when product is unavailable through state-licensed wholesalers), WY

- Limited-quantity direct shipments legal with permit: LA, NH, OR, PA, VT, WA

- Limited-quantity direct shipments legal from states allowing reciprocal shipments: CO (also requires permit), ID, IA, MN, MO, NM, WV, WI

- Direct shipment illegal (*unless shipped to and picked up at a licensed retailer): AL*, AR, AZ, DE, IN, KS, ME, MD, MA, MS, MT, NJ, NT, NT, OH, OK, SD*, TX, UT, VA

- Direct shipment considered a felony: FL, GA, KY, NC, TN