They say two businesses that do well in hard times are bars and liquor stores. But that rule apparently doesn’t apply in cyberspace.
Online alcohol seller Drinks.com closed its doors in November; competitors Send.com and Liquor.com shut down in January. Also in January, Wine.com laid off 75 employees — 25% of its staff — citing an overlap following its November merger with WineShopper.com.
“We’ve been around since 1995…but we’re not yet profitable,” says Scott Radcliffe, spokesperson for Napa, CA-based Wine.com.
The struggles of pure-play wine sellers may simply reflect the overall shaky state of the dot-com world. “The jury is still out as to the viability of a pure-play Web business,” says Adam Strum, chairman/founder of Hawthorne, NY-based Wine Enthusiast Cos., a wine accessories cataloger and publisher of Wine Enthusiast magazine.
Indeed, “it’s not easy for a pure-play to create brand awareness,” says Joshua Wesson, cofounder/co-CEO of New York-based wine marketer Best Cellars. The company, which operates five stores nationwide, has had a Website for two years, but customers can only phone in orders. This spring, though, Best Cellars is launching an e-commerce-enabled site, Wesson says, and it plans to mail a print catalog next year.
A license to ship
Some of the online wine marketers’ woes, however, may be particular to their niche. Selling alcoholic beverages directly to consumers poses unique challenges — namely, stringent shipping regulations.
“If you’re a winery or wine retailer, you can’t ignore the reciprocity laws,” says David Pearce, president of Canton, MA-based Geerlings & Wade, a cataloger/retailer of wine and wine accessories. “Reciprocity means that if you hold a winery or a retail license in any states, you can ship directly to the consumer in those states. But there are limitations, such as what quantities you can send, and those limitations vary by state.” Geerlings & Wade has retail operations, which double as warehouses, in 16 states.
If a company does not have a retail or winery presence in a state, it must abide by the three-tier system of distribution — a holdover from the repeal of Prohibition. In the three-tier system, an alcohol warehouse or winery must sell to a wholesaler, who then sells it to a retailer, who sells it to consumers.
Without stores or much of a physical presence in any states, pure-play wine marketers are less likely to have winery or retail licenses, making them dependent on wholesalers. “All of our wine is in a central warehuse,” Wine.com’s Radcliffe says. “We pick and pack the orders and send them to a wholesale partner who then sends the orders to a retailer [near the the customer] who can deliver it or hold it for the customer to pick up.”
Each middleman, of course, takes a bite out of the marketer’s profit. “The three-tier system sets a high barrier to entry,” Radcliffe says. “It takes establishing a nationwide network of relationships.” What’s more, the system increases shipping time. “A customer waits a week to two weeks in many cases for his shipment,” Radcliffe admits.
And if a customer has to wait that long, or if he must rely on his local liquor store to receive the order, “then why should he go online or shop by catalog for his alcohol at all?” says Judith Langer, senior vice president/director of the Roper/Langer qualitative division of New York-based consultancy Roper Starch Worldwide.