Game changer for DTC shipping for small wineries

This sounds like an ad, but I swear I have no interest in VinoShipper other than to wish them success in freeing us from our chains.

I met recently with Steven Harrison of VinoShipper.com, who has, for eight years, been operating a DTC compliance and tracking tool which I think has become a real game changer.  VinoShipper’s strategy is to take title of wines, under their network of licenses and relationships.  This transfer effectively allows VinoShipper’s DTC licenses to be utilized in most states, obviating the need for individual wineries to obtain and maintain their own direct ship licenses, thus allowing wineries of all sizes to compliantly sell to many more states, with no investment from the wineries.

I was quite skeptical at first. Doesn’t Granholm vs Heald restrict itself to interstate shipment of wines produced by the shipping entity? But Steven pointed out the flaw in this thinking. What, exactly, is meant by “production?” Take a look at your monthly 702. In the Federal definition of wine production, the same wine can, on the monthly form can be produced by a dozen different actions: by fermentation, by sweetening, by blending, each over and over. The designation “produced and bottled by” requires 75% of the wine to be produced by fermentation on the premises, but this designation is in use on only a small minority of wines. Nothing Gallo bottles in its vast Modesto plant is fermented there, thus the flexible designation “Vinted and bottled by.” Wineries buy and sell bulk wine all the time and bottle it as their own, and there is even a lively trade in “shiners,” bottled unlabeled goods.

So where is the line? There are fifty different answers, buried in the licensing language drafted by fifty State legislatures, most of whom understand very little about winemaking law.

Steven’s approach is to review, for each State, exactly what the law states, and to comply with it. I spent three hours going over these individual strategies with Steven, and it sure looks like he has done his homework. A few important States remain where it seems a license must still be obtained, but one by one, he has worked out methodologies for most of the country.

The best news is, there is no installation or monthly recurring fee and he only charges 4.75%-8.75% plus a per-bottle fee for the service, and that includes full compliance, filing most State excise tax reports (that’s right – the winery doesn’t have to file), 3rd party age verification, merchant processing fees and more. No wonder over 500 wineries have joined.

The Way Winemaking Is Supposed to Be

My favorite corollary of Murphy’s law is “Nothing is impossible for the guy who doesn’t have to do it himself.”  Today’s case in point, this time a person rather than a guy, is Sheila Donohue’s astonishing blog in which she touts the virtues of fiscal irresponsibility in the name of Natural Wine.  Check out https://sheilad.wordpress.com/2015/06/14/how-wine-making-is-supposed-to-…

These guys sound great. Yet I imagine that if you ask the Soccis if “not producing a vintage” is “the way winemaking is supposed to be,” they might just demur.

Surely even a fledgling blogger can communicate love for a family winery without attacking all the rest.

The plain fact is that the “many of today’s winemakers who strive to match the expectations of the mass market” constitute less than 1% of my colleagues who are working for the 250 or so national brands. They are good at what they do, and do not deserve Sheila scorn.  She should avoid their wines, as I do, when seeking anything beyond a standard beverage.

The other 99% of wineries make extremely small amounts of wines that strive for diversity and uniqueness in order to build personal connections with their tiny (often local) following.  They have to do this to survive, and they represent the vast majority of players, unless you restrict your shopping to Dean and Deluca.

If your winery is located in sunny Tuscany and your family has worked out the fine points over a thousand years, it’s easy to follow the practices of la dolce vita she describes, and Lord love them for it.

The real heroes, in my view, are the Mom and Pop in Des Moines who sold all but 3 acres of the family farm to Cargill ten years ago and are experimenting with a few hundred cases of La Crescent, Brianna and Marquette at 40 below zero, literally betting the farm on something that’s never been done before. This is the story of the 100 or so new wineries established in Iowa in the last decade.

Most U.S. States have similar untold stories. If they want to use a little technology to stay alive, I think the Lord will love them too. I hope Sheila will not wrinkle her nose and scoff at their efforts.

How to make money in wine retail: What almost nobody understands

A student in one of my classes asked me to clarify why profitability depends on markup, investment, turnover and supply lines.

The turnover question is a very important point most retailers do not understand.  The way to make money in this business is through return on investment, not on markup alone.

Say you are selling reliably one case per week of Chateau XYZ for $150 and replacing it for $100.  You are making $50 per case and reinvesting the $100 in next week’s case.  In a year, you will have made $50 x 52 weeks = $2600 profit for a $100 investment, a 2600% return on investment.

Now the distributor offers you the chance to save 10% if you buy 10 cases at a time.  Most retailers jup at the chance to make an extra $10 per case.  Now you are paying $900 initially and making $60 each week, so your yearly profit is $3120, but your investment was $900, so your ROI is $3120/$900 or 347% instead of 2600%.  You could have spent the other $800 on other products and made a lot more, or made almost the same money for a fraction of the investment.  Not to mention the cost of storing those ten cases.

Now suppose the supplier will sell you one bottle every time you need it, for a broken case charge of $1.  Now you pay $8.33 + $1.00 = $9.33 ($112 per case) and profit $38 per case x 52 weeks,so your ROI is $1976 / $9.33 = 21171%!  You spent less than $10 that year to earn almost two grand.  And no storage costs at all.

NOW, suppose you drop your price 10% and the result is that you sell two cases per week.  Ignoring the side benefits of having people flock to your store, you have cut your revenue per case from $150 to $135 and your profit per case from $38 to $23.  So now you are making $23 x 52 weeks x 2 cases per week = $2392 instead of $1976, so your ROI increases to 25629% on your lousy ten bucks.  You make more by charging less.

This idealized example depends entirely on the re-supply lines.  I live right down the street from a restaurant with exactly this deal going.  I will deliver that next bottle any time day or night.  This is the advantage of local wineries.