National distributors and small premium producers don’t mix. Due to consolidation in the market, even if you do actually get a national wholesaler to take on your brand for the amazingly low price of around half of your per bottle revenue, you’ll still have to incent the heck out of the distributor for your product to actually make it into the fine dining and high end retail shops that help create brand awareness. If you don’t incent your wine will most likely sit in their warehouse gathering dust. If you do run programming and incentives your margins will shrink to 33% or so of retail price. From that revenue base you then have to not only pay for the wine produced but finance debt, pay overhead and labor, and spend even more cash on tastings and other marketing and travel costs.

Thankfully there are other channels to get your wine to market. The best of which by far is direct.

Direct

Direct has much higher margins than going through a distributor since the consumer pays shipping and there are no middle men taking their cut. In reciprocal states, you can keep up to 100% of retail price when consumers buy your wine direct from you. But there are other (not so) hidden compliance and permit process costs that are a very real barrier to being able to tap into the direct market.

Kathleen Schumacher-Hoertkorn, President of New Vine Logistics, a wine Storage, Packing, Shipping and Compliance company, spoke to us yesterday about the mountains of paperwork that are required to remain complaint with all the various state governments that desperately want their sales tax dollars on the wine that you ship into their states. Here are some interesting facts.

• To obtain permits in all available states it will cost $3135.00
• NVL’s permits reporting service costs $250.00 a month
• To pick, pack and ship your wine through NVL will cost around $12 a case (around 2.5% of retail for a case of $45 wine)
• By automating the reporting process as well as the pick pack and ship process, NVL claims they can lower costs for direct shipping by 20-25% over doing it yourself.
• With their service you can legally ship to 45 states
• Using Sales Tax, Shipping, and Compliance databases, they claim that their order success rate is at 99.997% since 2001

Inertia Beverage Group is a partner with NVL and they help to create a seamless transition between customer orders placed on your website and the NVL fulfillment house. They also can help you manage orders placed from your tasting room which will allow you to leverage the monthly fee you are already paying NVL for compliance reporting. Finally, Inertia provides another new disintermediation service called Wine Trade that allows restaurateurs to order wine directly from you, cutting out the distributor middle man yet again.

While I don’t see Wine Trade as a way to improve margins, it will be a fantastic way to pass along the savings of subverting the distributor to consumers at fine dining establishments. By passing along these savings, your bottle price will be closer to the sweet spot of $50-60 and you should get more turnover and exposure on wine lists.

Yesterday Inertia released an online sales report aggregating 250 wine brands that they service. The data show tremendous growth in online wine shopping as well these other interesting findings:

• People are buying roughly equal amounts of red and white wine online
• Between 2005 and 2006 Pinot Noir went from 2% of online sales to 27%
• Chardonnay currently accounts for 80% of white wine sales online
• The online sweet spot is lower than in fine dining establishments, but not by much. 40% of sales are in the $30-$40 range, and 13% are in the $40-$50 range (up from 7% in 2005). Meanwhile the $50-$75 range has remained constant at around 10% of sales.
• People are buying more bottles per order online. 60% buy one or two bottles per order, but the number of people buying 6 bottles per order has nearly doubled from 7% to 13%.

With all this promising data and a new network of fulfillment partners like Inertia and NVL, the future for direct looks extremely bright. It would, however, be foolish to ignore the benefits of distribution done intelligently.

Tomorrow I’ll realte details from two talks given yesterday by Richard Rossi, Vice President of KJ subsidiary Regal Wine Co., on Regional Distributors, and Katie Brown, owner of Terra Firma Wine Co, on wine brokers.