Ship to New York, thanks to Inertia

November 29th, 2006 → 9:42 am @ Josh Hermsmeyer


Thanks to the efforts of Paul, fellow blogger Jeff and the whole team at Inertia, small wineries like ours will soon be able to take advantage of pull demand and on a very small scale let restaurants and wine shops in New York buy wine direct from the winery – but not really.. Overall this is very good news. As an example, if I’m able to cultivate a relationship with a couple restaurateurs in NYC and they want to buy my wine, I won’t have to also spend my time and efforts trying to convince a wholesaler to “pick me up.” All the buyer will need to do is visit a state sponsored web page and place an order. From there the wine will be processed through a wholesaler’s account, taxes and their commission will be taken out, and the buyer will be billed and the wine shipped.

The bummer for me is that a middle man will still get a cut for doing (I’ll go ahead and spoil the punch line of this post) basically nothing. Jeff at Good Grape wrote a post about this last night. Here’s the gist:

The upside to this program is you might think that this would be a threat to the three-tier distribution system, but in fact it’s a benefit. In many states, Inertia is partnering with a distributor to aid in the administration of the program and the response from distributors has been strong because they see the value in allowing small brands access to the market so they can grow, without the risk of them having to take on inventory.

In our model, the winery fulfills all sales direct and we call this the “virtual inventory model.� The distributor participates, ecommerce facilitates the transaction, the winery gets a sale and sends the product.
…
Eventually the winery might grow to the extent where they will need traditional distribution services and, oh, yeah, they would be in a position to have access to a distributor that has been a part of the ecosystem fostering a friendly introduction and, potentially, allowing those winery brands to take their sales to the next level with more “on the street� sales horsepower. We call this “brand incubation.� Wineries are developing and growing their brands.

It’s a win-win-win for everybody…

I hesitate to call it a real win-win. In fact, the contortions that Inertia had to go through to be able to even offer this service to their customers highlights exactly what is wrong with the state mandated three-tier system. What, exactly, are the wholesalers doing to deserve a cut of the sale of my wine under this scheme? I repeat: nothing. Nada. They are acting as a state sponsored clearing house that never even takes possession of the wine! How then are they fulfilling their mandate to “protect the children” ect. ect.

What this reinforces to me is that the wholesalers are happily in bed with state governments and that without the prodding of the judiciary they would be quite content to see the system remain in place in perpetuity. The government trusts the wholesalers to get them their taxes and, in turn, they protect the wholesaler’s backside by making Inertia and others come up with incredibly inefficient schemes such as this “virtual inventory model.”

Now, I want to be clear here. Inertia has done a great thing in opening up a market that was otherwise effectively closed to small wineries. I just think that Jeff, and soon I suspect Paul, will be putting the best face on this scheme so as not to scare off distributors. They are shoehorning “direct” into a place where few thought it would ever happen: New York. But we shouldn’t be disingenuous. The consumer is still paying more for a bottle of wine in New York via this system than they should have to. Wineries are still making less per bottle than they should have to. And for all this, neither the consumer nor the winery are receiving any benefit.

This, my friends, is the three tier system.