Category: Blog

Map showing   dry (red),   wet (blue), and   mixed (yellow) counties/parishes/boroughs in the United States as of May 2019

To succeed, Amazon would have to change consumer habits. Alabamas per capita consumption is only 0.26 gallons, which ranks 38th in the US, according to Wisevoter. In addition, the new LDA and Gen-Z are less interested in wine, suggesting a decline in volume over time and making the investment questionable. In a perfect world, with the regulatory environment in the dry state having been overcome, the competitive wine business would still need to be addressed. America’s largest online retailer, wine.com, reported it generated $329 million in sales in 2020, representing 119% year-over-year growth. However, wine.com does not ship to dry states like Alabama, as suggested by a visit to their website. If shipping to dry states is complicated, regulated, and likely not feasible, consolidation in already saturated markets may be the solution.

Handling of Wine

Wine bottles come in a variety of shapes, weights, and sizes. Despite the risk of broken glass, damage to the packaging of the goods below, and health hazards from sharp glass fragments, other factors should also be considered. If a case of wine is stored next to a stove, a clock, and a bagpipe, the quality of the wine may be affected in the medium term. Wine requires a consistently dark, dry environment with a temperature of less than 65° F and an average humidity of 55-65%. Higher temperatures promote the development of off-flavors and advance maturity. Wines bottled with natural corks must be stored horizontally, as the cork could dry out and promote oxidation. To make matters worse, unpackaged wine in white bottles can suffer light damage from UV radiation from artificial light, which is exacerbated by vibration in storage. Finally, wines need small spaces between the bottles to avoid damaging labels, and they can only be stacked to a limited extent due to the weight of the cases, which otherwise poses a danger to employees.

Following these considerations, Amazon would then have to deliver the wine to the customer, which requires special packaging. Expensive sturdy parcels, inserts, and the extra space and handling may seem unappealing at first because the packaging is not compatible with standard cartons. When shipping, Amazon must also ensure that the wine reaches the consumer in pristine condition.

Distribution Channels

If Amazon were to overcome the barriers, distribution channels would also need to be considered. According to IWSR, US-online sales in the wine category reached $1.7 billion in 2019 and are expected to increase to $6.27 billion by 2024. Of this, still wine accounted for about $1.2 billion, sparkling wine for $0.3 billion, and fortified and light aperitifs for $0.1 billion. However, the premiumization of Champagne and Prosecco was most evident in the sparkling wine category, where the highest value per bottle was achieved. Seventy percent of consumers selected wine as the leading category for online alcohol purchases, according to the respondents surveyed. Taking these statistics into account, Amazon could see chances for sparkling wine and entry-level still wine emerge.

Local distribution overcomes logistical challenges (Photo: Tech Crunch)

A research on U.S. Amazon sellers found no Prime or delivery options through Amazon warehouses are available. By selling through third-party vendors (3P) to maximize margins, proprietary channels like Fresh, Go Grocery or Whole Foods seem to be the solution. Brands can also be sourced on a small scale from external vendors. In addition, Amazon offers a two-hour delivery of fast-moving consumer goods (FMCG) to selected zip codes for groceries, competing with Uber Eats or DoorDash. The solution could lie in combining wine and grocery purchases. IWSR estimates that marketplaces are becoming increasingly important, rising from 5% in 2018 to 7% in 2024, suggesting a great opportunity

Brands are King

Amazon’s wine portfolio in the U.S. features wines from the U.S., South America, and Europe. Considering the FMCG approach, it makes sense to list established, successful, high-volume brands from entry to premium segments, including Beringer, Yellow Tail, Barefoot, Robert Mondavi, and Kendall-Jackson. The portfolio suggests high-volume, high-revenue brands that have a short lead time to mitigate inventory risk and drive sales. There are also niche products in the Kosher, Natural, or Organic category that have limited inventory, suggesting the high volume of the established brands. Those brands do not require hand-selling or consulting with an associate. As controversial as it seems, not having to consult with a sommelier lowers the cost per sold unit, suggesting interest in distributing higher volumes for well-established products.

With an eye on the German market, Amazon has launched its own brand, “Compass Road”, based on popular wine styles such as Sauvignon Blanc, Merlot, and rosé. The brand includes six different wines priced at around €5 per bottle, which can be purchased at a discount as part of a subscription through their website. Depending on success, volume, and value, the trial could be transferred and established in the U.S. market.

The trial of “Compass Road” could be multiplied. (Photo: Channel X)

Evaluation of the four most critical issues suggests that Amazon could be a more important player in the future. If local regulations can be overcome, opportunities could arise for Amazon. For now, volume is limited. With the shift of popular FMCG delivery services and investments in P3 channels, volume in wine distribution could naturally increase. Large established brands or private labels could help increase overall sales and establish Amazon in the U.S. e-commerce market.

Peter Douglas

Disclaimer

This text was neither commissioned nor compensated. It reflects exclusively my own opinion.