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– Brian D Rosen

Brian RosenMy team and I just returned from a few days in Napa, CA. For those not in the business Napa is glamorous and sexy and romantic. For those of us that are in the business this can be as exciting as a week in Des Moines. I was giving a keynote speech for the Wine Industry Technology Symposium on the nature of retail within the three-tier system and overall health of the industry.

As luck would have it, the day’s speeches were delayed because USA was in a World Cup battle. That battle, that USA would eventually lose, caused me to sit in on a few speeches that I would not normally hear, one of which was the Direct to Consumer movement in California. I sat there for at least an hour, and after hearing the experts spin this yarn, I can tell you with 100% certainty that the DTC movement is not what you think it is and will not provide the added revenue that wineries around the globe are seeking.

I am the Former CEO of the Nations largest grossing wine retailer and the Former Managing Director of the Alcohol Beverage division of PricewaterhouseCoopers.  I have worked with the three-tier system for the better part of 30 years, and it is a bureaucratic mess with peaks and valleys that are nearly impossible to intellectually scale.

The DTC movement is a wonderful idea, and there is no doubt that as regulations soften and technological efficiencies prevail, it will be a sustainable revenue stream going forward. That day is not today.

The larger wineries, the wineries that need national and international distribution cannot benefit from this.  They need logistical distribution, and while it is cute to have a wine club and sell from your tasting room, any real case movement will come from the three-tier oligopoly. The small wineries will have the earliest benefit because they will be able to reach an audience that was not available to them previously, but small is still small.

Let me approach this like a large retailer. You can make a living selling Mouton or make a living selling Clos Du Bois. One has higher gross margin percentage and the other has low gross margin percentage but will scan out of retail more quickly. The winery can use the same measuring tool for their own DTC model. As it stands currently the DTC market is what we would call bolt on sales and not main line sales. There is too much fluid movement of laws, regulations, and technology to really have DTC be a mainline sales channel.

What remains true is the following; the masses buy our wines, and we need the masses to support the operational expenses of the winery. DTC is not a tool for the masses yet. The DTC consumer favors small production, highly acclaimed, and scarce wines. Wine Clubs are such a small number of overall wine sales they are not yet a factor to move the needle.

Our opinion is that DTC will become a leveragable revenue stream in the mid term, but just not yet. The key will be to prepare your production, staff, distribution, and marketing for that day. At Rosen Retail we see this as a 5-7 year horizon at the convergence of technology, deregulation, and national acceptance. The three-tier system is not going anywhere, and this DTC Kool-Aid that we are all drinking is still in its beginning stages, and it will go through many iterations until we can count on it with confidence that it can change our world.

Global wines sales are increasing, and the barrier to wine enjoyment is coming down, so the “disruption” to the three tier system is eminent. The key factors that wineries and the like need to ask themselves is that in an ever competitive marketplace where the average consumer has Parker, Robinson et all in their pocket, what are we doing to put ourselves in a competitive position for when the disruption becomes reality.

Brian RosenExpert Editorial
by Brian RosenRosen Retail Method

Rosen Retail for Alcohol Beverage offers support to retailers and suppliers alike, having created Supplier Boot Camp and Retailer Boot Camp and other award-winning programs that increase gross margin for retailers and cases sold for suppliers. Brian Rosen can be reached at [email protected] or twitter @rosenretail.

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