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Amazon.com to Start Selling Wine

World's largest online retailer to begin wine sales this fall

Daniel Sogg

Posted: Friday, September 12, 2008

The 800-pound gorilla is jumping into the wine business. Amazon.com plans to launch a new website devoted exclusively to wine in the next month. Consumers in 25 states, constituting three-quarters of the U.S. population, will be able to buy wines at the site by the end of October, with expansion to other states planned for the future.

"I think their intention is to have nearly every wine available on their website," says a Napa winery executive who has spoken at length with Amazon about the new venture.

Amazon representatives refused comment, but Wine Spectator obtained a copy of the Seattle-based company's marketing proposal, dated Sept. 2, and the contract that the company is sending to wineries. Amazon makes a strong pitch to winery owners, touting its 81 million active customer accounts, as well as the "massive selection of wine [that will be at consumer] fingertips." Producers will have a significant inducement to sell through Amazon in that they can set the sale price, which is not the case for wines that are often marked down when sold through traditional, three-tier distribution chains. Vintners will receive 47 percent of the retail sale price of every bottle, a slightly smaller portion than they receive when selling through distributors. At site launch, Amazon will automatically enroll Amazon Prime members, customers who pay an annual fee for free two-day air shipping.

Amazon has flirted with jumping into wine for almost a decade, and this new business has been in the works for at least four months. One Napa Valley executive, who would not speak for attribution, said they were first approached in early May by a recruiter seeking a senior wine buyer for Amazon.

The new website will be the marketing portal, but fulfillment of the orders will be done by New Vine Logistics, a Napa-based company founded in 2001 that now ships wine direct to consumers in 45 U.S. states. New Vine has pitched the marketing proposal to its existing customers, while Amazon staffers have approached other producers. Calls to New Vine Logistics seeking comment were not returned.

The Internet giant has already tried to recruit scores of Napa Valley estates, though none of the vintners contacted by Wine Spectator had decided yet if they would sign on, or which wines they might offer. "I'm curious how it will work. I think Amazon is a great service, but I'm not sure how well that would work for wineries depending on their brand image," says Pat Stotesbury, owner of Ladera Vineyards, based on Howell Mountain, which was first approached by Amazon in August.

"I think this is a good thing. It makes wine seem a whole lot more mainstream than it ever has [in the United States], though it may present some challenges for [some other wine retailers'] business models," says Michaela Rodeno, CEO of St. Supery Winery in Rutherford. Rodeno has not yet made a final decision about participating.

Most wineries seem to still be doing research. The Napa Valley Vintners (NVV), a trade organization that represents more than 310 area producers, is scrambling to educate its members and has sponsored two informational seminars, the first on Sept. 4, and the second today. Terry Hall, NVV director of communications, refused comment, referring inquiries to Amazon.

Many of the details of the business have not yet been disclosed, such as the producer roster and the range of foreign wineries that will be available. And even though domestic wineries can set the sale price, it's unclear how those prices will compare with those of bottles of the same wine sold through traditional three-tier distribution.

Yet even though the fine print remains fuzzy, Amazon could be a game changer, especially for other online wine retailers. The company has enormous resources, with reported revenues last year of $17.1 billion. Founded in 1994, Amazon started as an online bookseller, and successfully transitioned to dozens of other consumer products, including electronics, movies, music and clothes.

But wine has been a challenging sector of the online market, in part because of the complexity of interstate shipping laws. All of the pioneering online wine retailers, such as Virtual Vineyards, wine.com and wineshopper.com have either gone bankrupt or changed ownership, or both. This new venture is Amazon's second major effort to enter the online wine business. In 2000, the company invested $30 million for a 45 percent stake of wineshopper.com, which eventually merged with another online retailer, wine.com. That company went bankrupt in 2001 after having spent a reported $200 million in venture capital (the wine.com web address was subsequently purchased by another company).

But for all these missteps, the market has matured some, and online retailers have grown more adept at negotiating the hurdles of interstate shipping. Chris Adams, executive vice president at Sherry-Lehmann in Manhattan, says that online sales now comprise about 30 percent of their business. He sees Amazon's entry as a sign of expanding market access. "This is a market ready to grow," he said. "Our slice of the pie may get smaller, but the pie will be getting larger."

David Richards, executive vice president of marketing and e-commerce at BevMo, shares that sentiment. "From my perspective, the more accessible wine becomes across borders and states, that's a win for everyone," he said.

Jeremy Benson, executive director of Free the Grapes, a Napa-based coalition of consumers and wineries that promotes direct-to-consumer shipping, is encouraged by this development. "I think it's a good sign. Let's hope it translates to more consumer choice," he said.

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