When I heard the news that Amazon executives were meeting with wineries, hoping to launch Amazon.com Wine Marketplace before year's end, I was reminded of the play Waiting For Godot. In Samuel Beckett's work, two characters spend two acts waiting in vain for Godot, whom we never meet. There's a sense that everything will change once Godot shows up. For a dozen years now, the wine industry has been waiting for Bezos—Jeff Bezos, the founder and CEO of Amazon, who has made unsuccessful stabs at selling wine twice before.
Amazon loves efficiency, and the wine business, where each state is like a separate country with different laws, is not efficient. But either Bezos is a wine lover or he sees great potential in it, because Amazon is back. If it succeeds in launching Wine Marketplace, the question is: Will this truly be a game changer for the wine business or just an absurdist drama?
Consumers have been eager for Amazon to get into the wine game because we want a one-stop shop for wine. But Wine Marketplace isn't selling the wine: It will simply provide a portal for wineries, putting their wines in front of potential customers but leaving it up to them (along with FedEx and UPS) to handle the shipping, keep minors out and comply with the tangle of other federal and state regulations. (Amazon actually already sells wine as a portal. If you search the site, you can find offerings from wine retailers and then click to go to the retailers' sites.)
So Wine Marketplace isn't going to be a comprehensive store when it goes live. Foreign wineries need an importer—they're not shipping wine direct to consumers. Big domestic wineries are not going to be selling on Amazon any time soon. They have established relationships with distributors and retailers, and you can find their wines on most store shelves. Small but known wineries that are in demand, like Napa cult Cabernet producers, sell out every year. They don't need to give Amazon what would reportedly be 15 percent of sales and a $40 monthly fee to be on its website. (The company did not respond to requests for comment, and vintners who met with Amazon representatives signed non-disclosure agreements.)
But smaller, lesser-known wineries—those producing less than 50,000 cases a year—need Amazon's help. Those wineries struggle to find distribution and depend on direct sales. As I wrote in this blog two weeks ago, those wineries account for nearly $1 billion of the $1.35 billion direct-shipping wine market. Those wineries want your attention. Having their wine pop up when you type in "Santa Lucia Highlands Pinot" on Amazon could be a tremendous boon.
But is that a game changer? Not yet.
"Really, Amazon is just selling the wine industry on their advertising ability right now," a Sonoma winemaker who met with the company told me.
Smaller wine retailers aren't afraid of competition from Amazon just yet either. "Fifteen percent off the top, when the winery still has to handle all the fulfillment and licensing issues, is not a great deal, unless the winery has no following," says Daniel Posner, who owns Grapes the Wine Co., a shop in New York's Westchester County that sells online. "So only relative unknowns are likely to want to participate."
But it's dangerous to underestimate Amazon. Bezos has succeeded where other companies have failed because he always focuses on the long term. As he told Wired magazine last year, "At Amazon we like things to work in five to seven years. We're willing to plant seeds, let them grow—and we're very stubborn. We say we're stubborn on vision and flexible on details." One example: Analysts believe Amazon is selling its tablet computer, the Kindle Fire, at a loss—because if the Fire is a hit, customers will use it to purchase books, music, movies and more, all from Amazon, for years to come. And being a portal for third parties, like wineries, may be good business: Amazon enjoyed $48 billion in sales last year, and while it has not released recent figures, in 2007, 40 percent of sales were made by third-party partners.
The wine industry is notoriously inefficient. A new study in the American Economic Review looked at 186 wine brands on sale nationwide and found 106,000 different prices for those 186. Some wines could be found at more than 1,000 different prices.
But the book industry is also inefficient. And Amazon has succeeded (to the detriment of many mom-and-pop stores) by offering the biggest selection at the lowest prices. If Bezos is willing to work so hard to get a foothold in the wine industry, he must believe it's possible to make it more streamlined and cost-effective. As he once told Fortune magazine about Amazon's strategy when it comes to retail, "Customers always want vast selection, low prices and fast, accurate delivery." Whether that's good or bad for wineries or other retailers remains to be seen.
So ask me in five to seven years if Wine Marketplace is a game changer. For now, we're still waiting.
June 2009: California's alcohol regulatory agency warns wineries selling online through third-party marketers that those providers require a license if they facilitate the sale of alcohol and share in the revenue.
Troy Peterson — Burbank, CA — October 15, 2012 11:46am ET
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