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Amazon's Wine Play: What Does It Mean?

Photo by: Greg Gorman

Posted: Sep 12, 2008 12:43pm ET

Since most of us don’t reside anywhere near the top of wine food chain, at some point we intersect with the distribution system.

Depending on where you live, of course, it can be anything from a piddling annoyance to a grander, weightier matter that transcends irritation. Distributors in the three-tier system are one of those unique love ‘em or hate ‘em institutions.

If you live in a state where they rule with absolute power, they can be the 12,000-pound bull elephant hogging the couch in front of your flat screen TV right before kickoff.

Most consumers would like to be able to order and buy their wines just like we can now order and buy most goods – from a chair in front of your computer, a simple point-and-click maneuver that lets you shop the world via the Internet while resting on your seat.

In many states you can already do this and have the wine delivered to your front porch the next day. But in many states you can’t, which is why Amazon’s intent to sell wine could have broad ramifications.

I know enough about wine distribution to know that there are many obstacles and pros and cons with direct shipping. Yet wineries are learning about Amazon’s plans and how that system might work.

I also know many of you either work in the wine business, and have your views and insights, or you’re like me, you work at making the wine business successful by buying its products.

What does the Amazon wine play look like to you? Will it break the log-jam and open up distribution channels in restricted states? Will the wines offered be mass-produced, grocery store kinds of wines, or will the Harlans of the world end up on-line?

John Wilen
Texas —  September 12, 2008 5:51pm ET
Everyone will talk about how this is great for both wineries looking for online distribution and for consumers looking for hard-to-find, small case-count wines. And it might be. Amazon has the opportunity to aggregate what is now a very fragmented marketplace.

What Amazon can also do is offer lower prices because of scale. But in that regard, the real innovation may be the shipping component. One would expect the shipping fees to be reasonable, like Amazon does for all their other products. Maybe even free. But what if they include wine in their Prime membership? That's the free second-day air shipping program in place now for more than one million in-stock items they sell. (Annual membership fee = $79.00) Now we're talking!

Living in a hot weather state, I am stymied from shipping in wine from retailers at a reasonable cost during the summer months. None of them are really large enough to get decent discounts with UPS or FDX air. So I have to stockpile and wait for October. Likewise I buy less and less every year direct from wineries, partly because of the egregious shipping costs and their we-only-ship-air policy. What if these issues go away via Amazon and Prime? Win-win for consumer and winery.
Brad Kanipe
Atlanta —  September 12, 2008 6:43pm ET
Without knowing any of the details the biggest change will be the decrease in shipping costs. Shipping has gotten out of control, especially to the east coast, as many of the American wineries farm out their shipping to 3rd party companies who nickle and dime the end consumer to death.
Daniel Grotto
September 12, 2008 7:27pm ET

It's hard for me to see it having a major impact. Wine.com is no Amazon.com in terms of sheer size, but it already does what Amazon hopes to do. Wine.com has been around for many years now, and I can't discern any unique impact that it has had on the industry. (Someone correct me if my impression is wrong.)

My guess is that Amazon would follow the same general business model as Wine.com: buy wine in bulk, store it in one or more low-overhead facilities, and aggressively market promotions to compete with local wine shops and/or reach markets where there aren't many wine-buying options (such as rural communities). I applaud this.

The main downside of this approach, however, is that it limits selection. Wine.com, for example, focuses more on the established names that I can find at my grocery store or at a large beverage chain such as BevMo or TotalWine, and not on smaller boutique wineries.

And I share John Wilen's concern about hot-weather shipping. I no longer purchase from Wine.com for this reason -- one of the wines in my last order showed signs of seepage and tasted a bit cooked. This problem can be easily fixed, however, by offering consumers a choice to have their wine kept in storage until the weather gets better. Zachys in New York, for example, will keep purchased wine in storage for up to three months free of charge when the weather is hot.

In the end, I suspect the main impact of Amazon's entry into wine sales will be on Wine.com's profit margins...
Farhana Haque
Queens, NY —  September 12, 2008 9:15pm ET
Um, how do you do tastings online?
Eugene Kim
Houston, TX —  September 12, 2008 10:48pm ET
James,Your blog brings a little solace as Ike rolls through town. As has been alluded to, the wines that will sell and benefit from an Amazon distribution will be those that produce wine by the tens of thousands. These highly mass produced wines will have yet another route to the consumer - these are the types of wine you will see at your local grocery or generic liquor store. If and when I drink a bottle of this quality level, I will just go the grocery store and get one - there is never a shortage. But for my online wine buying experience, it is usually for the hard to get, hard to obtain wine that you have to search for - be it through an online search site or auction site. I also buy straight from many wineries online. For me and I am sure many others, Amazon selling mediocre mass-produced wines will have very little effect on my online wine purchases unless they are able to somehow secure high-end hard-to-get wines which are produced in low quantities. But I highly doubt this will happen, since most of these wines have long been sold to restaurants and mailing lists.
John Shuey
Carrollton, TX —  September 13, 2008 11:06am ET
I do not see how this will benefit folks in states with laws against direct shipping, but as long as it stabilizes prices and shipping costs in those states where it is allowed it should be a win-win situation.
John Poggemeyer
Cleveland, OH —  September 13, 2008 11:10am ET
I must agree with Eugene. Any cost savings to consumers will be only in terms of shipping, for certain. Any allocated, highly-sought wines will still fetch monster prices (if Amazon gets them at all) no matter WHERE they are sold. Amazon's wine will be flooded with the same stuff I can get at any large retailer; they may be able to negotiate better prices, but enough to beat the cost of shipping? I think not...
Gary Cohn
Cardiff by the Sea, Calif. —  September 13, 2008 2:02pm ET
The one area where this may be a benefit to the more discerning wine consumer is in Bordeaux sales. Stores such as Costco already sell Bordeaux at pretty good prices. It is conceivable that Amazon with their volume & buying power could be selling Bordeaux at or near futures prices. If the shipping is cheap, all the better.
Michael Wigley
Long Lake, MN —  September 13, 2008 5:17pm ET
Jim--Some of us wine geeks up here in Minneapolis are putting together a Dominus Dinner, where we have every wine since the 1983 introduction to the recently released 2005. It's on 10/22. Would you like to come?Mike
Walter Egge
Hemet, CA —  September 14, 2008 12:01pm ET
Buying wine online is already easier than buying books online. If you are an unabashed cherry picking cheap-skate, you're likely already very familiar with wine-searcher, winezap, and other productive search engines. Total cost and shipping flexibility generally rule the who-to-buy-from decision process, aided over time by familiarity with a small cadre of companies that consistently offer the best net-sum deals.

If you follow the same buying curves with books you'll have noticed that Amazon bird-dogs a huge number of sales in addition to selling from their own stock. It's in this area that I see their utility functionally improving the distribution process (for states that allow direct shipping) by expanding the exposure of the already huge glut of terrific wines available at great prices. Consolidating the variously available futures offers and enabling single-bottle purchases should garner them a large group of beginning and budget collectors. Consumers can already find any quality level of wine at practically every price point if they want to. Amazon's entry into the market should benefit everyone except the local shop-owner who still charges more per bottle than you can get the same thing for, shipping included.
John Wilen
Texas —  September 15, 2008 11:14am ET
Walter, please don't assume that everyone who uses winesearcher.com does so solely for cost savings. If you live in the Sunbelt, from Arizona across to Florida, you quickly realize what you are up against. Hundreds of quality California and Washington state wines never make it here. If they do, they often arrive 6 months after they were released, in ultra-small quantities. And for those wines that do get onto local shelves, there's the whole question of where has it been since release? Most likely in a non-refrigerated truck traveling along a lengthy portion of 2500-mile-long Interstate-10 in blazing heat --- on its way to a non-temperature-controlled warehouse. Winesearcher only for cheapskates? Hardly. Many of us would call it a lifeline...
Sandy Fitzgerald
Centennial, CO —  September 15, 2008 11:46am ET
In a general marketplace, the more competition the better. This move doesn't particularily excite me, however. Over the years, I have developed relations with a host of wineries, that I receive direct shipments from. These relationships have helped me secure, in futures or pre-release, incredible wines that are almost impossible to get. They have granted me access to events of incredible wine and food experiences. On the local retail side, I have local wine managers that have turned me on to awesome wines, with great QPR's, that I would probably have never tried except by their guidance and knowledge. Do I believe Amazon, a huge faceless internet company, will in anyway match the benefits I receive from my current suppliers? Absolutely not! What will I get out of degrading my current relationships? I'll let someone else get giddy over being able to buy this Big 7 (i.e. Constellation) Brand wine for $0.50 per bottle less from Amazon than from Walmart. I don't believe that 90% of the wine I drink will ever be marketed by Amazon. In addition,once you go there, can you imagine the non stop spam and junk advertisements for $2 Chuck,et.al., you'll probably start receiving?
Ken Koonce
Dallas, Texas —  September 15, 2008 1:50pm ET
I agree that Amazon's entry into the market may have little effect on those seeking higher end hard to get wines. It's entry will improve incidentals, like shipping, and, more importantly, service. Smaller on-line sellers will have to maintain or improve service to be competitive in their higher end niche market. Local retailers, on the other hand, may have to compete harder on price to compete with the large production wines Amazon will likely excel in selling, or get a hold on those harder to get wines Amazon may not have and compete on service like their on-line counterparts.
Gabriel Enning
Sweden —  September 16, 2008 10:07am ET
James,This has nothing to do with Amazon and their wine sales, but I would just like to ask you a question regarding the latest tasting highlights of Cali Pinot.What do you think is the reason why you have rated the Fort Ross 2005 Pinot Noir Reserve 92 points here, when you have previously rated it 84 points, just a short while back? From what I understand you have tasted it twice, with concistent 84 point notes.Could the wine improve so much in the bottle in such little time?
Richard Hawkins
Akron, Ohio —  September 16, 2008 10:53pm ET
It doesn't do anything. People that enjoy wine purchases online already do. Why add Amazon as another middle man. A bunch of online wine shops selling through the marketplace of Amazon. Good for the online retail shops, with there never ending quest for market share, not for the consumer.
Kasey A Carpenter
Fort Worth, Texas —  September 16, 2008 11:34pm ET
Amazon could eventually harm the wine business as it is eventually going to harm (if not already harming) the book business. Competition is great, but when Amazon destroys said competition (and who will compete? Wine.com? they just recently ¿announced¿ that they may have broken even for the first time in ten years despite $72 million) be they independents or the Costcos of the world, then what?
I am fascinated, and have written such, with what the implications of a device like the Kindle could have for all of this, but I think that while Amazon is smartly and slowly building this thing with huge brands and high volume, who¿s to say the rest of the wine producing world won¿t join in? The winery controls the price, Amazon gives them more money than any traditional three tier system, and they get one of the world¿s most successful online marketplaces stocking, shipping, backing and branding their product. Sure this model will, for now, attract those wineries that have the challenge of selling what they produce, but what about the smaller wineries? Amazon¿s primary point of attraction may be its ability to market a wine efficiently into the inboxes of millions, something most wineries would be happy to have in lieu of direct sale profits.
It has the potential to be a monster, and while I would love to be able to buy my wine online and have it shipped for free (less the 79 bucks, which pays for itself quickly), I can¿t help but wonder how this will affect things in ten years. What happens when we have a handful of monopolized choices to get wine from? How many choices can you list where you can buy books in your city, are they competitively priced? Can a top dog brick and mortar retailer like Barnes & Noble compete with the prices of Amazon? What happens when no one locally or nationally can come close to Amazon¿s prices? Sure we¿ll have a great outlet for cheap wine, but anytime one company dominates a business sector, we all know what happens...
Gabriel Enning
Sweden —  September 17, 2008 4:05am ET
James, thanks for your answer.

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