By: Jason Haas
Jason Haas is the second generation proprietor at Tablas Creek Vineyard, the pioneering Rhone specialist in Paso Robles, California. In addition to his work overseeing the operations there, he serves on the board of directors of the Paso Robles Wine Country Alliance, Rhone Rangers, and Free the Grapes.
Back in 2017, I was having lunch in Boston with a key account manager from our Massachusetts distributor. We were talking about what I’d done on my previous visit, which included a really cool dinner at (sadly now closed) Blue Ginger that had such a large consumer response that they had to move the dinner into a larger room.
I also conducted a sold-out tasting seminar at the terrific retailer Gordon’s in Waltham. I mentioned that we’d sent news about the events out to our mailing list and wine club members, and that I thought this was a big reason why we’d gotten such a good turnout for the events. His response took me by surprise, though it shouldn’t have. He said, “I know, we oppose direct shipping, but I guess it can have its uses.”
The conversation was a great reminder about how misunderstood direct shipping is among many actors in the wholesale market, and how short-sighted their opposition to it is. After all, our wholesale business in Massachusetts was up 38% that year, and rose sharply in 2015 after nearly a decade of essentially flat sales. Our Massachusetts wholesaler sold 34% more wine in 2017 than in 2014. Most businesses would kill for this sort of performance. So, what turned things around?
I would submit that the biggest factor was that in February of 2015, a new law brought Massachusetts into the growing majority of states that allow direct-to-consumer shipping of wine.
At first, it seems counterintuitive that opening up a state to shipments of wines from wineries in other states should help the sales of that winery’s wholesaler. Doesn’t each sale offset another in-state sale? Not really. Here’s why the ability for a winery to ship to a state should generally increase their wholesale sales there:
- Wineries are better able to make and cultivate fans. This, I think, works in at least a few ways. Each year, a winery like ours sees visitors from every, or nearly every, state. Of course, more are from California than anywhere else, and a disproportionate number are from the larger western states, but we see a few hundred visitors from a state like Massachusetts each year.
- If these visitors can’t sign up for our wine club and can’t order wine from us, it’s a lot harder for us to establish a meaningful connection with them. That means that when these people return home and see a Tablas Creek wine on a wine list or the shelf of a wine shop, we’re less likely to have developed enough of a connection with them that they choose that wine over others.
- They are also less likely to bring Tablas Creek to friends’ houses, and therefore the critical peer-to-peer market is harder to activate.
- I also think — though this would be hard data to gather — that shipping bans discourage wine tourism from those states, since those consumers are likely to experience some degree of frustration in getting any new discoveries home.
- The wines that people order are not the same wines they buy at retail. The idea that consumers will exchange a purchase at their local shop for a purchase of the same bottle online is pretty far-fetched. Consider why:
- Wine is expensive to ship. It’s heavy and perishable, which means that even if (like us) you subsidize the shipping costs, a consumer will see added prices of at least a few dollars per bottle for cross-country shipping. Because wine is alcohol, all packages have to be signed for upon delivery, and the consumer will have to wait at least a few days to get their wine. Add this fact to that wineries have to jump through significant legal and compliance hoops to get shipping permits and the net result is that it’s rarely worth it to ship inexpensive wines, or wines that have good representation in distribution, direct to consumers. The average price of a bottle of wine sold in the United States is about $7. Even with growing demand for higher-end wines, the vast majority of wines won’t ever make sense to ship direct. From a winery’s perspective, it’s not until you get to the $20-and-up category that extra margin a winery makes on a sale consistently outweighs the shipping costs.
- So, what sorts of wine do make sense for both wineries and consumers to order direct? Those they can’t find, or at least can’t find nearby. Direct shipping opens up the power and opportunities of long-tail marketing to wine lovers and producers. We don’t produce enough volume or have enough demand to have wines on the shelves of dozens of stores in each state outside of California. So, in many cases, consumers don’t have any Tablas Creek on the shelf anywhere near them. And if they do, it’s likely that what’s easiest to find is our Patelin de Tablas line, which makes up about 70% of what we sell wholesale nationally. What if they’ve read about our Vermentino, or our new Terret Noir? Too bad. So it’s unlikely to surprise anyone that more than half of what we sold direct was our small-production varietals and blends that aren’t found in distribution, or that the Patelin wines made up just 15% of direct sales.
- I would guess that most wineries’ data would show trends similar to ours, and it’s backed up anecdotally. On a recent visit to another high-end winery near us, our server explained that they have two entirely separate lineups of wine for their wholesale sales and their tasting room. And, of course, many small wineries don’t distribute any of their wine nationally.
- Restaurants work differently. Although many restaurants offer corkage, where customers can bring in their own wines and have them served at their table for a fee, and there are some states that allow wineries to sell direct to restaurants, the challenging logistics and planning (and cost) required means that nearly 100% of wine sold in restaurant comes through a state-licensed wholesaler. Does opening direct-to-consumer shipping impact restaurant sales negatively? Quite the contrary. We have found that it is our wine club members — read: superfans — who are the most likely to order our wines at a restaurant. They feel a proprietary pride in the success of their favorite wineries, and when they are dining with friends and see a winery they patronize on a restaurant list, it often spurs the peer-to-peer sharing that starts new customers on the path to fandom. If we can’t ship direct to a state, it’s a lot harder to sign up wine club members. And the restaurant sales those club members would make don’t happen.
- Direct shipping changes wineries’ incentives. All those reasons aside, I think the most important reason that we have seen our wholesale sales increase in state after state after that state opens to DtC shipping is that the ability to ship direct changes a winery’s incentives. I know that we don’t lavish the same amount of attention on states to which we are prohibited from shipping directly as we do to states to which we can ship. Before 2015, I hadn’t visited the Massachusetts market in several years, despite that I went to both high school and college in Massachusetts and have lots of friends — and sports teams — in Boston that I love to see. It just wasn’t worth it. By contrast, I went every year to states like New York or Illinois, where we could ship. On a normal market visit, I would go, spend my days working with our distributor reps to get the wines into new accounts, and spend my evenings doing consumer events at restaurants or wine shops. I could help ensure that those events succeed, making the accounts that host them happy, by promoting the events to our consumer mailing list in the area. And I could come out of those events with a new collection of names that I would add to our mailing list. This helps put these people on the path to fandom that might eventually lead them coming to visit us, joining our wine club, or buying wine (from us, or from a local outlet). In a non-shipping state, I can still do the work days with the distributor, but I can’t do much to help promote consumer events (so they’re less likely to be successful) and I can’t do much with any consumer contacts I make at these events. Both time and marketing dollars are finite for any winery. Wineries are only behaving rationally by focusing their attention where they can have the greatest impact, which means that states without direct shipping don’t get as much winery-level help with their wholesale sales.
A Pattern That Can’t Be Ignored
Whatever the reason or combination of reasons, Massachusetts isn’t the only state where we’ve seen wholesale sales increase in the aftermath of the state opening to direct shipping. It has happened again and again. Between 2006 and 2018, our wholesale sales rose an average of 3% per year. Check out how much some of the larger states (that opened to direct shipping over that period) grew in the first two years after they allowed direct shipping. The year that we started shipping to each is in parentheses:
- New York (2005): + 68.0%
- Florida (2006): -38.1%
- Texas (2006): +61.7%
- Ohio (2007): +14.3%
- Georgia (2008): +24.0%
- Washington DC (2008): +72.5%
- Maryland (2011): +160.9%
- Massachusetts (2015): +34.1%
- Pennsylvania (2016): +310.1%
- Indiana (2016): +11.9%
- Arizona (2016): +17.6%
The average two-year increase in our wholesale sales post-direct shipping in these eleven states was 67%. Why was Florida the one state to decline? I didn’t realize it had, until I pulled this data. But I have a few guesses. First, it’s a state from which we see relatively few visitors, at least for the size of its population. It’s also a state with a very spread-out population, where (unlike, say, in New York or Washington, D.C.) it’s hard to schedule events in places that are central to a collection of mailing list members. We also struggled to set up good consumer events in our early years there, so I doubt we were able to leverage or build our mailing list particularly efficiently. Still, the rest of the states show a pretty strong trend, and given that Florida has grown steadily in recent years and is currently our #4 state for wholesale sales, I don’t think the one data point invalidates the other 10.
Is there any guarantee that this post-direct-shipping boom in wholesale sales will last indefinitely? Of course not. Any market is subject to ups and downs that have little to do with your number of fans in the market, and most wineries have a finite amount of time and personnel to make visits to markets around the country. But I think the data is pretty clear that the ability to sell direct is not death knell for wholesale sales, and in fact is likely to tip the scales in favor of your wholesale efforts.
And this should be intuitive. If you’re a California winery, you likely sell a disproportionate amount of your wine in California. At Tablas Creek, California routinely makes up between 50% and 55% of our total annual wholesale sales, more than double the percentage of the national wine market that it represents. And this happens against the background that two-thirds of our wine club members live here.
Coincidence? I think not.