How to Evaluate ROI When Entering New States for DtC Shipping

Lizzy Connolly
November 22, 2021

Whether your organization is just starting out in the direct-to-consumer (DtC) wine shipping channel or you’ve been established for years and are looking to expand into new markets, it can be a challenge to know which states to enter. It’s important to have a sense of the potential return on investment (ROI) before selecting a new state for DtC shipping. 

Here are key considerations that producers should examine when choosing a new state to enter for DtC wine shipping. 

Ease of getting licensed in the state

Getting the right DtC shipping license is one of the first things that producers or other shippers need to do when it comes to shipping alcohol into a state. State licensing processes can vary from one state to the next, along with renewal deadlines. 

Some may also have varying requirements when it comes to the types of documentation needed to apply for a license. For example, a state may require a business to provide a full list of owners, corporate officers and managers, as well as their personal information, as part of the application process. Wineries should also consider whether a state has a paper versus electronic submission process, and if there are any bond requirements. 

Additionally, different states can have various time frames for approving — or denying — a license application. The process could take several weeks to months to complete, meaning that some states could have a longer licensing process than others. 

Licensing costs

The type of license required and the accompanying license fee (if any) are also key aspects in evaluating new states to enter. Remember that just because you are permitted to ship wine DtC to consumers in, say, Ohio does not mean you can automatically do so for a neighboring state!

Different states impose a variety of associated licensing costs and parameters. For example, a Michigan DtC shipping license costs $100 and expires annually on April 30. But a Massachusetts Direct Wine Shipper License costs $300 and expires annually on December 31. 

Other factors to consider: Three-tier distribution, existing customers

There are a handful of other factors that might render a state more appealing — with a  potentially higher ROI — beyond the ease and costs of getting licensed. Wineries should also look at how much wine a particular state’s consumers are having shipped to get a sense of the potential market opportunity. Also looking at year-over-year growth can help better define a state’s market potential for DtC shipments. For example, Idaho may not represent as large a market as California or Oregon, but in 2020 Idaho saw a 48% increase in volume of DtC shipments from the previous year.

If a winery already has some kind of presence in a state, the potential ROI for entering that state might be higher. When a winery is distributed in the state by a wholesaler, that represents a head start on acquiring DtC customers. Or perhaps a winery has a database of tasting room visitors from a certain state, which could also be an argument in favor of opening that state. Even the presence of remote employees in a given state could be a tick mark in that state’s “pro” column. 

The process of selecting a new state to open for DtC shipping means evaluating the ease of getting started there, the costs and complexities of getting licensed, and other factors, such as a presence in the state, that might make it a favorable choice. There’s also a handy set of interactive tools that can help make quick calculations for several of these factors. Overall, conducting research ahead of time to gauge a state’s ROI potential is important for wineries of all sizes as they look to expand their DtC shipping reach.

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Author

Lizzy Connolly

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