Direct-to-consumer (DtC) shipping of beverage alcohol products is a $3 billion dollar market that continues to grow annually. DtC shipping can be a great way to grow your business by reaching new audiences, expanding your customer base, and increasing your sales. But, before you can take advantage of this growing market, there are some steps your business needs to take in order to remain compliant and avoid state penalties and fines.
Here is a four step guide to getting started shipping DtC:
1. First, select a few states to enter
Begin by selecting a few states where you want to be able to ship DtC. Starting out smaller can help you manage the added compliance and logistical requirements that shipping DtC will introduce, while setting you up for expansion. When selecting which states to focus on first, here are some factors to consider:
- Which states have the highest consumption rates? Use industry data and reports, like the DtC Wine Shipping Report, to see where the highest demand and consumption rates are. Higher rates increase the likelihood of consumers purchasing your products and choosing DtC shipping. If you distribute within the three-tier system, consider where you have the highest demand or sales. If you have data from your tasting room or POS system you may also consider where the most out-of-state visitors are coming from, as you’re more likely to have higher demand and brand awareness in those locations.
- Does the state require a specific DtC permit? A few states, like Florida and Alaska, don’t require a DtC shipping license—though the majority of states do. If you are trying to minimize the paperwork and added steps, this might be something to consider.
- What are the licensing requirements for that state? Requirements to obtain a DtC shipping license vary by state. For example, some states require the acknowledgment of states tax obligations in order to be licensed, others do not.
- What are the costs of receiving the license? There are several costs associated with receiving a DtC shipping license, like an application fee, annual fee, or renewal fee. All of these costs can vary by state.
Considering all of these factors together can give you a greater understanding of the costs and benefits of starting to ship DtC in a particular state. For example, say you are a California winery and after doing some research you learn Oregon, Colorado and Washington have similar requirements in getting an out-of-state DtC shipping license, and they all have an annual renewal schedule with similar application fees. If this lines up well with your other research, like wine consumption rates or reporting schedules, it might be strategic to enter those states first and at the same time, making the renewal and reporting processes easier when the time comes.
2. Organize and manage the license filing process
Once you’ve done research and decided which states to start shipping DtC in, it’s time to get started on the paperwork. Depending on the states you enter, it can be complicated organizing and applying for the required licenses. There are a couple of ways to manage and stay on top of this process.
- The first approach is to do everything manually on your own. This means you complete all the research, compile all the necessary paperwork, and file your license applications on your own.
- The second approach is a hybrid. You employ a solution like License Management to help guide you through identifying and compiling all the requirements needed for each state and then you file with the states manually.
- A third approach would be to hire a compliance consultant. This is the most expensive and hands-off approach. You outsource the entire process by having the compliance consultant complete everything from research to filing your license with the state.
3. Update your ecommerce platform
Once you’ve done all the work to get licensed in the states you chose, it’s time to let consumers know that your operations have expanded and you can ship DtC in their state.This means updating your ecommerce platform. Having your ecommerce platform integrated with real-time software can allow consumers to know right away, while they’re still in the process of checking out, if they are legally able to receive the wine shipment. It will also determine the correct sales tax amount you, the winery, should collect based on the consumer’s ship-to address.
4. Evaluate your compliance process
When adding DtC shipping to your operations, it’s a great time to evaluate and reconsider your current compliance process. DtC shipping can expand your business and customer reach, but it can also create additional complexities. A real-time compliance solution like those from Sovos ShipCompliant, can help you manage your compliance and reporting obligations. Integrated compliance software is one of the easiest ways to reduce manual time spent and ensure you are remaining compliant with reporting obligations, compliance checks, and sales tax determination. Having a scalable compliance process will make further expanding your DtC operations a lot easier when the time comes.
Starting your DtC operations doesn’t have to be overwhelming. Following this guide as a starting point can help you simplify and manage the process of getting licensed to ship DtC, allowing you to take advantage of this growing market and get your products in the hands of more customers.
Want to know even more? Get in touch with an expert.