Amazon is conquering logistics, then wine

In a world in which Amazon seems to be taking over, it seems noteworthy when the company backs down from a challenge. This is what happened with wine – at least for the time being.

Amazon Wine was launched in 2012 and shut down just recently, at the end of 2017. Its history is well summarized by Tech Crunch (https://techcrunch.com/2017/10/23/amazon-wine-is-shutting-down/). The story boils down to the company not being able to deal with the restrictive regulations around wine that we discussed in class – a classic case of what a conservative-minded person might point to as “overregulation of the markets”. But this isn’t the first time Amazon has run into regulations (take, for example, their battle with the FAA on drones http://fortune.com/2015/04/29/drones-amazon-letter-faa/). So why is it giving up on its own wine marketplace?

Instead, Amazon seems to be abandoning its wine platform while doubling down on its logistics services, such as Amazon Fresh and and Prime now. Right now, it’s rolling these services out in new cities, including deliveries of alcohol (mostly beer). At the same time, the Whole Foods acquisition seems to be part of the picture. Now that Amazon has a nation-wide brick-and-mortar presence throughout the US with stores that are already licensed to sell beer and wine, it may be able to leverage its logistics advantage into capturing the market that Amazon Wine could not. After all, its ability to deliver wine more quickly (via Amazon Prime) may trump a platform that delivers variety (such as Wine.com, which has not been doing so well either). 

Duane Stanford, executive editor at Beverage Digest, noted in an interview:  "The three-tier alcohol distribution system is a complicated web of state-by-state laws that make it tough to scale online delivery… If anyone can apply pressure and creativity to the problem, however, it's Amazon, and Whole Foods gives Bezos yet another paint brush.” (https://www.cnbc.com/2017/09/17/getting-alcohol-delivery-on-amazon--will-whole-foods-help.html). Will Amazon use some of its creativity and political capital to change the regulatory structure? Will the company be the savior of anti-regulation advocates in the industry by using its might to simplify the system? Is the wine industry worth fighting for among all of Amazon's other priorities? 

Interview with Wine Tasmania

When researching my midterm paper I recently I got the opportunity to correspond with Sheralee Davies, CEO of Wine Tasmania. Wine Tasmania is an independent, non-profit organization, financed by its member businesses, that promotes the interest of Tasmanian wine. Below are a few key excerpts I thought would be worth sharing with the class, and very much related to Terry’s talk on brand building. Visiting Tasmania I felt a strong sense of community, craft, and a common story. Making wine on an isolated island provides challenges around profitability and export potential, but also provides an opportunity for tourism and a unique brand identity. Wine producers in Tasmania have done an incredible job coming together and leveraging the Tasmanian brand as an asset. I left wanting to promote Tasmanian wine but also the place itself, and feeling that the two were inextricably linked.  

Sarah: What are Tasmania's "unfair advantages" when it comes to wine?

Sheralee: Some are natural - in a cool climate, vintage variability is significant. Yields may vary by as much as 50% year on year and this makes it challenging, particularly from a profitability perspective. As a cool climate, our risks are elevated, with fruit hanging on the vine for a long term as it develops its intensity of flavour and structure. Also, as an island there are logistical challenges and costs associated with transporting wine, equipment, bottles (etc.) to and from the island. We often talk about 'high risk, high reward'.

Sarah: What is the "Tasmanian brand" and how is that an asset?

Sheralee: We have developed a specific Tasmanian Wine Brand platform, which is aligned to the Tasmanian Tourism Brand. I can't share the full details with you, as it's been developed to provide a commercial benefit to Tasmanian wine producers. In summary, it positions us as an adolescent, in light of our relatively short history, and all that goes with it - anti-establishment, confident, wacky, unbridled, rebellious. The key benefits are that it allows us to differentiate Tasmania from other wine regions, unifies producers and is aligned to encouraging tourism. Tasmania is the first thing we talk about in promoting our wines - not just our wines, but the place, the people, the produce, the experience (etc.) - it's incredibly important and powerful.

Sarah: How do Tasmanian wineries plan to build brand equity internationally?

Sheralee: Collaboratively. It starts with regional promotion of Tasmania, then each wine producer can share their own stories and grow their own markets. The promotion of Tasmania includes collaboration not just between wine producers, but also with other Tasmanian produce, tourism offerings, attractions and experiences.

Sarah: I would love to hear more about the potential for and pain points of exporting Tasmanian wine, and inroads made here.

Sheralee: There is significant global interest in Tasmanian wine and recognition of its quality due the very significant and long term efforts of wine producers. However, we only produce the rough annual equivalent of 630,000 dozen (9L) and most of our wine businesses are micro or small. Additionally, our cool climate creates significant vintage variation, meaning that availability of wine to sell changes year by year. Many Tasmanian wine producers are therefore best to focus on the domestic market, particularly through cellar door and direct sales - this helps their bottom line as well as their relationship with customers. Exporting comes with a need to service markets, to label wines differently, to obtain an export license, local importer (etc.) - if wine businesses can sell in the domestic market, this makes the best sense for many. There are approximately 15 'active' Tasmanian wine exporters, who are doing an excellent job of promoting the island's wines. Key current markets are the UK, USA, mainland China, Finland and Hong Kong - the major focus for export is the value per litre, rather than volumes.

Sarah: Where do you see the Tasmanian wine market in ten years? What most excites you about the future?

Sheralee: I expect Tasmanian wine to be far more prominent in key export markets, for people to have more knowledge about Tasmania, its wines and wine styles. I also expect that more wine lovers will be visiting Tasmania to seek out more of our wines, and that Tasmania will be recognised as one of the leading wine regions for quality and excitement. There is so much change and development occurring - more people moving to Tasmania to grow grapes and make wine, different clones and varieties being planted, different winemaking techniques (etc) - the innovation and where it will take Tasmanian wine is what is exciting.

The People vs. Alcoholic Beverage Wholesalers: Why It’s Getting Harder to Ship Alcohol Across State Lines

            Granholm only took us so far.  In 2015, UPS and FedEx announced they would no longer accept shipments of alcoholic beverages from retailers if the goods were not bound for one of fourteen states that explicitly allows such exchange in response to a crackdown by state regulators.[1]  This is a sharp departure from prior practice. 

            Before 2015, state laws requiring a license to ship across state lines were technically on the books.  But they went unenforced, and their interpretation was up for debate.  Retailers shipped alcohol much more freely over state lines, creating enormous opportunities for alcoholic beverage retailers to expand their customer base considerably by fulfilling out-of-state orders over the internet.  This was good for consumers, too.  A family hosting a dinner party in rural Missouri who wanted to serve Walla Walla Riesling could order a few bottles directly from a Seattle retailer, paying the cost of shipping for the privilege.

However, a coalition of alcoholic beverage wholesalers, led by Wine and Spirits Wholesalers of America (WSWA), has been systematically lobbying states and the federal government to favorably interpret these statutes and enforce them against interstate alcoholic beverage shippers.[2]  

WSWA is a formidable foe.  The industry group has nearly 400 member companies, representing 80% of the wholesale market.  It enjoys tax-favored 501(c)(6) nonprofit trade association status.[3] 

Daniel Posner, owner of a White Plains wine retailer and President of the National Association of Wine Retailers discussed the fracturing effect on the retail sector, allowing wholesalers to further consolidate their industry power.[4] 

Craig Wolf, President and C.E.O. of WSWA, defended the industry group’s motivations, citing their interest in consumer protection.  Mr. Wolf insisted the tighter regulations would reduce counterfeiting and curtail underage drinking by teens ordering alcohol over the internet.[5]  Mr. Posner countered, telling the New York Times that “this is pure greed.”[6] 

Regardless of whether there is a legitimate health and safety concern associated with allowing retailers to ship their wares across state lines, state regulators are not doing their constituents any favors.  They are protecting out-of-state interests at the expense of retailers back home, and distorting the alcoholic beverage market in the process.  This is not effective governing.  Sit down, state representatives, you’re drunk. 

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[1] Eric Asimov, Wines are no longer free to travel across state lines, The New York Times, Oct. 23, 2017, https://www.nytimes.com/2017/10/23/dining/drinks/interstate-wine-sales-shipping-laws.html?_r=0.

[2] Id.

[3] Wine and Spirits Wholesalers of America Website, www.wswa.org.

[4] Asimov, supra n. 1.

[5] Asimov, supra n. 1.

[6] Asimov, supra n. 1.

An Anti-Aging Wine

Conventional wisdom is that wine gets better as it ages. Rob Newell's blog post does a good job explaining that this is mostly untrue – 99% of wine is intended to be consumed within five years of production. However, I was curious if there were any outliers that were meant to be consumed very soon after production, and stumbled upon Beaujolais nouveau as just such a wine.

While perhaps unsurprising to those who know wine, I discovered that Beaujolais has a unique production process and sales strategy. In terms of production, it is only aged for a few weeks, being bottled just 6-8 weeks after the harvest. The grapes and the production process lend to a unique flavor that is very fruity and sweet. The wine is known not to improve with age, but rather to be consumed shortly after purchase. Adding to its idiosyncrasies, the red wine is also meant to be consumed chilled.

While many love Beaujolais, some consider it a simple and unsophisticated wine. Its sales have fluctuated over the last few decades, with some asking whether it will make a comeback (http://www.bbc.com/news/blogs-magazine-monitor-30079340), but others saying that the peaks in demand are due to hipster trends.

The most interesting aspect of Beaujolais nouveau, however, is how it is sold: once per year, at midnight on the date of a specific night in November. Unlike any other wine (that I could identify), the entire vintage is released all at once. This mass release, along with some heavy marketing, creates a rush and celebration surrounding buying and consuming the wine that is well known throughout the wine community, and has come to define the wine.

All of this leaves me to wonder: in a retail climate in which "experience-driven purchases" are increasingly common, can other wine labels and regions create a similar experience? Tastings are one way in which vineyards already do this, but is there a way to do it on a larger scale and inclusive of an entire region?