Direct to consumer (DtC) sales are viewed as a direct competition to traditional three-tier wine sales, but is this really the case?
At a transaction level, individual sales do present competition. Yet, at a macro level, the two channels support each other by increasing consumer demand and driving industry growth.
Bridging the availability gap
The three-tier system and DtC shipping are separate channels representing different missions and shouldn’t be viewed as traditional competitors. Both are necessary to satisfy consumer needs and increase market demand. In fact, these two entities can complement one another with cross promotional activities that benefit the entire industry.
The three-tier system relies on distributors. Large distributors wield tremendous influence, and they inherently focus on established brands and may overlook smaller wineries. This limits the ability of those wineries to get their products to a national market. DtC sales can supplement the lack of representation in the three-tier system.
A winery can also use DtC sales data to build a three-tier line by showing potential distributors where they have an active market as a way to encourage more promotion of their brand. This can work in reverse as well. If a winery can see where it makes a lot of three-tier sales, perhaps it can host a tasting event, local laws permitting, to encourage wine club participation, opening up the opportunity for DtC sales.
Differing sales models and consumer expectations
Consumers have very different expectations when it comes to wine. The complementary nature of three-tier and DtC offerings allow the industry to satisfy the need for convenience that local restaurants and package stores provide while creating an opportunity for consumers to establish a stronger connection with unique or lesser known brands.
For example, a consumer might buy an inexpensive and widely popular wine at a traditional retailer, supplied through the three-tier system, with intent to bring it to an event that same night. In contrast, that same consumer may seek out a lesser known brand from a favorite region in Washington that’s not available in a local store, so the consumer turns to the DtC channel.
While both of these situations represent purchases from competitive stores, they do not equate to a competition of markets. The purchase at a traditional retailer represents convenience and a hands-on approach. In contrast, the purchase using DtC is a longer sales process with a more personal connection to a winery.
Separate retail strategies and regulatory obligations
DtC and the three-tier system have separate retail models and varying regulatory obligations. DtC shipments usually have a higher average cost-per-order total and require more time from purchase to consumption than buying wine at a traditional retail location. The added time and delivery costs can greatly differentiate the consumer’s experience when purchasing wine DtC.
The regulatory environment around DtC shipping does require more direct responsibility and action on the part of the winery, rather than the winery relying on distributors to handle compliance concerns. Wineries looking to ship their wines DtC must comply with varying state requirements and additional reporting obligations. Despite these increased obligations, wineries shipping DtC can increase their exposure and reach a broader customer base.
DtC complementing three-tier to bring success in both channels
The three-tier system can’t support the entire scope of the wine market. In these cases, the DtC channel can complement and supplement what distributors and retailers can’t or aren’t interested in handling, maximizing sales and consumer reach.
DtC shipping makes up only a small percentage of the way consumers purchase wine. Traditional brick-and-mortar retailers in the three-tier system are still where wine lovers make the majority of their purchases. DtC shipping is a way to get new and different brands or rare releases to consumers who wouldn’t have access to them otherwise.
It’s time to view the role of DtC and three-tier systems through a different lens. Not as competitors, but as complementary channels that can provide the wine industry with the unique distribution opportunities to grow and expand the market.
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