Direct Shipping is Not a Zero-Sum Game

Sovos | April 2, 2020

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:

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:

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.