Amazon, Whole Foods, Online Wine Sales, and What I Think it Means

October 27, 2017

I have received a ton of emails this week based on the news about Amazon shutting down its online wine sales.

Some people (mostly not in the industry) have expressed concern for me and for LibDib. Their thought was that online wine sales are not working and that the sky is falling. Because if Amazon is out, then it’s a bad business model for everyone.

Those in the industry that know how and why this happened (and understand that my model is entirely B-to-B) reached out with the same thoughts that ran through my brain. Because, in my humble opinion, Amazon might become a HUGE customer for every distributor out there.

Many people didn’t know that in the legal sense of the word “retailer,” Amazon actually wasn’t a wine retailer, until they bought Whole Foods. Amazon provided a marketplace that was selling wine online, but it was technically shipping via the winery’s license. Some compliance things happened in the background (sound familiar??!), but ultimately the winery got paid and then paid Amazon commission for the sale. So, in a legal sense, the sale would be considered “Direct to Consumer” with a “Third Party Provider” as the order taker. Amazon was that “Third Party Provider.”

My family’s winery did business with Amazon that way. It was cool, the reach of that platform is huge. I wouldn’t say we were lighting the world on fire in terms of sales, but it was nice to get a few bottles sold to people that wouldn’t have known we existed without Amazon.

In addition, I learned a number of things about online platforms while working with Amazon. In all honesty, when they first launched wine sales, it was really confusing and kind of tedious to enter product, pricing and information. However, as it grew and Amazon received user feedback, the functionality changed and became more intuitive and easier to use (also sound familiar?? I love software!)

Funny enough, Amazon tried to get into wine a few times prior to their marketplace model. They put in $30 million (OMG…in 2000….that was a TON of cash) to Wineshopper.com, which ultimately didn’t work. Then they tried again to be a retailer. I met with their people both times on behalf of our winery at the time (JEEZ I AM OLD!). I heard that second attempt didn’t work because it would have messed with “no sales tax” on ALL of their products into California.

Anyhoo, back to the heart of the matter. Amazon is giving up on that “Third Party Provider” business. The reason is Whole Foods and their plan to expand home delivery of alcohol….as a retailer. They will not be taking commission per the model that I just described. Rather, they will buy directly from distributors and other suppliers, resell to consumers, and make margin.

So why are they giving it up? First and foremost, alcohol laws are very detailed and confusing and differ by state (thanks Prohibition and the 21st Amendment!) But in this case it was clear: an entity cannot be an alcohol retailer and a Third-Party Provider simultaneously. The retailer opportunity is a larger revenue contribution per sale. Plus, convenience wise (1-hour delivery and onsite grocery store sales) to the customer is a no-brainer. So the commission model had to go.

There are a number of pros and cons to Amazon’s entry into the alcoholic beverage retail space for all three-tiers of the industry. It certainly has driven a ton of press and discussion amongst my peers. I think they will continue to challenge small retailers to differentiate, provide value (recommendations) to their customers and specialize.

I am super interested to see what this new Amazon world will do for consumer choice. Some feel that it will limit selection and focus on commoditized items that are pushed by giant suppliers and distributors. I “think” I feel the opposite, but it’s not based on a lot of realities (warehouse space, logistics, pricing, margin).

 

All I know is that Amazon’s overall world domination plan is to sell everything to everyone. So if what everyone wants (and trends continue to point in that direction) is craft, small production, unique, family-owned….wouldn’t they offer it to them?  And that could be very good for LibDib as a distributor and for small producers from around the world.

But much remains to be seen. There are a lot of alcohol distributors, retailers, lawmakers and drinkers (ha!) watching this space. It is such an interesting time to watch this industry evolve and change with e-commerce and technology.

One other quick Amazon story. When I was working in high-tech PR in San Francisco in 1996-1999, my boss at the time sent an email around the office to go to this web site and do a survey about the kind of books we liked to read. That was the beginning of the “recommended for you” book marketplace that eventually became Amazon. In my “I am soooooo Silicon Valley” dreams, I like to think that my 20-something self had a little something to do with helping coders design the recommendation engine based initially on books….and eventually trickle down to craft spirits, wines and beers for retailers. 😉