In its second-largest acquisition, Amazon buys the company for $970 million.
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Since then, the online services that Winetasting.com has developed include design, marketing, distribution and delivery. The company built data management and distribution centers and a 60,000-sqaure-foot warehouse, as well as developed an e-commerce platform for its winery members. Berglund says wineries prefer to outsource much of their online needs because they don’t have the means to keep track of such database points as sales tax per state, which states they can sell wine in as well as household allocation laws that limit the amount of wine individuals can purchase per year.
Winetasting.com helps wineries decide what to sell online and how to market it, as well as teaches winery staff how to make changes on their web listings. The wineries send their allocations to Winetasting.com’s warehouse, where Winetasting personnel manage it, track it and ship it to consumers. Winetasting.com has 65 employees, the majority of whom work in distribution. But the company has a winery relationship team with account managers that handle the needs of 10 to 20 wineries each. Winetasting.com also has a creative web designer and two programmers to do inhouse web support, although it still outsources some business to MultiMedia Live, says Berglund.
Focus on the wineries
Winetasting.com gives the wineries a seamless e-commerce platform that allows shoppers to move between different sellers and use one shopping cart to buy from different wineries. All the winery products and logos are listed under wine type as well as by vineyard tasting room. There are special tasting rooms pages for members as well.
But Berglund keeps the focus on the wineries and their product. “You don’t know we’re involved unless you look at the URL,” says Berglund. “We’ve slipped this e-commerce layer under each of the 50 individual winery web sites. They don’t have to get their hands dirty with the Internet side and they can concentrate on selling wine. It’s all turn-key.”
Industry analysts who have seen mainstream online wine retailers fail agree Winetasting.com’s cooperative service-provider approach is sound because it fills a consumer niche demand for specialty products and because it is less expensive for wineries. Consumers would not be able to buy these wines anywhere except at the vineyards themselves and wineries would have to spend several hundred thousand dollars to build e-commerce sites comparable to Winetasting.com, Berglund says. The e-commerce services it provides cost each winery about $10,000 per year. Wineries pay Winetasting.com 3% of every e-commerce sale and 12% if the site delivers a new customer sale.
The next challenge
The co-op nature of the site also offers benefits to wineries, says Ritter of Strategic Research Advisors. “In addition to gaining access to a wider range of potential customers than solely operating their own web sites, wineries can benefit from the upsell and cross-sell opportunities,” Ritter says.
Berglund concurs that when shoppers are on the site, they are likely to buy more than one brand of wine. “Consumers of high-end wine buy different brands,” she says. Unlike other retail markets, where competition is fierce in the same category, the wine business has much camaraderie. Berglund explains that many different wineries work together to promote their products, support area investments and patronize vendors who serve the market.
Therefore, having many different brands on one web site is a bonus. “We like being associated with all the other high quality wines,” says Tom Shelton, president and CEO of Joseph Phelps Vineyard. “We’re all small businesses and we don’t have huge advertising budgets. When customers are looking for fine wines and look at Winestasting.com, we’re glad to be on that list. Plus, customers of other wineries might be attracted to one of our products.”
The challenge, says Ritter, will be to increase visitor traffic on a cost-effective basis. While, Winetasting.com’s advantage of being an e-commerce winery hub is leveraging the current customer base of its winery partners, the site does seek to bring the wineries new customers. “To drive traffic to the Winetasting.com hub we concentrate on most of the ‘smart’ direct marketing techniques that pay for themselves,” says Berglund. “We have alliances and affiliate deals with like-minded sites for which we pay a percentage of sales.” Winetasting.com has content-related affiliations with such sites as Winereleasedate.com, wineevents.com and wineskinny.com, among others.
In addition to cooperative marketing efforts, Winestasting.com appeals to small wineries because it cuts out parts of the tiered distribution system that small producers don’t like. Shelton says he did not want to lend support to such online retailer as Wine-shopper.com because it supported the three-tier distribution system that small wineries have fought to change. That system gives more power to the distributors and limits where and the amount wineries can sell in the market.
Jonathan Gaw, a research analyst with IDC, says in addition to restrictive distribution laws, there are other problems with selling wine online, such as branding issues and targeting the right customers, that Winetasting.com can overcome. “Wine distribution is different in that wineries like to have a relationship with the retailer so they know who is selling their product and so they can control their brand,” he says. “A mass-oriented online retailer might sell a specialty high-priced wine next to Berringers.” For that reason, he says, “No matter what some of these online wine retailers would do, they would not be able to get allocations from wineries.”
Opening the floodgates
Winetasting.com is not likely to suffer the same fate as other online wine players: It is selling high-end products to a targeted group of consumers who are established wine buyers, and it is a service partner with established relationships with wineries. Berglund says she hopes to have as many as 100 wineries as part of the Winetasting.com cooperative by the end of the year. With its infrastructure in place, the company is now hitting its direct-marketing strides. “Our focus now is making the wineries we have online successful,” she says.