A loaf of bread, a jug of wine and a good idea from Harvard Business School

In that study, Berglund took control of a collection of cabernets and built a business plan to sell them direct to consumers. Berglund recounts: “George Schofield, who had been the CFO at Mondavi for many years, had been purchasing a collection of great cabernet sauvignon with a group of investors, who intended to re-release them when they were 10 years old. By the time George sponsored the field study at Harvard Business School he had amassed a $4 million collection of aged cabernets but he had no sales plan. That’s where I came in.”

She devised a plan to sell the wine to consumers, then used the idea to create the Ambrosia wine catalog. To learn how wineries operate, Berglund made a point of calling on wineries to pitch her catalog, rather than letting the wineries come to Ambrosia to pitch their wines. “I went to the wineries to sell our idea and ask them what they wanted to accomplish with us selling their wines,” she says.

From those experiences she learned that wineries, being growers rather than direct marketers, needed help building wine clubs and other distribution channels. These small wineries did not have the tools to cater to a base of customers who had visited the vineyard and would buy more wine, but were never given the opportunity.

Seeing the developing Internet as a new distribution point to sell wine to wine buyers, Ambrosia launched a web site to support its catalog offerings in September 1999. “When wineries saw what we were doing with Ambrosia, they asked if we could develop their wine club or manage their database, call center or distribution,” Berglund says. “This led naturally to e-commerce services once Ambrosia went online.”

Berglund says the evolution to the web was a natural one—but fast. “I liken the experience to driving at 100 miles per hour and changing the tires at the same time,” she says of the company’s shift from being a retailer that buys and resells specialty wines to becoming an e-commerce service partner.

The experience with Ambrosia made the job of going online less fear-inducing than it might otherwise have been. “By the time we went online with Ambrosia we had been doing direct marketing for eight years and we already had sophisticated direct marketing—we knew about the importance of customer care, database management and distribution,” she says. “For us it was just putting a web face on our catalog business and because of our experience, it was easier to do than if we had been a brick-and-mortar retailer.”

Berglund, who settled on specialty web designers MultiMedia Live, in Petaluma, Calif., say investors put only $350,000 of privately-raised capital in the initial web business instead of the $1million-plus that some advisors said she would have to spend.

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.

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.

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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.”

Berglund says the wineries don’t just work together online by selling through the same web site. The company holds bi-weekly workshops that bring winery employees together to discuss what is working for them. “We’re teaching wineries how to embrace this distribution channel and give them a holistic approach to selling their product to consumers,” she says. “Ideas come from everyone and that is where the cooperative spirit comes in.”

Lesley Berglund

Work Experience

Harvard Business School, 1991