Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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WineShopper.com and Wine.com will operate under the Wine.com name. WineShopper.com reported raising $46 million ($30 million from Amazon.com), while Wine.com is believed to have raised $100 million. Industry consultants Gomez Advisors Inc. reported earlier this year that, once merged, the new wine dot-coms would be looking for more money either through an IPO or another round of venture investment.
Dave Moore, director of retail marketing for WineAccess.com, says the merger between Wine.com and WineShopper.com is telling of the inherent flaws in pure-play wine retailing. “The two most highly funded sites are having to merge because they can’t cut it on their own,” he says. “They’ve spent close to $150 million so far and they’re looking for more money. At what point do you say ‘This doesn’t work?’”
Moore believes WineAccess has created the successful model whereby shoppers can buy online and receive a delivery at home from a local retailer, or can shop online, then pick up the merchandise in the story. About 70 stores have contracted with WineAccess; 30 are already online. The wine stores pay $250 per month plus $5 per online customer per quarter to be part of WineAccess’s network. Moore says one member store in New Jersey sold $28,000 online from February through September. Because that store was the first to sign on with WineAccess, it does not pay the monthly fee. However, if it had paid the monthly fee and the per customer charge it would have cost $2,900 for the service. Moore says the store does not promote low-margin items online, rather it pushes wine with margins nearer to 30%. And because the service includes email marketing, $2,900 is a cheap way to directly advertise sales on wine, he says.
Plenty to go around
“Since buying wine is so consultative, people don’t like to buy it online without some kind of guidance,” Moore says. “People are shopping online, but they are not buying wine online in numbers that make it profitable.” Moore contends that the Internet will enhance but never replace buying wine from a physical store.
eVineyard’s Lauter is more optimistic. The consumption of premium wines has been growing at an average of 15% per year for the last 10 years, he says. “According to Solomon Smith Barney, the b2c online wine market is at $100 million this year,” he says. “That’s real money. There are two big players in this space right now. There’s plenty to go around.”
The next few years will determine if these online retailers can convert wine into profits.