BlackSquare builds software which will modernize and ultimately revolutionize the wine industry. Our software allows wineries and retail wine & spirit stores to sell direct to consumers via a web-based technology specifically set up for wine clubs and associated ad-hoc ecommerce purchases. This is the first in a series of blog posts about why traditional ecommerce has failed the wine industry.

BlackSquare has been active in the wine & spirits industry for three years, and has worked with suppliers, distributors, retailers, and producers. We have built up the largest wine club in Alberta, WineCollective.ca, the first wine related flash sale website in Canada, Tannic.ca and through that experience we have come to understand why the traditional ecommerce model of lists of products has failed the wine industry.

Why wine clubs? Why does BlackSquare concentrate on wine club software when it appears to be a niche market?

  1. It isn’t a niche. Direct to consumers (DTC) sales in wine clubs and tasting rooms by US wineries reached $3.4 billion per year in 2010, out of the total $40 billion in US wine sales. But importantly 62% of wineries reported that DTC is the fastest growing sales channel and while it accounts for less than 10% of total sales, it makes up an estimated 20% of total profit. That is because wineries selling direct to consumers yield far higher margins (up to 2x) than sales to wholesalers.
  2. Wine Clubs cater to wineries best and most loyal customers. These customers spend the largest amount on wine per year, are the most loyal to a brand and have the highest level of “stickiness” of any wine & spirit consumers.
  3. Ad-hoc ecommerce sales are tiny and not growing. Our internal estimates, comprised of talking direct with numerous wineries, suggest that over 70% (and as high as 95%) of all ecommerce transactions through a winery’s website come from wine club members. People without an attachment to the brand do not purchase (much) wine online, under the current ecommerce methodology. This is also true for retail establishments online. There is little to no reason for a consumer to visit an online portal which is set up like a traditional ecommerce store. If a consumer knows exactly what wine they want, they will likely go into a store and purchase it directly. The online wine shopping experience needs to mimic the “experience” of learning about a wine/brand in a winery tasting room.

Why, then, do all wineries appear to concentrate more on traditional ecommerce versus focusing on the wine club consumers who are the most important and who make up a vast majority of online purchases?

It’s easier.

As further explanation, that is what outside consultants, point of sale providers and traditional web development companies want them to think. The “if you build it, they will come” (and spend money on your website) theory is a powerful and attractive pitch. The buy-in on the sales side often comes from people who have no concept of how or why they should sell online, but merely know we “need to be able to sell online”. For the low, low price of $25,000 (or $50,000 or $250,000), a winery can have a website which will allow them to do this (wine names removed to protect the innocent).

As we can see, the ecommerce functionality of this website is just that – functional. A bare minimum of information required to actually take your money. No information on each wine, not even a cross link to a different page of the website where customers could actually figure out what they are buying. Zero brand integration beyond the names of the wines and no real reason for me as a consumer to make a purchase. I might as well go down to my local boutique wine store right?

But wait, those wines that are sold out look interesting. Could I learn when the next vintage will be released, perhaps pre-order, or inquire about where I could find them in a retailer? No.

Running a wine club is hard.

WineCollective: Wines that I have received

The fact that running a recurring purchase wine club is hard is the key reason why POS providers, web design firms and consultants suggest wineries concentrate on traditional ecommerce. That advice even goes against the hard evidence that the site will likely not succeed. To run a proper wine club you need to, at a minimum, track who got what wine (see above for an example of our technology), when they got it, how they paid for it, and be able to bill your customers on recurring basis. Also, you’re probably going to be cracking cases to make mixed shipments, so there are potentially 3, 6 or 9 different packages going out the door. This isn’t easy to do with off the shelf software (like POS add ons), or even somewhat specialized, open source software, like Drupal which has essentially abandoned recurring purchases:

“Ubercart has included the Recurring Fees module as a core module for some time now, allowing users to associate recurring fees with products that customers must pay for via credit card. Unfortunately, the module was never really there in terms of practical uses and extensibility. Due to its limitations and to its relatively minor importance to the Ubercart project as a whole, the development team decided to move it into contrib space where it could mature without limiting or being limited by the core Ubercart development cycle.”

Fantastic. You’re on your own. Recurring sales are of “minor importance”. Except to an industry segment where 70%+ of their sales come from recurring purchases.

Running WineCollective.ca we came up against these exact issues. As our club grew, so too did its software requirements, both on the consumer facing side, and also with the backend logistics. We did it right and built our own custom software, but most wineries do not have the financial wherewithal to start developing software, let alone the access to specialized talent. That is the inherent value proposition of the BlackSquare software for wineries. We’re not selling software built for wine clubs, we are selling software built by our experience in the industry.

In the next post we will look at why traditional ecommerce isn’t engaging wine consumers to purchase online.

2012 Update: Worth reading 2012-Direct-to-Consumer-Shipping-Report, from ShipCompliant and Wine & Vines.