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Category Archives: Wine trends

Could the Internet screw up direct shipping?

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direct shippingThe perfect world of direct shipping — where we can buy any wine we want from any retailer we want, just like we buy computers or tennis shoes — will likely never happen, given the three-tier system and its death grip on the wine business. But, assuming we could make three-tier vanish, would direct shipping actually be that perfect?

Maybe. And then again, maybe not, says Steve Tadelis, Ph.D, an economist and Internet search expert at the University of California, Berkeley’s Haas School of Business. Tadelis’ research, summarized quite nicely in this article from The Economist, has found that consumers don’t necessarily use the Internet the way we think they should. His work, based on search patterns on eBay from people shopping for classical music, found that price or the music itself didn’t necessarily matter. Sometimes, they were searching just to search.

“They were looking for music not so much to buy music as to learn about music,” he says. “And when they bought something, it wasn’t always for the lowest price. And I can see that applying to wine, where buying isn’t as important as learning about wine.”

In other words, we may not care that direct shipping will make possible the ultimate wine retail experience. We may still buy wine the same we always have, or do it in some way no one has figured out yet. Tadelis says this is because we know little about how consumers use the Internet; after all, the idea of Internet shopping is still very new in comparison to the centuries of traditional retail. We assume, because it seems logical, that consumers will shop online the same way they shop in a store. But that’s not necessarily true.

“In hindsight, I shouldn’t have been surprised by our results, but I was,” he says. “But that’s because I based my assumption on my behavior, which is searching for the best deal on items that I know I want, and because traditional economic theory says search is a friction, and that shoppers try to avoid friction. But searching on the Internet isn’t the same kind of friction as driving from store to store.”

Further complicating the issue: Shipping costs, which don’t figure into music purchases, and the idea that wine is experential, which means we tend to buy something we’ve had before, based on our experience with it. With music, it’s not only easier to experiment with something new, but Mozart is Mozart, regardless of who is performing it.

Finally, the idea that direct shipping will lower prices, since it will increase competition and make it easier to find the same wine for less, may not be entirely true. In some cases, it could increase demand, which would raise prices as part of something economists call the long tail. If I make a rare wine without an apparent audience, and I can only sell it from my winery, demand is limited to the people who visit my winery. But if I sell it over the Internet, millions of people could learn about it, and I will be able to sell the wine more easily and at a higher price. This could lead, says Tadelis, to more experimentation and more unique and intriguing wines.

Private label wine: The future of the wine business?

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private label winePrivate label wine, always a small but important part of the wine business, is going to get much, much bigger. In this, wine drinkers will see more wines on store shelves they’ve never heard of and can only buy in one store — all of which is good for retailers, but not necessarily good for us.

More, after the jump:

Wine trends in 2015

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wine trends in 2015Wine trends in 2015 will be similar to wine trends in 2014 — wine drinkers will see more wines they’ve never heard of and we’ll be able to buy those wines at more places than ever before, including and especially grocery stores. Along the way, Big Wine will continue to get bigger, and even wine writing could see significant changes, as those of us who don’t have money behind us will stop doing it.

More private labels. Retailers love private labels, like Trader Joe’s Two-buck Chuck or Costco’s Kirkland, because it gives them a product no one else has and because they make more money than with national brands. Case in point: The Total Wine chain sells many national brands at its cost, and makes its money on its Winery Direct private labels. We’ll see more private labels because retailers are desperate to boost margins at a time when they can’t, for whatever reason, raise prices. Nielsen reports (and I’m going to write more about this later this month) that private label wine sales were up 11 percent last year, compared to 3.5 percent for all wine.

More chains. There has never been a national wine retailer, which has made perfect sense given three-tier and that there are 50 booze laws for 50 states, including some that don’t allow chains. But these companies are expanding despite the legal obstacles. Total Wine expects to double its sales to $3 billion by 2019, opening 12 to 15 stores a year, and Canadian retailer Liquor Stores N.A. wants to add to stores and states to the 36 locations it has in Kentucky and Alaska. My guess? That the chains will slowly move into as many states as possible, changing the laws when necessary. Theu’ll offer better prices and force independents to get better, which is what happened in the pet business. Petco and PetSmart didn’t crush the independents when they opened 20 years ago; in fact, independents still account for about 90 percent of all pet stores, though only about one-third of sales.

More grocery stores selling wine. This will change the wine business as we know it, despite repeated failures to get grocery store sales in Pennsylvania and New York. Supermarkets want wine because it’s more expensive than most of what they sell, and it helps them offer one-stop shopping. Plus, they have the financial clout to change laws in states that forbid grocery store sales, most recently in Tennessee. Again, this will pressure independents, who won’t be able to compete on price and will have to redouble efforts to offer quality service.

Consolidation. Big Wine will continue to buy smaller companies and increase its market share, with deals like this. In this, it will solidify its hold on retailer shelves, making it more difficult for smaller wineries with limited distribution to be sold in all but the most progressive independents. I’d guess that as many as three-quarters of the wines in a typical grocery store come from the six biggest wine companies, and that percentage will only get bigger.

Internet wine writing shakeout. Last fall’s news that Vinous bought Stephen Tanzer’s International Wine Cellar is the biggest development in wine writing since the Internet. It means someone has figured out that the only way to make money with wine writing on the Internet is to target the five percent of Americans who buy wine that costs more than $20 and that the only way to target them is to get big to compete with the Wine Spectator and the Wine Advocate. That’s not good news for those of us who don’t target that audience and don’t have the deep pockets to get big. Think of it as the wine writing equivalent of what Big Wine is doing, and wonder how many independents who are on the Wine Web Power Index will be there in five years.

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