Is Amazon closer to solving the wine-shipping puzzle?

Dave McIntyre

Amazon.com, the nation’s largest online retailer, may soon be selling wine. The trade publication Wine Industry Insight reported on its Web site late last month that Amazon is recruiting wineries in California’s Napa and Sonoma counties for a new effort at online wine sales to launch before the Christmas shopping season. The wineries will handle the actual shipping, with Amazon leveraging its power to obtain favorable shipping rates from UPS, the report said.

If Amazon succeeds, it could be a big blow to the traditional “three-tier” system that filters wine from producers through distributors to retailers. Direct-to-consumer shipping has chipped away at the system, helping wine lovers gain access to wines that can be hard to find otherwise. But progress has been fitful. A patchwork of regulations, fees and registrations established by various states lacks a clear national standard and makes compliance difficult. Maryland, for example, began allowing wineries to ship directly to its residents only last year.

Wine Industry Insight subsequently reported Oct. 1 that the online retailer had reached an agreement with WineDirect, a company that helps wineries navigate the compliance thicket, to ensure sales are legal. (Amazon’s previous attempts at online wine sales in 2000 and 2009 failed in part because of compliance issues.)

Amazon and WineDirect did not immediately comment on the reports, so as I write this the parameters of any such program are not clear. But it could give a boost to a small and growing part of the wine retail market.

U.S. wineries shipped nearly 3 million cases of wine directly to consumers in the 12 months ending in July, an increase of 7.2 percent over the previous year, according to a recent report by Wines and Vines, a trade magazine, and Ship Compliant, another company that helps wineries comply with the myriad of state regulations. Overall wine sales increased only 2.9 percent in the same period.

Why the increase? Of the 7,415 wineries in the United States, a whopping 78 percent produce fewer than 5,000 cases of wine each vintage, totaling only 2.2 percent of U.S. production, the report said. On the other hand, a mere 50 wineries produce 83 percent of all U.S. wine. Those huge companies dominate the three-tier system.

Coupled with consolidation in the wholesaler industry, smaller wineries are often squeezed out of normal distribution channels. Those smaller wineries are driving the direct-to-consumer movement. Wineries producing fewer than 50,000 cases annually accounted for two-thirds of the direct-to-consumer market. This is still a drop in the spit bucket, however: Wineries producing between 5,000 and 50,000 cases shipped 8 percent of their production directly to consumers.

So which wines are we having shipped to our homes? Napa Valley cabernet sauvignon is the largest category, and direct shipping is very much about luxury wines. The average price of wines sold this way during the reporting period was about $37 per bottle, and wines costing $50 or more represented nearly half of the dollar value sold.

Virginians purchased more than 108,000 cases of wine through direct shipping, ranking the commonwealth seventh nationally. Only about 30,000 cases came to Maryland, although that state showed the fastest growth: The shipping report covered the period immediately after Maryland legalized direct shipping.

The District of Columbia was a destination for nearly 25,000 cases, and was highest in bottles shipped per capita among individual states, topping even California. The report didn’t attempt to explain why D.C. residents purchase more wine this way; it could be direct imports by retailers and restaurants, or consumers having wine shipped to a business address.

There is clearly room for more growth in direct-to-consumer wine sales. If Amazon can solve the compliance issues, it could have a dramatic impact on the way many of us purchase wine.

McIntyre blogs at dmwineline.com. Follow him on Twitter: @dmwine.