Dollar Wine Club?

When Chris mentioned in class that one of the large suppliers - an E&J Gallo or Constellation Brands - could see WineDirect as an acquisition target, I was intrigued. On its face, this makes a ton of sense. These large volume producers stand to benefit a ton if they are able to capture margin by bypassing the distributors and retailers at scale and going direct to consumer. And the prospect of a "Dollar Wine Club" from one of these mega-producers seems like an e-commerce marketers dream come true.

The latest Direct to Consumer Wine Shipping Report from ShipCompliant and Wines & Vines (updated 1 year from the version cited in the case) shows that these large producers are in fact increasing their DTC activity considerably: volume from large wineries (>500K cases annually) increased 183% year over year. The other side of that coin is that the average bottle price for these large wineries has come down 34% since last year, as you might expect with the spike in volume.

But I'm curious if DTC price could continue to erode to the point where these mega-wineries could make a Dollar Wine Club work, with $1 bottles once they've cut out the distributors and retailers. Based on the industry economics from Exhibit 4 in the New Vine Logistics case, a wine that retails right now at $4 is costing the producer about $0.63 and their 65% margin is netting them about $1.18. So, for now at least, it seems unlikely that anyone is going to be selling $1 bottles of wine DTC, even if they can go DTC at scale.

Barefoot Wines website option to shop on Amazon.

Interestingly, some of E&J Gallo's sub-brands, like Barefoot, seem to offer a DTC option through TPP's like Amazon. But when you click through and look at pricing, something weird happens. A bottle of Barefoot Bubbly Pink Moscato goes for $14.99 on Amazon, while it retails for less than $10 at retailers like BevMo. It seems odd to me that they'd be charging a 50% premium over retail when they've already cut out 2 steps in the value chain. My first thought was that the Amazon listing is actually being sold by a retailer, but the listing explicitly says "Ships from and sold by Barefoot Wine, Modesto, CA." Feel free to speculate about what's going on here in the comments.

At the end of the day, large wineries are still only accounting for less than 15% of DTC shipments by volume (and only 5.5% by value). As Caitlin covered in her post, DTC as a whole is growing and growing 3x faster than brick and mortar sales. So as the wine consumer shifts more focus to the DTC channel, large wineries are going to continue to play in this space. But will we see a "Dollar Wine Club" in the next couple years? Probably not (unless it's designed as a loss leader).