The Amazon is Still Flowing
Written By: Kasey Carpenter on Tue, Sep 23rd 2008
Everyone by now knows about Amazon's foray into (and more than likely rulership of) online wine sales. While they are being really tight-lipped about it all, here is what we do know so far:
Amazon has hired a Senior Wine Buyer, Damon Levy, to oversee it all, plus a small staff to support (mostly the same staff that is in charge of the Amazon Fresh arm of the website) this endeavor.
They are using a company called New Vine Logistics to handle the shipping and tracking of the wine, and more importantly, compliance. Some have reported that Amazon is attempting to set up compliance on their own, but I have to disagree primarily because they are employing NVL to handle their shipping. IF they were doing the compliance themselves, why would the world's largest online retailer with an equally impressive shipping and logistics system farm out shipping to another company? Simple, the only reason to farm out this work to NVL is because of the tricky and unique state to state shipping laws that exist in the wine trade today, which NVL has already invested heavily into to support their own business model. Therein lies their attractiveness to Amazon, or any online wine retailer for that matter.
The brands they have secured for this are what you would call "midlist," to borrow a literary term: "A midlist author is one whose books are well received but have failed to make a commercial breakthrough; whose work sells solidly but unspectacularly, who's well known within the writing community but the majority of book buyers have never heard his name." -- David Armstrong, "How Not to Write a Novel: Confessions of a Midlist Author," 2003. A midlist winery would be one that sells well, gets good marketshare, probably doesn't light any awards on fire, but does well. Most are from pretty hefty (in terms of cases produced) producers who can guarantee a year long run of the product without any shortages. Nothing too pricey, nothing too esoteric, for the near future, all is safe and sweet. Brands that are walking off the shelves, and wineries that make them, are not yet looking to Amazon. And Amazon isn't targeting the smaller brands that typically sell out their entire production directly, for now. But statements like "we intend to be the largest wine retailer in the world generally mean scratching around in other areas, just look at Costco, they carry the usual suspects but also bring in the geeks by offering some harder to find items, and getting some of the best prices on Bordeaux. Why would Amazon ignore that demographic?
The entire wine arm of their website is only available to a few zip codes in Seattle via their grocery service. Look for the ability to ship into 25 states, broader selection, deeper discounts, and the much anticipated free next day shipping (with a $79/year subscription) which will be the real point of distinction between Amazon and any other wine retailer. Anyone who buys wine online knows how quickly $79 will pay for itself. Two cases?
They let the winery set the price. This is easy to say; in fact it is a policy that has never been put forth by any retailer that I have ever visited. However, it isn't as magnanimous as you would think. Amazon isn't in the business of being outsold. I feel the more accurate translation of that statement is "Amazon lets the market set the price, and ours will have to be lower than any of them." Amazon splits the price 50/50 with the winery, but again this is a pretty picture on a tough number. A winery sets a price typically based on what their overall cost per bottle is, plus the normal assumed markups of a three tier system where distributors and retailers each take their cut. So their direct price is typically within a few percentage points of what you and I might find the same wine for on the shelf. Why? Because distributors are notorious for strong-arming (whining to) their suppliers if they cannot "compete" with winery direct prices, so to preserve those distribution channels, and keep their distributors happy, wineries set their direct buy prices about the same, of course the winery also makes a ton more money off those direct sales bottles versus those bottles they sell (consign) to distributors.
So while Amazon's wine website morphs and wiggles in its chrysalis (they still have some growing pains, like my favorite wine category in their site called "Misc Kobrand" or how Dolce Napa Valley is sorted under "Null" and another brand called "Vineyard Brands" which is actually the importer – not big errors, just signs of programmers being let loose on a wine list without knowing much about those wines), we all wait to see what we get. Some wine buyers will see it as beautiful new creature, a new easy source for all of their wine needs. Some retailers will see it emerge as a carpet moth, eating away at everything they own. And all of this oddly enough just in time for the holidays and corporate gift giving.
Jeff Beezos isn't stupid is he?
