Columnist, Food


The direct-to-consumer sales channel for wine continues to grow. (Dave McIntyre)

Jan and Michael Gibson are wine lovers who don’t go to wine stores. Instead, they go directly to the wineries, and have the wines shipped to their home in Rockville. They are part of the small but rapidly growing “direct to consumer” sales channel that is chipping away at the traditional post-Prohibition distribution system.

“We travel to California at least once a year to visit wineries,” Jan says. They favor small wineries that sell most or all their production at the tasting room or through their wine clubs, and the couple looks for organic and biodynamic producers. “We have not found a good variety or quality of organic wines available in Maryland,” she says. The Gibsons also visit wineries when they travel in New Mexico or Virginia, but their favorites are from Mendocino and Sonoma counties in California.

“It’s fun to have a relationship with the producers, and it’s fun to make new discoveries,” she says.

More than 5 million cases of wine were shipped by U.S. wineries directly to consumers last year, up 17 percent over 2015, according to an annual study published by Wines & Vines magazine and Ship Compliant, a company that helps wineries navigate the labyrinth of state laws and regulations governing direct shipments. Those shipments totaled $2.3 billion in value, with the average price per bottle at $38.69. And they accounted for 8.6 percent of domestic wine sales by value, not including restaurants. (While Americans purchased $26.9 billion in domestic wines last year, the average price per bottle for all sales was $9.29.)

The direct-sales channel has increased 75 percent in value and 70 percent in volume since 2011, according to the report. And that probably underestimates the amount of wine delivered each year by FedEx and UPS, because it does not include online sales by retailers, who sell imported wines as well as domestic. The growth began after a 2004 Supreme Court ruling gave states flexibility to allow direct shipments outside the traditional three-tier distribution system of producer-wholesaler-retailer. At that time, 12 states allowed some form of direct shipping; today, only six prohibit it.

Certainly, the Internet and the ease of online ordering helps drive the growth of the direct-sales channel. Another major factor is the consolidation over the past decade of wholesalers, giving a handful of companies a stranglehold on the distribution channels to retail shelves.

That consolidation led Cameron Hughes to abandon traditional distribution altogether. Hughes works as a negociant, buying surplus wines from top wineries and marketing them under his own label. He started selling exclusively at Costco stores, then worked through a network of distributors, earning a reputation for high-quality wines that taste more expensive than they cost. But Hughes found it harder to garner the attention of distributors, who have many wines to sell with bigger profit margins, when he wanted to pay attention to consumers.

“With wholesale consolidation, you have five privately held organizations controlling 60-70 percent of wine and spirits sales,” Hughes says. “We decided we needed to control the interaction with our end customers.” As of last year, Cameron Hughes wines are available exclusively online.

Six boutique wineries in Oregon’s Willamette Valley have formed a new consortium called Hidden Cellars to exploit the direct-sales channel and tourist trade. They refer tasting room visitors to their partner wineries and rely on wine club and visitor sales rather than distribution. And there’s a desire to stay small.

“A lot of our customers used to go to Napa Valley, but they don’t like the circus atmosphere,” says Scott Flora, founder of Native Flora winery in the Dundee Hills area of Willamette Valley. The other wineries in Hidden Cellars are Anderson Family Vineyard, Beckham Estate Vineyard, Dukes Family Vineyards, Prive Vineyard and Redman Vineyard & Winery.

Wineries that sell mostly through wine clubs rely on word of mouth to build their markets. Flora says his winery has built a small group of loyal customers in the Washington area, and he comes here a few times a year to hold tastings and present his wines to customers and their friends.

The growth of the direct-sales channel might help fill a gap in the market not served by traditional distribution, as smaller wineries can build markets for themselves and consumers can seek them out. But the Ship Compliant report also holds clues that direct sales may indeed be cutting into the three-tier distribution system.

Remember that $9.29 average price per bottle sold in the United States? The report notes wineries producing more than 500,000 cases a year — and there are only 60 or so — increased their direct sales last year by 183 percent over 2015, with the average bottle price at $16. That tells me consumers are going online to order not just expensive boutique wines, but also their everyday inexpensive bottles, such as Kendall-Jackson chardonnay ($14 on Wine.com) and Barefoot Cellars merlot ($13 on Amazon).

As we become even more accustomed to shopping online, direct wine sales should continue to account for more of our wine purchases. And that growth will transform the market for wine.