Is Amazon Right for Your Wine?

FILED FEBRUARY 21, 2013

Dear Client:

Amazon has been back in the wine business again for a whopping three months now. You may recall we spent some time looking at the website from a consumer perspective and spoke with some wineries who have already signed on to work with them. If you're still on the fence about Amazon, here's a bit more insight into how the program works and who is buying the wine from Eddie Black, Amazon Wine's North America sales manager during the Oregon Wine Symposium this week.

SHOPPER DEMOGRAPHICS: Amazon has 188 million customers worldwide with 11.5 million new visitors to the website every day. About 40% of the products sold go through third-party sellers - which is what all wineries who work with them are.

So far, Amazon has concluded that 80% of the consumers who visit Amazon Wine are new viewers and most of them come in through Amazon's regular marketplace. Eddie said this is a good thing because it means wine is not cannibalizing other areas of trade. And income levels for Amazon consumers are high. "They're not afraid to spend a pretty good chunk of money," he added.

GETTING SET UP: Eddie said Amazon is striving to give consumers a tasting room experience online. Every winery that chooses to participate can choose which brands they want to sell online and list them at whatever price they see fit. Then the winery must send a bottle to Amazon, which will then be photographed by a contract photographer. Eddie says they do this to ensure a classy consistency of the marketplace. We assume it also serves to level the playing field a bit as well. Wineries can also upload photos of the front and back labels. However, be aware that if you decide to leave Amazon they will keep the photos of your wine in case they need it for customer returns or questions.

All in all, Eddie said it takes about two weeks for a winery to get set up on Amazon, whether you're tech savvy or not. There are terms and conditions a winery must agree to, but there is no contract that has to be signed. "If you're not happy selling on Amazon, Amazon doesn't want to hold you there," said Eddie.

TRANSACTION PROCESS: When a shopper comes to Amazon wine they drop a product into their cart. Once they purchase it, Amazon immediately sends the order to the winery, which then fulfills the order and puts their tracking number into Amazon. Then the funds go immediately in the winery's Amazon account and subsequently into their bank account.

SHIPPING: All Amazon wine consumers pay flat $10 shipping rate for up to six bottles. Any more than that and it's about $20, regardless of location. Those funds go directly to wineries, which then can control the shipping window. "We know how important quality is and you guys decide when they ship," he said. Wineries can ship to any state they are already licensed in. Currently there are 15 states Amazon wines can be shipped to and "We are adding states all the time," said Eddie.

FEES/FINE PRINT: As we've already reported, every supplier will be expected to pay a $40 monthly subscription fee to Amazon. The same one every seller pays, no matter what product they sell. However, the company is waiving that fee through the end of May in order to encourage wineries to try it. "Now, if you don't sell anything it doesn't cost you anything, you just get free advertising on Amazon," he said.

Amazon is currently working to make shipping for wineries cheaper and easier, but in the meantime the company offers a supplier credit for each bottle of wine sold. For one bottle sold, the seller gets a $3 credit, for three bottles sold it's a $5 credit, for six bottles a $4.51 credit, and for 12 bottles the credit is $3.53. The credit is paid to the winery at the time of transaction.

There is also 15% referral fee for all sales and a co-op fee (for all the marketing) of $49 for every $350 in sales. That's also being waved through the end of May. "We obviously want people to be on Amazon and we want it to be successful for you before we're going to put any of those fees back into play." Amazon estimates that including all fees a supplier is catching about 85% of the revenue on each bottle right now. Wineries also have the ability to set up tax collection in their Amazon account.

We don't have to tell you that the path to market is often complicated and frustrating for small and mid-sized wineries. That's exactly whom Amazon is looking to work with right now. The company currently works with wineries that ranges from 200 - 200,000 cases. "We know that it's going to take time to build," said Eddie. "And we hope you'll come along and build it with us."

CONTROL STATE SPIRITS SALES HEARTY IN JANUARY

Spirits sales in control states were off to a strong start in 2013 with 8.7% growth in January. Rolling 12-month volumes were up 4% over December's 3.6% increase. Shelf dollars were up 12.3% in January, nearly doubling the 6.9% growth of the past 12 months. Price/mix was up 3.6% compared to December's increase at 2.7%.

One reason the numbers were so high is that Michigan (representing 16% of control states) and Utah (representing 2%) both had an extra week this January. If you adjust for those extra days, January sales growth is more like 4.5% and rolling 12-months volumes are more like 3.7%.

Nearly all spirits categories exceeded their 12-month growth trends in January. Irish whiskey grew about 23% on top of its 12-month growth trend of 19.8%. Vodka grew 9%, compared to its 12-month trend of 5.4%.

Wine sales in January grew 3.3% with Utah delivering the most growth at nearly 40%. Pennsylvania was the only state to decrease in wine sales at -1.7%. January's 12 month rolling volume growth was 4.2%, up slightly from 4.2% in December.

THE 2012 WINE EXPORT REPORT

US wine exports set a new record in 2012 at $1.43 billion in revenue (2.6% increase) and 112 million cases, according to the Wine Institute. 90% of the imports were from California.

So who bought it? The European Union's 27-member countries bought the most at $485 million (+1.7%), followed by Canada at $434 million (+14%). California is the fastest growing wine region in Canada by volume and value. The country has embraced red blends and invests in wines at higher price points. In the European Union, Germany "remains a key market for California wines," with a 6% increase in value, says Wine Institute's European trade director Paul Molleman. Sweden is also a key market, where California sold about 17 million bottles of mostly red wine. Due to the tough economy in the UK, the wine suffered some setbacks, but California did a good job of preserving its market share, says the Wine Institute.

Hong Kong ($115 million, +30%), Japan ($111 million, +6%) and China ($74 million, +18%) were also big spenders. Japanese importers are increasingly buying California bulk wine and bottling it in Japan. "This reduces the burdensome import duty to a limited extent and makes inventory control easier," says Wine Institute Japan trade director Ken-ichi Hori. As for bottled US wines, Japan is also skewing premium and California is well represented in the high-end restaurants. Hong Kong is California's third largest export market by value, however, that value did decline in 2012 due to Hong Kong's elimination of its 80% import duty.

"California wine exports continue to increase because of our quality, diversity and value, despite a highly competitive global market, significant trade barriers and a still recovering economy," says Wine Institute ceo Bobby Koch.

PUBLIC INTEREST GROUPS URGE GOV'T FOR ALCOHOL FACTS PANEL

In light of the Federal Trade Commission's recent decision to order Four Loko flavored malt beverages to display an alcohol facts panel on each can, four public interest groups have petitioned Treasury Secretary-Designate Jack Lew to add similar information on all alcohol products. Specifically, the group, which includes Center for Science in the Public Interest, Consumer Federation of America, National Consumers League and Shape Up America! urged the secretary-designate to expedite a final TTB rulemaking that would require such a panel. According to the joint letter, "Anything short of this basic information would leave alcoholic beverages as an enormous blind spot in the American diet and would be a failure of the regulatory process."

Until tomorrow, Emily

"I felt early on I wasn't going to be a respectable citizen."
- Cormac Mccarthy

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