The food and beverage sector has found its sweet spot when it comes to maximizing the potential of digital and of online sales. As we’ve seen with more online grocers joining and succeeding in the market (and the Amazon Effect making the e-commerce landscape even more competitive), it seems due time for wineries to follow suit. While many wineries have an established B2C presence, the gap where many are falling short is in the B2B space with their professional buyers.
With regulatory and logistical challenges still posing a big obstacle for wine e-commerce and digitization across the industry, supply chain automation should be one less challenge businesses need to worry about – especially due to the recent circumstances, beverage alcohol (off-premise) sales “across the board” have been soaring, with wine sales increasing 28% year-over-year, according to Nielsen’s data.
Alcohol Retailers Performance
An e-commerce solution, along with the embracing of digital disruptors and technological innovation just may be the solution for wineries as well as for wine manufacturers and distributors. The question that remains is: how can these businesses tap this digital opportunity, and when will they do so successfully?
To gauge this timeframe for success, let’s first look at what challenges are holding these businesses back.
Want to get a visual, 10,000-foot view of the industry instead? Check out Sana Commerce’s wine e-commerce infographic here.
The Top 3 Challenges for Online Sales in the Wine Industry
In the US, online wine sales account for a lowly 2% of wine sales (only a fraction of what’s being sold in other countries across the globe). Why? Because most wine businesses have not yet figured out how to sell (and fulfill orders) online in a way that’s simple, convenient, and profitable. Given the major hurdles on the path to success, it’s not a surprise that businesses in the wine sector are still adopting wine e-commerce extremely slowly. Here are the leading challenges:
- Alcohol Laws and regulations vary state-to-state in the US – this restricts the transportation of wine to consumers and makes logistical challenges even more of an issue.
- Managing order fulfillment online becomes complicated with these regulatory constraints and additional factors like temperature control requirements paired with consumers’ growing demand for next-day and same-day delivery.
- The last mile of delivery is a particularly tough barrier across the industry, attributed to the need for ID verification and challenges associated with weather-related hiccups. While a large group of startups are dedicated to solving this issue, the industry has failed to perfect the last step of this process so far.
Why Capitalize on Digital Innovation in Addition to Wine E-Commerce?
The reasons for investing in digital in the wine industry are numerous. Digitization is crucial for every organization in the industry that doesn’t want to fall behind. There is simply no excuse not to embrace digital transformation. But the B2B landscape for industry brands is different than it is for those selling B2C. While wine e-commerce is a big part of the equation, there are also wine-centric apps on the rise, D2C sales skyrocketing, and emerging technologies impacting distribution, last-mile delivery logistics, and more.
“If ever there was a moment that demonstrated both the utility and necessity of allowing consumers to receive shipments of wine from out-of-state wine retailers, it is now, as we isolate and require Americans to migrate even more of their lives into an online setting.” Tom Wark, Executive Director, National Association of Wine Retailers
Here are a few of the most notable opportunities in the industry right now.
1. TECHNICAL INNOVATION IS EVERYWHERE, BUT NOT ENOUGH BUSINESSES ARE ADOPTING IT
Technical innovations across production, sales and delivery, product recommendation and personalization, and consumption are just beginning to take over. Some businesses are testing things like sensors with predictive models to assist vinification and wine aging, algorithms to match customers with products based on their preferences and taste palettes, and packaging innovations including boxed, canned and single-serve formats for wine. Although delivery services centered around getting wine at your doorstep makes up around 40% of the wine industry’s movement toward innovation, it is limited space to make improvements – and only addresses part of the problem.
The obvious next step would be to continue to improve delivery and fulfillment services while keeping our eye on how we can take better advantage of opportunities for disruption in production and personalization. Although there is much room for improvement when it comes to digital innovation, the industry has established the foundation and first steps to embracing technology.
2. CUSTOMER DEMAND IS SETTING A NEW BAR FOR DIGITAL SUCCESS
According to a recent Silicon Valley Bank report, the success of the wine industry online will continue to rely heavily on customer-centric approaches. Regardless if you are focusing on B2C or B2B, your buyer’s demands must be met in a quick, efficient, and cost-sensitive manner. As quoted in the report, “successful wineries 10 years from now will be those that adapted to a different consumer with different values — a customer who uses the internet in increasingly complex and interactive ways… Successful companies will be those that evolve retail strategies away from the winery location as the sole point of experience and find other, scalable means of delivering the experience — and the wine — to consumers where they live.”
The evolving customer demands causes new challenges for manufacturer and distributors alike; however, pivoting those challenges into opportunities will help your business to succeed in the B2B online sales landscape. The following 4 areas of optimization:
- Automated Supply Chain
- Speed and Efficiency
- Minimal Error Margins and Lower Prices
- Information and Transparency
Download Sana Commerce’s full Food and Beverage Trend Report for a deeper look into the four areas of opportunity.
3. D2C SALES ARE THE AVENUE FOR EXCELLENCE
Direct-to-consumer (D2C) sales in the wine industry are through the roof. The D2C wine sale market brought in $3.1 billion in 2017 and is expected to reach $5.2 billion in 2022. Currently, 62% of wineries consider D2C to be their fastest-growing sales channel; in fact, while it makes up less than 10% of total sales, it makes up an estimated 20% of total profit.
Why? Because wineries selling direct-to-consumer yield higher profit margins than sales to wholesalers. For small businesses, this opportunity is even more significant. According to the same Silicon Valley Bank report, small wineries’ gross margins are doubled by selling direct-to-consumer.
The D2C trend in the industry shows no sign of slowing any time soon, and will only continue to grow as more businesses emerge and disrupt the market with new ideas and technology.
4. THE E-COMMERCE MARKET ISN’T YET CORNERED
In 2019, so few businesses in the wine industry were getting online sales right, that players who were simply participating in wine e-commerce at all were getting a massive piece of the revenue pie. Today, that story reads a little differently, due to the recent circumstances surrounding the COVID-19 pandemic. However, the strategy to enter this market remains the same: focus on convenience and customer-centricity and a significant piece of that pie could be yours.
Here are some notable industry success stories to learn from:
A leader in wine delivery services, Drizly, saw a recent spike in gross merchandise volume growth of 500% year-over-year, due to the corona pandemic.
Nielsen data researchers noted “off-premise” wine sales in the U.S. are up 27.6% across the board since the pandemic began.
D2C sales are with businesses like Winc are seeing major success with 49.6% increase in direct-to-consumer sales week-over-week.
Your business can be the next success story, or the next cautionary tale, depending on how you approach your digital strategy.
5. B2B BUYERS EXPECT A B2C-QUALITY WEB STORE EXPERIENCE
According to Sana Commerce’s recently published B2B Buyer research report, “suppliers, wholesalers and manufacturers are not meeting their customers’ growing demand for buying online.” In fact, while 30% of professional buyers would prefer to buy at least 90% of their products online, only 19% are doing so. This demand for e-commerce was also evident in their previous research into B2B e-commerce the year before, which found that, among the B2B businesses who don’t currently have a web store, as many as 75% have had customers explicitly ask for an online sales channel.
Among the businesses in the wine industry who do have a web store or online presence, many seem to be doing the bare minimum, and it’s obvious. A summary of what the web store experience looks like today is perhaps best summed up by Silicon Valley Bank’s 2018 report:
“Few wineries have an online presence that engages the customer. Sites lack sophisticated, responsive, fully integrated designs and experiences that allow new and returning customers frictionless e-commerce.”
“The opportunity,” says Silicon Valley Bank, “is wide open for a company using online tools to replace the distributor’s sales and marketing role [and using] big data to enhance outreach to consumers and improve sales opportunities.”