March 5, 2008
Amazon Gets Ready to Shake Up Wine Business
It completely changed the way millions think about buying books and now Amazon.com is looking to do the same thing with wine.
According to a report by the Financial Times, Amazon is poised to enter the wine retailing business despite numerous regulatory obstacles and the experience of other merchants who followed a similar path and failed.
Amazon is said to be looking to bring on board a senior wine buyer who will help it in “the acquisition of a massive new product selection.”
Right off the bat, Amazon will find itself limited by laws that only permit it to ship wine to 26 states across the country. In 10 states, the retailer will need to open wine distribution centers so it can comply with laws requiring it to purchase stock from licensed wholesalers.
Closer to its home base, Amazon has said it plans to add wine and beer to the products its sells and delivers to customers in the Seattle area as part of the company’s Amazon Fresh grocery home delivery service.
Chris Adams, an executive at the wine retailer Sherry-Lehmann, is hopeful that Amazon’s move into the business will help the industry’s efforts to remove some of the barriers to interstate wine sales. “It is a nod to the fact that the laws of the land are changing and that open markets will win the day,” he told the Financial Times.
Discussion Questions: What will Amazon’s entry mean for wine retailing in the U.S.? What will Amazon need to do if it is to be successful in this venture? What will other merchants need to do to address this new competitive challenge from Jeff Bezos and company?
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The regulatory morass seems a bit too thick to penetrate, but who knows? My guess is that Amazon would be better served looking in other directions.
I have direct experience with attempting to set up wine sales in stores in 36 states. I can tell you it is not easy–but it is not impossible. The firm I was with ultimately backed off moving forward, but not because it couldn’t be done. We were working with an excellent consultant who would have paved the way for our efforts.
A focused effort in the top yielding states could make the venture worthwhile for Amazon. The regulatory issues will probably never be overcome in all 50 states, but enough change will occur to make the business viable for those that figure it out. Wine consumption continues to grow and more and more consumers are open to internet wine purchasing. I think Jeff Bezos et al know what they are doing. It will be fun to watch!
The fact that millions still think about Amazon when buying books–and ONLY when buying books–despite efforts to branch out into other product lines, suggests the effort won’t be very successful. Amazon has its +’s and -‘s, but breathless commentary about how “revolutionary” it is sounds more like Amazon.hype than serious analysis.
Amazon doesn’t have to ship wine to 50 states to make money. They only need a few of the most populous states (California, New York, etc.). It isn’t hard to find contractors who’ll do the shipping within certain heavily-regulated states, as long as those states have sufficient population. Wine is a great product for Amazon, because (1) it gets consumed so repeat customers are the rule, not the exception and (2) almost all the competitors are small, with modest capitalization. Furthermore, the regulatory trend is definitely in Amazon’s direction.
I’m surprised that Amazon wants to sell wine directly, rather than through its merchant marketplace, which would relieve a lot of the concerns addressed above in the comments.
If this plan goes ahead, it may mean no niche online retail category is safe from Amazonian invasion. This is not great news for smaller retailers.
Is there anything Amazon won’t sell? I can see them doing well in wine sales although I wonder if all of the regulatory challenges are worth the effort. Then again Jeff and Company are pretty smart cookies and wouldn’t be moving into this if they didn’t believe that they will be successful.
For the wine retailers, it isn’t much different than all of the other retailers that have come into Amazon’s sights; they will have to work harder to cultivate and strengthen the relationship with their regular customers. Like other product segments, Amazon moving in to wine will actually help the strong retailers and give the weak ones another competitor to complain about.
There are many types of wine purchases, purchasers, and usage occasions. Like many other products, how a given consumer is willing to make a given purchase also varies.
In this case, Amazon has a decent chance (arcane regulation notwithstanding) of becoming the “Netflix of wine.” IF I want a case or a mixed dozen of a certain vintage or type AND I am willing to wait for it (probably because I have plenty on hand in my rack/cellar/garage already) then I might do this. Serious collectors are going to the bottle shop or the vintners themselves directly via mail order to capture the vintage they want. And the impulse purchase is still going to come off the shelf of the Jewel.
What Amazon will need to “shake up the wine business” is 100,000 lobbyists and 10,000 lawyers and $10 billion to waste.
To give you an inkling of why, consider the fact that the sale of alcoholic beverages–period–is a matter of constitutional amendment and law. This is the only product dealt with by the US Constitution. You may recall that the sale of alcohol was outlawed by a Constitutional Amendment (18th). The amendment was overturned with another Constitutional Amendment. You may recall from your US history that passage of an Amendment requires adoption by 3/4 of the states. To insure that the states passed the 21st Amendment, which repealed the 18th Amendment, certain laws were enacted by Congress which gave each state the power to regulate the sale and distribution of alcoholic beverages within its borders. Any shipment of an alcoholic beverage into a state without the state’s permission or any effort to avoid paying taxes levied by a state on alcoholic beverages will result in both the buyer and seller being hauled off to jail (if the state so wishes).
Amazon, does not pay taxes in most states and does not collect taxes for most states. Amazon is getting ready to spend a lot of money on legal fees and could see the shipment of any products banned to certain states if Amazon insist on trying to force the issue. Amazon doesn’t have the clout to do this on a national basis. Bezos is getting very very bad advice!
Shipping may be the key to success here. True, state regs are complex, but other vendors navigate them successful. I buy wine online occasionally (wine.woot.com is fun, or from a few well-known retailers that sell online and ship), and it’s not that difficult. *BUT* the shipping is critical.
Wine sitting on a hot truck is ruined. So most online retailers have to work closely with the shippers and will hold back a shipment if the weather is expected to be too hot anywhere along the route–sometimes for weeks.
That kind of variability in shipping and/or quality (if the wine does get ruined) may be more than Amazon’s model can bear.
Amazon’s success will hinge on people’s willingness to buy wine and pay big bucks to ship it, sight unseen. Until fairly recently wine was just not purchased for our family’s home use unless someone had tasted it either at a winery, a liquor store or other wine tasting event. But, after numerous occasions of having wonderful wine at friends’ homes, and being told “oh, it came from Costco,” we have come to realize what great wine buyers Costco employs. We now feel absolutely comfortable purchasing wine at Costco without tasting it, based on their reputation and the fine descriptions they display in their wine section. We have never been disappointed, and of course there are no shipping charges.
It is hard to imagine that Amazon can be as picky as Costco is, or cost effective when shipping is factored in, but I guess one should never say never.
Online wine sales? Maybe. I find that most wine shoppers are more into talking to wine experts when making a purchase. Here in Ontario, liquor sales are heavily regulated and are only sold through LCBO outlets. But what they have done is created a Vintages section within the store staffed with associates that are well trained in product knowledge. My prediction for Amazon: they will sell a lot of lower margin name brand wines but higher end higher margin labels will sit on the virtual shelf.
Interesting choice of vehicle for Amazon, especially since nobody has succeeded in creating a national “big box” wine and liquor store along the lines of Barnes & Noble. Obviously Amazon has the reputation and systems expertise to execute well, but there are some fundamental differences from book retailing.
First (as George’s article points out), there are many shipping restrictions on a state-by-state business that will hold back Amazon’s results until these regulations are changed. Second, I imagine a lot of wine is sold at local retailers on a “buy now–drink tonight” basis…which Amazon can’t compete with, no matter how fast its turnaround time.
It doesn’t hurt to cover all of your bases in this low margin world of food and beverage retail.
A&P did just that late last year with the acquisition of bestcellars.com
You never know when the regulatory walls will come tumbling down. The first seller out of the gate usually reaps the most sales.
If Amazon is to successfully enter the wine business, it will have to overcome a series deep rooted, arcane laws. This is a mighty big “if.”
I agree with Ryan. Amazon should look into other areas to grow its business.
Mr. Seesel comments that “nobody has succeeded in creating a national ‘big box’ wine and liquor store along the lines of Barnes & Noble”. [What about] Costco or Sam’s Club? Costco is the world’s largest retailer of wine.
Sorry, but I can’t see consumers taking the time to get online, fill out customer profiles and credit card info, and more importantly pay $3-$5 or more in shipping, for a $10 bottle of wine.
Maybe the finer wines, over $20 a bottle, that would be ordered as gifts and shipped to a friend or relative, would sell well online – especially if there were expert ratings and opinions to help customers choose.
Niche market at best.
Wine is not the easiest path for Amazon. Besides legal issues, limited distribution, inherent risks and exposure, and a highly fragmented market, there is a fundamental difference in the way wine is sold and bought.
Conglomerates may jump in. But, grocers can lower their margins. Do vineyards desire to commoditize themselves? Is it true for wine that “drink all you want, we’ll make more?” There will be new exposure for limited distribution and smaller vineyards. But limited re-orders too.
Furthermore, wine drinkers are explorers. And the relationship is far different and much deeper than a bad book.
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The regulatory morass seems a bit too thick to penetrate, but who knows? My guess is that Amazon would be better served looking in other directions.
I have direct experience with attempting to set up wine sales in stores in 36 states. I can tell you it is not easy–but it is not impossible. The firm I was with ultimately backed off moving forward, but not because it couldn’t be done. We were working with an excellent consultant who would have paved the way for our efforts.
A focused effort in the top yielding states could make the venture worthwhile for Amazon. The regulatory issues will probably never be overcome in all 50 states, but enough change will occur to make the business viable for those that figure it out. Wine consumption continues to grow and more and more consumers are open to internet wine purchasing. I think Jeff Bezos et al know what they are doing. It will be fun to watch!
The fact that millions still think about Amazon when buying books–and ONLY when buying books–despite efforts to branch out into other product lines, suggests the effort won’t be very successful. Amazon has its +’s and -‘s, but breathless commentary about how “revolutionary” it is sounds more like Amazon.hype than serious analysis.
Amazon doesn’t have to ship wine to 50 states to make money. They only need a few of the most populous states (California, New York, etc.). It isn’t hard to find contractors who’ll do the shipping within certain heavily-regulated states, as long as those states have sufficient population. Wine is a great product for Amazon, because (1) it gets consumed so repeat customers are the rule, not the exception and (2) almost all the competitors are small, with modest capitalization. Furthermore, the regulatory trend is definitely in Amazon’s direction.
I’m surprised that Amazon wants to sell wine directly, rather than through its merchant marketplace, which would relieve a lot of the concerns addressed above in the comments.
If this plan goes ahead, it may mean no niche online retail category is safe from Amazonian invasion. This is not great news for smaller retailers.
Is there anything Amazon won’t sell? I can see them doing well in wine sales although I wonder if all of the regulatory challenges are worth the effort. Then again Jeff and Company are pretty smart cookies and wouldn’t be moving into this if they didn’t believe that they will be successful.
For the wine retailers, it isn’t much different than all of the other retailers that have come into Amazon’s sights; they will have to work harder to cultivate and strengthen the relationship with their regular customers. Like other product segments, Amazon moving in to wine will actually help the strong retailers and give the weak ones another competitor to complain about.
There are many types of wine purchases, purchasers, and usage occasions. Like many other products, how a given consumer is willing to make a given purchase also varies.
In this case, Amazon has a decent chance (arcane regulation notwithstanding) of becoming the “Netflix of wine.” IF I want a case or a mixed dozen of a certain vintage or type AND I am willing to wait for it (probably because I have plenty on hand in my rack/cellar/garage already) then I might do this. Serious collectors are going to the bottle shop or the vintners themselves directly via mail order to capture the vintage they want. And the impulse purchase is still going to come off the shelf of the Jewel.
What Amazon will need to “shake up the wine business” is 100,000 lobbyists and 10,000 lawyers and $10 billion to waste.
To give you an inkling of why, consider the fact that the sale of alcoholic beverages–period–is a matter of constitutional amendment and law. This is the only product dealt with by the US Constitution. You may recall that the sale of alcohol was outlawed by a Constitutional Amendment (18th). The amendment was overturned with another Constitutional Amendment. You may recall from your US history that passage of an Amendment requires adoption by 3/4 of the states. To insure that the states passed the 21st Amendment, which repealed the 18th Amendment, certain laws were enacted by Congress which gave each state the power to regulate the sale and distribution of alcoholic beverages within its borders. Any shipment of an alcoholic beverage into a state without the state’s permission or any effort to avoid paying taxes levied by a state on alcoholic beverages will result in both the buyer and seller being hauled off to jail (if the state so wishes).
Amazon, does not pay taxes in most states and does not collect taxes for most states. Amazon is getting ready to spend a lot of money on legal fees and could see the shipment of any products banned to certain states if Amazon insist on trying to force the issue. Amazon doesn’t have the clout to do this on a national basis. Bezos is getting very very bad advice!
Shipping may be the key to success here. True, state regs are complex, but other vendors navigate them successful. I buy wine online occasionally (wine.woot.com is fun, or from a few well-known retailers that sell online and ship), and it’s not that difficult. *BUT* the shipping is critical.
Wine sitting on a hot truck is ruined. So most online retailers have to work closely with the shippers and will hold back a shipment if the weather is expected to be too hot anywhere along the route–sometimes for weeks.
That kind of variability in shipping and/or quality (if the wine does get ruined) may be more than Amazon’s model can bear.
Amazon’s success will hinge on people’s willingness to buy wine and pay big bucks to ship it, sight unseen. Until fairly recently wine was just not purchased for our family’s home use unless someone had tasted it either at a winery, a liquor store or other wine tasting event. But, after numerous occasions of having wonderful wine at friends’ homes, and being told “oh, it came from Costco,” we have come to realize what great wine buyers Costco employs. We now feel absolutely comfortable purchasing wine at Costco without tasting it, based on their reputation and the fine descriptions they display in their wine section. We have never been disappointed, and of course there are no shipping charges.
It is hard to imagine that Amazon can be as picky as Costco is, or cost effective when shipping is factored in, but I guess one should never say never.
Online wine sales? Maybe. I find that most wine shoppers are more into talking to wine experts when making a purchase. Here in Ontario, liquor sales are heavily regulated and are only sold through LCBO outlets. But what they have done is created a Vintages section within the store staffed with associates that are well trained in product knowledge. My prediction for Amazon: they will sell a lot of lower margin name brand wines but higher end higher margin labels will sit on the virtual shelf.
Interesting choice of vehicle for Amazon, especially since nobody has succeeded in creating a national “big box” wine and liquor store along the lines of Barnes & Noble. Obviously Amazon has the reputation and systems expertise to execute well, but there are some fundamental differences from book retailing.
First (as George’s article points out), there are many shipping restrictions on a state-by-state business that will hold back Amazon’s results until these regulations are changed. Second, I imagine a lot of wine is sold at local retailers on a “buy now–drink tonight” basis…which Amazon can’t compete with, no matter how fast its turnaround time.
It doesn’t hurt to cover all of your bases in this low margin world of food and beverage retail.
A&P did just that late last year with the acquisition of bestcellars.com
You never know when the regulatory walls will come tumbling down. The first seller out of the gate usually reaps the most sales.
If Amazon is to successfully enter the wine business, it will have to overcome a series deep rooted, arcane laws. This is a mighty big “if.”
I agree with Ryan. Amazon should look into other areas to grow its business.
Mr. Seesel comments that “nobody has succeeded in creating a national ‘big box’ wine and liquor store along the lines of Barnes & Noble”. [What about] Costco or Sam’s Club? Costco is the world’s largest retailer of wine.
Sorry, but I can’t see consumers taking the time to get online, fill out customer profiles and credit card info, and more importantly pay $3-$5 or more in shipping, for a $10 bottle of wine.
Maybe the finer wines, over $20 a bottle, that would be ordered as gifts and shipped to a friend or relative, would sell well online – especially if there were expert ratings and opinions to help customers choose.
Niche market at best.
Wine is not the easiest path for Amazon. Besides legal issues, limited distribution, inherent risks and exposure, and a highly fragmented market, there is a fundamental difference in the way wine is sold and bought.
Conglomerates may jump in. But, grocers can lower their margins. Do vineyards desire to commoditize themselves? Is it true for wine that “drink all you want, we’ll make more?” There will be new exposure for limited distribution and smaller vineyards. But limited re-orders too.
Furthermore, wine drinkers are explorers. And the relationship is far different and much deeper than a bad book.