Here's to Wine on the Web

By Michelle Megna | Posted August 24, 2006

The year 2006 is turning out to be a very good one for online wine sales. E-commerce software provider Nexternal, which has about 200 winery clients, reports that wine sales totaled more than $12.4 million for the first four months of the year, up from $8.5 million during last year's first quarter.

Connoisseurs are also spending more with each order. In 2005, the average wine order through Nexternal's shopping cart software was $235. In the first quarter of 2006, the average wine order increased by 56 percent to $367.

Doreen Woo, Nexternal's direct wine sales expert, says Internet purchases would have been even higher if many of the suppliers had more bottles to ship and didn't have to impose quantity limits on orders of highly sought after vintages. "We expect wine sales through our e-commerce software to total more than $50 million dollars this year as more wine drinkers go online," says Woo.

Nexternal isn't the only company harvesting such results. A report released a month ago by Inertia Beverage Group (IBG), a software company that caters to wine sellers, shows that for the first half of the year its winery clients increased Web sales by 423 percent over the same period last year.

I'll Drink to That
As a result of a recent Supreme Court ruling, wineries and retailers are able to ship directly to consumers in more states than a year ago, which is boosting sales. Still, industry watchers also attribute growth to the makers' efforts at creating sophisticated Web stores and the fact that wine lovers will deliberately purchase bottles online that they can't find in their local retail shop.

According to IBG CEO Paul Mabray, the surge in on-line sales of wine is directly related to wineries stepping up their efforts to reach out to customers through online offers, rather than an increase by consumers in buying wine on-line.

"Among our winery clients we have seen a significant increase in their willingness to utilize their Websites, e-mail and our REthink Engine to generate increased sales," said Mabray. "Though a lot of money is still being left on the table, it's clear that wineries are becoming more sophisticated in their cultivation of the direct-to-consumer sales channel."

High-End Wines Dominate Sales
IBG aggregated sales data from more than 250 wineries that use their software to conduct on-line sales for the report, which showed some very dramatic year-to-year trends. In addition to the increase in online sales, IBG discovered the following:

  • With 46 percent of on-line sales being made in California, wineries still have a somewhat provincial view of the on-line market, indicating there is tremendous room for growth in online sales to those residing outside California.
  • Wineries have responded rapidly to the increased demand for Pinot Noir and have targeted on-line buyers for these wines, resulting a 1300 percent-increase in the proportion of on-line sales that are of Pinot Noir bottlings.
  • Internet selling is dominated by high-end wines as only 7 percent of wines sold in the first half of 2006 cost $19 or less.

Clearly, the time is ripe for wine sellers to set up shop online, as RadCru has done. The three-month old business seeks out hard-to-find, small production wines and sells them for a period of 24 hours or until the stock is sold out, whichever comes first, before moving on to a new wine the following day. It calls itself "the first online marketplace to focus solely on providing wineries a direct online sales channel to the general public."

RadCru charges wineries 10 percent for completed transactions. Once the item sells, the winery ships directly to the customer. The site has about 6,000 registered members and visitors can choose to sign up for a daily e-mail update or can subscribe to an RSS feed. Company owners say sales are already outpacing their early projections.

Tips from Veteran Web Vintners
And while new businesses may be quick to capitalize on the trend, established wine Web merchants say they are also reaping big bucks by constantly tending to their sites as much as the field workers do the vines.

Michelle Agostine, Duckhorn Wine Company's e-commerce expert, says the site has seen 25 percent growth this year compared to last, and since it began using Nexternal's hosted program in 2002, often realized gains of 50 percent. The Napa Valley-based winery employs about 60 people and ships 100,000 cases a year, reaching 30 states.

She says blending a soft-sell approach with a genuine sense of community, like a fine Merlot, is a delicate balance. "In the wine world, the emotional tie with the customer is very important," says Agostine. "You have to nurture that as well with your Internet presence to be successful at it while maintaining functionality and remembering the goal is to generate sales." Including wine taster's notes, announcements for tasting events and auctions and other information that an online customer may not get from their local wine shop is one way to do this.

Agostine says one way to do that is by cross-referencing. "We provide relevant cross- links that allow you to purchase the product throughout the site," she says, "so if you're reading a story about the history of the wine or winemaker notes, it's easy to buy from there instead of having to backtrack through a bunch of clicks."

Another key to their success, says Agostine, is having smooth search options, including a reductive search employing pull-down menus to narrow the field, so for instance, a results page for cabernet doesn't include 100 listings. Customers can also search by brand, varietal, current release or size.

To avoid potential hassles with minors who may try to buy online, the company employs age-verification technology by IDology that's transparent to the user. "It's very affordable to implement," says the grape guru, "like our partnership with Nexternal, which uses a sliding fee, so you don't have to be a Kendall Jackson to use this technology."

In regard to assessing your site, she recommends using software that allows you to track shopping-cart conversions. "We know for example that once people add something to the cart, the checkout rate is 80 percent, so we're doing something right."

And what's next? Duckhorn is just now experimenting with peer-to-peer review and customer feedback. "We're tip toeing into that," says Agostine, "exploring ways for customers to share their opinions because consumers are very interested in what other people are saying about a product and that holds true especially for wine."

The Duckhorn doyenne's final words of advice to vintners on the verge of going online: "You can't just set up shop and let it go. A Web presence is constantly changing so you have to keep cultivating your site," she says. "That's the key to being on the forefront of the Internet."

Adapted from ECommerce-Guide.com, part of Internet.com's Small Business Channel.

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