The Annual Report of Winery DTC Vendor landscape summarizing all the channges and innovations from the prior year.
By: Paul Mabray
Tags: Ecommerce, Wine, Dtc, Wine Industry

Four years ago, Rob McMillan asked me to build a chart with all the DTC vendors, to coincide with the annual SVB Report. The first report was an interesting challenge and became a labor of love. With few exceptions — and aside from the format improvements from Erica Gomez — the changes over the subsequent years have been minor.

That was my expectation for 2020. Every year I write a theme for the year and 2020’s was “Digital Transformation (Why and How to Start — NOW)”, which I presented in March in London, at the inaugural One Step Beyond conference. Little did I know that would be the last time I traveled or saw other humans — or how prescient and necessary that presentation was. We had the confluence of the global pandemic and terrible fires, along with an American society divided by ideological and political differences, coupled with disinformation machines running on overdrive. While Rob and I had warned about the limitations of the tasting room model as the primary driver for DTC, and even though we’ve seen the fallout from previous fires, earthquakes and blackouts, we could never have imagined a Black Swan event like 2020.

While there is no doubt the tasting room is an effective customer acquisition tool, it’s also the least efficient and the least scalable. My entire professional life, I’ve been imploring the industry to use digital, especially e-commerce. Then came 2020, an extinction level event for small/medium wineries, because tasting rooms were closed (or fractionally open) and restaurants were closed and no longer buying wine. Every winery then clamored to get incredibly competitive placements with a finite set of retailers and etailers. As a result,we had no choice but to lean into the online channel.

There can be no good words about the COVID-19 pandemic but, if we were to try to glean a small bit of positivity, it’s that people woke up to the necessity of digital. While there were plenty of successes, many wineries experienced whiplash, as years of unpaid technical, operational, and knowledge debt collided with the unprecedented challenges of running an online business. It should come as no surprise that those who had any sort of infrastructure and internal resources were infinitely more successful than those who barely invested in the channel; of particular note are Wente and Trinchero, who already employed digital stars Justin Noland and Kellie Burke. I had a friend in NY who wanted me to point him in the direction of wineries with great wine, who were using digital to succeed. Candidly, it was a painful exercise because so many brands had challenging or inadequate checkout experiences. I took screenshots of some of these brands and others to show you what I mean. The goal isn’t to judge or humiliate them, but just to give you a view of the many different shopping experiences out there.

Last year also saw Constellation acquire its first digitally native vertical brand (DNVB) with Gary Vaynerchuk’s Empathy Wines. It was a smart decision for a myriad of reasons, not least because it catapulted Constellation’s digital thinking into the future, while acquiring a talented team (Jon Troutman, Nate Scherotter) and a thoughtful brand built at a perfect online entry price/structure. It assists with an ongoing premiumization of their portfolio, after divesting their lower-priced brands to Gallo.

Passive vs active sales

While the statistics show good gains in e-commerce (and telemarketing) aka “off-premise DTC” sales, the reality is the majority of winery sales were passive. Wineries did an amazing job increasing their email marketing (although it was primarily promotional), while also adapting pricing and shipping. They also created new value exchanges, like CSA boxes, video tastings, and more. Wineries also saw an influx of sales from new customers, especially from those who loved the brand and wanted to support it. While I say the sales were passive, wineries did do a better job of communicating with and servicing their current customers, and also managed an influx of sales from brand loyalists that normally bought the wines via other channels. That being said, very few wineries invested in programs and infrastructure to attract new customers (active sales). This will be a challenge going forward. The good news and the bad news is that no one has a perfect formula – — and what works for one winery cannot easily be translated to another winery.

The move from passive sales to active sales also requires a complete shift in understanding the economics of DTC. We no longer can view the channel as getting the majority of the suggested retail price. Instead, we need to carve out our customer acquisition costs (CAC) ( as well as customer retention costs (CRC). For active sales, a good CAC to LTV ratio is needed, preferably 1:3 (or much higher). This means looking at what percentage of gross profit is allocated to CAC and CRC, and finding new ways for accounting teams to measure success.

The move to e-commerce was rapid and stunning:

Source — Silicon Valley Bank

And by the end of the year e-commerce moved from a paltry average of 3% of the total sales to a burgeoning 10% of sales, with lots of room to grow to match other industry averages.

Source — Silicon Valley Bank

The industry’s journey into e-commerce has just begun and, by looking at other industries, the great news is that we still have a lot of room to grow.

Evolution of the Wine Club

These new measurements also need to extend to our clubs (aka subscriptions). While clubs were the vanguard of the subscription economy, they have remained virtually unchanged since their inception. But the subscription economy is alive and thriving across many industries.

It’s why the wine industry should really look at other industries, to understand their economic models and see how they manage their customers journeys, particularly how they reduce churn.

Source — Tyler Sloat — CFO — Zoura

Again, it forces us to re-evaluate and re-imagine wine clubs and make them something different, to attract and retain customers from outside of a 90-mile radius.

How are we building wine club subscriptions to convert customers that never visit our winery? What is the key value proposition that inspires them to subscribe? These are some of the fun and fascinating problems wineries need to discover going forward.

Local Addiction

It’s clear from working with winery data that there’s a problem. To show you, here are three DTC state sales maps for 2020 (small, medium, and large) — shown here with permission.

Despite minor differences, you can see a striking similarity between the three maps; they are all over-reliant on California customers. And, when you look closer, you’ll see a strikingly similar pattern among them, despite their size differences. They are all highly dependent on local customers and enotourism from Los Angeles. We’ve jokingly referred to this as a winery’s CA addiction. Because we have such a large, affluent population that can easily travel to wine country, wineries have become overly dependent on these two major communities for their customers.

The overdependence on proximity is not just a California winery phenomenon. If you map Oregon, Washington, and Virginia wineries or even those of other states, you’ll see that almost all of them depend on customers within a 90-mile radius, or within state boundaries. Yet wineries now need to extend beyond their local regions to sell wine to customers at home. Breaking this local addiction will generate greater financial sustainability.

Investment

If wineries are to be sustainable into the future, there is going to have to be some serious investment. If the benefits of the digital channels are to be realized, there has to be a revamp of established systems, a rebuild of antiquated processes, and an investment in our people, from employees to external professionals — particularly e-commerce.

Source — JB Wood — CEO— TSIA

Unfortunately, this multi-dimensional digital debt — encompassing technical knowledge, processes, and infrastructure — has compounded over the last two decades, because online was one of the least important channels for wineries. Paying down this debt will be no small task and the more we ignore it, the larger it grows until, someday, it’s beyond our ability to pay down. The investment in people, particularly in improving their understanding of, and aptitude with, digital, is more important than ever.

Source — Carlos Oliveira — Morphis Tech — https://www.morphis-insights.com/technical-debt/

So how do we make the change? It’s not about new tools or technologies.

It starts with a cultural change and understanding the importance of the channel. After 2020, I can’t imagine there’s a winery out there that doesn’t recognize that we need to use new and scalable ways to create and maintain relationships with customers when they are not in wine country. Currently digital is the best tool for this task. Joe Fattorini wrote an excellent primer on making this transition, that’s well worth reading.

As I’ve said for three years straight, the industry needs to consolidate. Fewer but better e-commerce vendors would result in more focused R&D to ensure the industry keeps pace with the ever changing, online landscape. If you are having trouble deciding on a vendor, here’s a good guide to help you choose.

One word of caution: while we need to learn new tools and methods of operations from each other, we need to avoid being copycats. For example, when the first shelter-in-place (SIP) order arrived, a few wineries with high E.Q. (emotional quotient) took the initiative to call their customers, not to make a sale, but to check in and ask them how they were doing. Within weeks there were dozens of wineries emulating this amazing service. So what started as a beautiful outreach campaign became a customer annoyance — and the sincerity of the later wineries rang hollow.

And can we talk about Zoom? Prior to COVID, we heard a lot from wineries about how they were going to “take their tasting room on the road.” They used Pix Analytic’s mapping features to analyze key clusters of customers, to target destinations. But it wasn’t a few wineries building this strategy, it was almost every winery we encountered. It was the flavor du jour and suddenly everybody was doing it.

How does this relate to Zoom? Video conferencing has been around for some time with plenty of great video conferencing tools prior to Zoom, but very few wineries used them. One of the earlier adopters, Jason Moore of Modus Operandi, started doing virtual tastings in late 2019. He was extolling the virtues to wineries who largely ignored him. After SIP, there was a mad dash for Zoom tastings. Jason did over 499 Zoom tastings to 614 people in 2020. Before we knew it, every winery was doing some version of Zoom/virtual tastings with varied success. Robert Joseph even wrote a provocative article about the plethora of terrible versions that emerged during COVID: Amber LeBeau, my favorite B2B wine blogger, wrote a primer for wineries looking to enter the “virtual tasting arena”.

Throughout multiple virtual conferences and the SVB webinar, many people have asked if Zoom/virtual tastings are here to stay. The answer is “yes”, but such tastings are not the endpoint. They will, like all things, be a continuation of our industry’s desire to reach customers when they are not in wine country. They speak to the new reality that our industry requires new ways to connect with customers in their homes, both to the customers that have visited our wineries, but also to the larger group that have never traveled to wine country. But equally important, we need to get past the copycat or “fast follower” culture of the industry. When everyone is doing the exact same thing, there is no differentiation and the efficacy of the tactic diminishes as more people enter the arena.

Data

And 2020 was the year that data finally became important to the majority of the industry. Obviously, as the artist formerly known as Emetry (now a division of Pix called Pix Analytics), we believe in data with all our hearts. Data is, after all, the natural byproduct of digital efforts. Yet all too often the wine industry tries to bypass the complexity and ends up frustrated and unsatisfied with the recommendations of experts. That is made worse by too many fakers pretending they can build insights to help you find under served customers within your database or by sharing false correlations that don’t yield results. And while we love benchmarking tools, the need to understand your own customers should take precedence over knowing those of your neighbors.

The maturation of data metrics and analytics is going to be a key growth trend in 2021 for wineries, because the need for a better understanding of customers has never been more vital. No wonder I’m constantly asked to recommend DTC analysts or CRM managers. As data becomes more important, so does its continual maintenance and enrichment.

False prophets

Whenever new technologies or channels emerge, a plethora of consultants come out of the woodwork claiming to have the answers. There are two things to remember. First, digital is a huge category and one consultant/expert can’t possibly know it all. Wine online is still uncharted territory and there is not one example of meteoric growth by a single wine brand. Even if there was a complete all-star out there, their formula could not be easily translated across price points, regions, or brands. No one has all the answers. Not me, not Andrew Kamphuis, not Gary Vaynerchuk, not anyone. We may have expertise in the channel, but no-one has figured out a repeatable formula. There are a few experts out there, but beware of false prophets.

Vendors Paying it Forward

The pandemic was simultaneously sudden and slow. Some wineries took radical steps to lay off large swathes of employees, while others, like Wente, went the extra distance to keep their staff employed as long as possible. A group of wine professionals, plus Emetry, put together a list that became our most read blog of 2020 for ways to utilize tasting room staff during SIP.

While advice is nice, actions speak louder than words. Wine industry vendors, knowing that our customers were facing an extinction level event, leaned into our community to help. By no means is this an authoritative list but here are some key stories:

Commerce7 — The culture of Andrew and Zach Kamphuis has always been customer centric. When COVID overwhelmed the industry they immediately offered financial relief in the form of “don’t pay us if you can’t”, they helped wineries process emails and clubs and set up stores, and within a week of SIP launched the Commerce7 Now program, which is a free platform setup, 2% of transaction fees, and lets a winery launch a site within two hours of signing up.

5Forests — Polly Hammond and Robert Joseph launched The Real Business of Wine with many of the industry’s best professionals to share best practices, expert opinions, and challenges.

OpenTable — OpenTable entered the wine industry to add a much needed vehicle to bring customers to tasting rooms that will be amazing after the pandemic ends. But to help the industry they extended “free OpenTable for wineries” several times, each time there was a new lockdown. Currently, it’s free to wineries through to March 31, 2021. Wineries also get software and marketing for free and then from April 1 onward, it’s just a month to month agreement.

Also, they added a “carousel” on the diner search so consumers can find wine tasting experiences just as quickly and easily as they can search for restaurants.

VingDirect — Lindsay Kana and Tammy Boatright built a free online class as part of their curriculum. They also led key round tables with wineries to share ideas, successes, and challenges to help weather the storm.

The artist formerly known as Emetry (now Pix Analytics) — We donated our analytics software to 10 wineries for free and worked as hard as we could to enable them to use data. Our team helped build campaigns, data sets, and more.

Avalara — created a COVID webinar to educate wineries on all the changes, relief, and other measures that were put in place as a result of the pandemic.

Me personally — I spent weekends and nights working for free for four wineries, to help them with digital transformation (with variable success). Of the four I worked with, here were the themes of three of them. Overall, the greatest barrier to success was the lack of staff; e-commerce and DTC expertise in wine is now one of the most competitive categories in the industry.

I’m sure there are other examples of vendors going the extra distance to help wineries. If you’re a vendor that gave back, please comment below.

Leadership and collaboration

2020 also was a year that we saw, for the first time in a long time, meaningful collaboration across vendors. Without question, Commerce7 led the charge; they established an app marketplace and added 45 integrated partners. They also consulted with many of their partners to create true solutions, versus just integrations. Andrew’s spirit of full transparency shines through on their documentation site where they added over 200 updates to their system, including innovations around subscription clubs, estimated delivery dates (upfront), Pix Analytics, and personalization tools. They clearly lead all other wine e-commerce platforms in feature development and R&D.

A collaboration we were intimately involved with was the advanced marketing automation program built by 5Forests to leverage data insights to increase sales, called New Day. They started with Pix Analytics data as a collaboration but the program was built to work with other smart data sources.

5Forests also collaborated with Commerce7 to build an industrial WordPress integration to ensure wineries have the best SEO and seamless experiences between the CMS and e-commerce journey.

WineShipping and Commerce7 listened to customer pain points and built an estimated delivery date into their integration so that consumers could better understand when their wine would be delivered.

TreeFrog Digital built multiple widgets to help bridge the gap between Commerce7 and Help Scout, Shippo, and the antiquated AMS system.

Bloom a software, design, and creative services firm has developed a wine specific ecommerce solution for wineries on the Shopify platform and was catapulted into the industry spotlight as the platform powering Empathy. Empathy, now a Constellation brand and led by Jon Troutman, is definitely pushing them to innovate.

Avalara, under Jeff Carroll’s leadership, has evolved into a strong competitor to Sovos. We’ve seen advancements in their API’s, their ecommerce integrations, and their partnership with the Wine Institute to power the rules portal for all.

This year we also added new categories led by innovation: SMS, DTC packaging, and Discovery Platforms.

SMS has been an underutilized and underserved communication tool for wineries. Vimbibe was built by Highway29 Creative as a secondary offering and it will be interesting to see if it scales to the needs of the industry.

We were particularly excited to see new packaging built for branded DTC unboxing and simultaneously meant to lower shipping waste from Citadel Casing.

DTC Wine Packaging

Sharing is Caring

The culture of sharing, passed down to us from Robert Mondavi, permeates our culture and is one of the magical things about the wine industry. Last year saw the greatest knowledge sharing yet in the industry and there are key reports that every winery should add to their annual reading list.

Yet there’s no question that SVB’s annual report is the keystone of the industry. Every year, they work tirelessly to identify the key macro trends that influence our industry for the year to come. If you are a winery, please, please take the time to fill out their survey. They also are redesigning the DTC version of the report for 2021 and I look forward to the transformation.

take the time to fill out their survey. They also are redesigning the DTC version of the report for 2021 and I look forward to the transformation. For years the Shipcompliant report has illuminated the compliance landscape and some macro shipping trends.

Last year Wine Glass Marketing shared the macro results of email marketing for their clients. If you want to understand email behavior, read it.

Jason Haas has always been a great leader, sharing insights into the successes and challenges of his business. This year he shared a helpful guide for wineries trying to establish their DTC go-to market strategy.

The Digital Blend Awards

For the last three years, the number one question wineries have had after reading this post has been: “What softwares/companies should we put together?” While we’ve shown an *example* technology stack, we are not in the business of recommending vendors with this report although we know that wineries are looking for examples of successful technology stacks. So taking a cue from “The Stackies” we’re partnering with a few key companies this year to host the Digital Blend Awards in August. In essence, wineries can submit a visualization of their DTC software stack to help guide other wineries on successful implementation to model. We’ll announce details and the prize in the coming months but since we are emulating the Stackies, take a look to see how their awards work.

Emetry Analytics is now Pix Analytics — FREE ANALYTICS FOR ALL WINERIES AND WINE RETAILERS

Emetry has changed our name (we inherited that strange moniker) and has added a major focus to our business beyond customer insight software. But we fundamentally believe in data, segmentation, and customer insights for increased sales and retention. In fact, we believe in retention more than ever and hope that wineries build better methodologies to ensure they have long term, healthy relationships with their customers. And our analytics offering, which we’ve developed over two years, and which we will continue to enhance and improve, is now Pix Analytics. Even more importantly, we believe in data and retention so much that we are giving away our Pix Analytics Lite to any winery or retailer using Shopify (Bloom), WineDirect, or Vinsuite. We’ll also be adding VineSpring in 2021. If you want more information or to turn on the software, just email me directly.

Not to leave out Commerce7, who have invested heavily in their customers and who have licensed Pix Analytics Pro for ALL OF THEIR CUSTOMERS. This enhanced version gives key benefits to maximize the data in both systems for marketing automation, improved insights, and prioritized customer service.

Pix

I’d like to introduce you to Pix. Our vision has grown beyond just data analytics and it’s our goal to unlock wine online for consumers and wine sellers. Too many wine platforms have focused on inserting themselves between wineries’ and retailers’ DTC businesses. There is still, however, a very important need for a consumer app/site that helps consumers at the point of purchase. We are building that wine discovery platform.

We are in closed Beta through April. If you are a winery that wants to be listed and have access to a whole new group of wine buyers, please email us.

We’d also love for you to be a beta tester since we know that winery people also drink a lot of good wine. Sign up at Pix.wine.

The Golden Age of Wine Online

The genie is out of the bottle and investments from wineries, platforms, vendors and infrastructure, coupled with changing consumer behaviors, means that online wine sales are now a real thing and have tremendous potential. We are entering a new era of hope and light from the darkness of 2020. I, for one, am beyond elated to see wineries move online and witness the benefits it will bring to our industry and wine community.