In the last few years, technology has changed the way America buys things. Yesterday’s New York Times article about Groupon’s success, Funny or Die: Groupon’s Fate Hinges on Words, once again highlights how tech companies are changing the way America buys. In only a few years, Google, Facebook, Groupon, Gilt Groupe and thousands of clones have transformed how people shop, and how businesses and brands sell products and services.
One industry that many of you know is close to my heart, is wine e-commerce. This is still very much an under developed space in the tech world, and if done right, is a gold mine of opportunity. But, why hasn’t someone really nailed it yet?
The size of the market is huge. The opportunity for wine e-commerce is estimated at between $30 Billion to $40 Billion in the US. This makes it larger than the music industry, or even larger than Hollywood’s entertainment industry, if you look at it on a global scale. In addition to pure wine sales, we can also look at sub-categories like Vinotourism. This is estimated to be a $5B business – again with no dominant players.
But despite these numbers, wine e-commerce is also known as a VC graveyard. It seems like a no brainer investment, but the industry is complicated and riddled with legal issues. There are so many companies that have tried without success. Alcohol is probably one, if not the most highly regulated products to sell in the US, and even makes the travel industry seem so easy. If we look at the most dominant players in US wine sales, Costco is at the top of the list, with 3% of the market and retail wine sales of $1.4B a year. It is interesting to see where America currently buys wine. The other interesting point here is that wineries that do have licences to direct ship to consumers in certain states, do not necessarily understand how to market themselves online and here comes the challenge for wine sites, especially flash sales sites. Just like the mom and pop merchants that Groupon has been able to educate on why they should embrace the group buying model, wineries are no different. There is still a disconnect with many wineries on how to reach today’s consumer and create demand for their businesses, hence there is an education challenge for many wine sites.
From a marketing perspective, the wine consumer is divided into three parts; the Wine Spectator crowd, a small part of the market but highly influential; the “two-buck chuck” crowd who don’t care so much what they drink as long as it’s cheap; and then everyone else. Everyone else is where the opportunity lies. There are 25 million people in the US that enjoy wine on a regular basis but don’t know enough about it. Although wine is not their primary passion, they will spend between $8-$80 per bottle. With a consumer that is becoming accustomed to online purchasing, flash sales and coupons it is certainly seems like a hot space to watch.
It’s not quite harvest time yet in the wine e-commerce business, but things are certainly starting to ripen. Just take a look at these players:
Flash sales sites to watch:
Lot18 – Recently closed a $10 million Series B round making total investment over $13 million. Investors include New Enterprise Associates (Groupon, CareerBuilder, Diapers.com) and FirstMark Capital (StubHub, TheStreet.com).
Invino – Formerly known as WineryInsider, rebranded in November 2010 as Invino
Gilt Groupe – although not a wine specialist, they have been showcasing opportunities for wine. With the recent launch of Gilt Taste this could be one to watch.
Cinderella Wine – Gary Vaynerchuk was quick to start this site after the huge success of Wine Library and his daily video.
Wine.com Over $40 million per year in wine sales
Wine Library – By 2008 Gary Vaynerchuk raised annual revenue in wine sales from $4 million to $60 million (and also launched flash site, Cinderella Wine)
Vinfolio - Sought bankruptcy protection in Jan 2010 and by May had landed an investment from Steve Case’s Revolution. Revolution also invested in LivingSocial and ZipCar.