Direct-to-consumer wine sale increasing

Sovos and Wine Vines Analytics, in its annual shipping report, shows that direct-to-consumer wine sales are continuing to play a dominant role in how consumers get their wine.

The report shows that more than 6 million cases of wine were shipped directly to consumers last year, representing about $3 billion in value. That’s a lot of business that is bypassing the distributors and retailers.

Many states have liberalized their out-of-state alcohol shipments in recent years and no doubt this has had an influence on the increase. However threatening the growth is to distributors and retailers, it is a boon for consumers.

More than half of the U.S. wine producers make less than 5,000 cases a year and distributors don’t want to spend the time on them. Couple that with the fact that producers don’t want to spend the money on distributors either and you have a trend that has no end. A wholesaler and retailer combined can take up a third of a bottle’s cost.

I spoke to several high-end wine producers who say a 90-plus rating from a renown wine critic eliminates the need for marketing and national distribution. They can sell the wine through their clubs and tasting rooms.

The same goes for several Oregon wine producers I recently spoke to. Their productions are often under 2,000 cases a year. They are putting money into their tasting room to attract tourists. Steve Lutz of Lenne says he’s doing so well with direct-to-consumer sales that he’ll probably have to allocate his wines next year. Tom Fitzpatrick of Alloro is also seeing an explosion in direct sales.

According to the report, the average cost of a DtC wine in 2018 was $39. That’s pretty high for most consumers, but in line with Oregon pinot noirs. Oregon’s DtC market grew by 19 percent last year — tied with Sonoma County for the lead.

Distributors will always have business from large producers of wine — Gallo, Kendall-Jackson, Constellation, Trinchero, et al — but there is a steady business being lost from small producers.

On selling Oregon pinot noir

Williamette Valley has a disproportionate share of small wine producers. More than 70 percent produce less than 5,000 cases a year, which makes national distribution futile. Steve Lutz, owner and winemaker of Lenne wines in Yamhill County, attributes the small production to pinot noir, the region’s primary breadwinner.

“Pinot noir doesn’t lend itself to mass production because it’s expensive to grow. And, our model is high quality,”  he told me in a recent phone conversation. He produces 2,000 cases a year.

With quantities so small, most distributors do not want to spend the effort to get them on the shelves. Even if they found a cult wine to make them money, there isn’t enough to satisfy demand.

So, Oregon winemakers are bypassing the distribution network in droves. Nearly all of them are selling their wines direct to consumer. As more states liberalize their laws restricting out-of-state alcohol shipments, Willamette winemakers can cast a wider net. Most of them easily sell out their productions — some are allocating their wines.

The primary venue for direct-to-consumer sales is the tasting room. Many of these wineries are a short hop form Portland and some producers have even opened separate tasting rooms in the city to market their wines.

Tom Fitzpatrick of Alloro wines told me that tasting rooms have become competitive and he has had to make improvements to remain a draw. But the effort has born success: direct-to-consumer sales in his tasting room rose from $50,000 in 2009 to $700,000 in 2018.   

Fitzpatrick sells 15% of his wine to distributors just to get his name out there.

For the consumer, it requires a visit to the region to discover small producers who, like an oyster, wait for nutrients to come to them. No where else on the West Coast is this so apparent.

Book a ticket.