Services Solve Knotty Problem of Getting Wines to Most Customers

Wine Business Monthly - July, 2002 - By Paul Franson

Forget trellising systems or natural corks; the most confusing subject today's many wineries have to face is figuring out the best way to get the wine to consumers.

For big wineries with nationwide distribution, there's little problem, but most other wineries need to deal with the complicated logistics of shipping to their own state, reciprocal states and non-reciprocal states while assuring that they don't break the serious laws against shipping any wine into others except through the three-tier system.

These companies shouldn't be confused with shippers that transport the wine, such as UPS and FedEx.

Many companies have been established to handle these complex logistics, but New Vine Logistics, The Great House of Wine and WorldShipNet seem to have the lion's share of the action. Other companies like Winetasting.com and Wine.com, provide sales as well as logistics for wineries while Wineshipping.com, Wrap-It Transit, and CDS provide direct shipping to legal states.

Many of these companies have partnered with each other to serve as many markets as possible.

These companies use varying levels of technology to ensure legal compliance as well as tracking and reporting of their shipments.

Aside from the complex data-tracking requirements, these services must deal with a plethora of different state laws when shipping wine across state lines, including label registration, posting prices, collecting excise and sales tax, managing cash flow between each party, and general logistics.

Even legal states may impose restrictions, such as a maximum number of cases to any one buyer, and a winery could inadvertently break the law by shipping orders placed separately at its tasting room, wine club and through third parties.

Two of the new logistics companies, in fact, grew from a technical base more than from the wine business.

WorldShipNet

WorldShipNet is a new service provider that's an alliance of a number of related companies. Its partners include:

This network allows WorldShipNet to ship to all legal states. Fourteen states, including Pennsylvania and Utah and several in the Northeast, outlaw delivery except at state stores or other retailers. "If anyone claims they can deliver to those states, they're breaking the law," notes executive vice president Jim McClellan.

WorldShipNet handles all details for getting wine to consumers, from picking up the wine to the doorstep. The winery provides order information and WorldShipNet handles the process from there.

The process the company follows is:

WorldShipNet, being based on technology, uses dynamic web site tools that enable a variety of commerce applications. They include legally compliant order taking and distribution, and access to FORT technology; Internet storefronts for wineries; website administration function, enabling users to change content, products, and images and generate a variety of sales and tracking reports plus integration with major couriers such as UPS and FedEx as well as order management systems.

New Vine Logistics

Like WorldShipNet, New Vine Logistics has a foundation in technology. Its staff came largely from Wineshopper.com, the company that merged with Wine.com before that firm crashed. Its network is similar to that of WorldShipNet, but uses a collection of individual wholesalers and retailers instead of the unified networks WorldShipNet enjoys.

President of New Vine Logistics (NVL) is Kathleen (Katie) Schumacher, who was vice president of worldwide express logistics for DHL Worldwide Express before entering the wine business. Based on her experience and that of her staff, the company has developed proprietary fulfillment systems and distribution networks to improve the speed, quality and compliance of delivery to consumers.

Schumacher says NVL offers the complete service needed, including compliance, storage, transportation and reporting. Because the operation "inherited" Wine.com's large facilities, she claims the firm can easily scale up to handle large volume.

She differentiates her firm from its competitors by claiming that while all provide physical logistics flow, only NVL also provides full funds dispersal electronically as well as meeting legal and information requirements. "Ours is all enabled electronically; the others do part manually," she says.

NVL says it can ship to 35 states covering 85 percent of the United States' wine-consuming market, and has the technology available to also help deliver wine in states where customers must pick up wine at retail locations, but has not implemented it yet. They are working to solve Ohio and Pennsylvania.

NVL offers two different models to provide winery club/mailing list business shipments and retail tasting room fulfillment in both direct reciprocal and three-tier states (see sidebar, p36). For each, NVL maintains winery inventory in its warehouse.

While the back-end processes are detailed and complex, winery customers aren't aware of it and get delivery within 5 to 10 days of shipment.

NVL's facility includes a 90,000-square-foot temperature-controlled warehouse, and has a proven record of fulfilling more than 10,000 daily orders. It picks and packs winery customers' orders using a Provia automated warehouse management systems, and Wonderware automated conveyer management systems.

New Vine Logistics recently signed an agreement with Wrap-It Transit to ship to the more difficult states while Wrap-It Transit ships to the reciprocal states. Wrap-It has about 80 wineries as customers.

NVL also fulfills wine orders for sellers and buyers on eBay, the popular internet auction site which recently added wine to its home page. EBay offers both fixed and dynamic (auction) pricing, the latter however being illegal in some states.

New Vine Logistics Procedures

Direct / Reciprocal Fulfillment

AL, CA, CO, ID, IL, IA, LA, MN, MS, NE, NV, NH, MN, ND, OR, RI, WA, WV, WI,WY

For the 20 US jurisdictions that allow reciprocal and/or direct sales, NVL ships after our receipt of winery order via common carrier from its fulfillment center. NVL has developed automated systems to track and comply with all applicable quantity and/or delivery restrictions in these states. NVL generates common carrier shipping labels addressed to winery customers by order, showing winery as the sender, and providing delivery to winery customer within two to five business days as part of its standard services. Expedited delivery times are available for additional charges. NVL provides wineries regular delivery confirmation for all customer orders via email.

Three-Tier Fulfillment

AZ, CT, DC, FL, IN, MD, MA, MI, NJ, NY, NC, TX, VA

NVL offers fulfillment directly to winery customers' ship-to address for the 13 three-tier states that account for nearly 45 percent of US wine consumption. NVL expects to add states for three-tier fulfillment.

Licensed in-state retailers in these states must process all sales to winery customers, and only licensed in-state wholesalers may make sales to these retailers. The NVL fulfillment model enables wineries to sell through these tiers at a fraction of the margins normally associated with normal three-tier sales.

NVL provides complete compliance services for those three-tier states that require label and/or brand registration and price posting. NVL utilizes a compliance vendor, and bills wineries on a pass-through basis for these compliance start-up costs.

Like the direct/reciprocal fulfillment process already described, NVL generates common carrier shipping labels designating the winery customer as the recipient. However, the return label shows a licensed in-state retailer who will actually make the sale after that retailer purchases the wine from a wholesaler who purchases it from the winery. The NVL system executes in a fully automated, state-of-the-art process the complicated procedure of actual physical transport of the wine through these channels, the compliant title transfer of ownership through these channels with the related information and reporting flows, and the compliant financial disbursements to all parties in the three-tier transaction.

Great House of Wine

Unlike the two technology-oriented companies, the Great House of Wine (GHW) operates in a more tradition manner. It collects shipments of wine once a week, then ships them to legal distributors in Florida where it started, and 27 other states. President James Mattson says he's working on becoming a legal distributor in New Jersey, Virginia, North Carolina and DC, and expects a ruling shortly on Texas.

In addition to the highly visible shipments to individuals, he generates a significant business delivering wine to retailers and restaurants in his target states, even those that allow direct shipping to consumers.

He claims to sell to 25 top restaurants in New York alone, for example. "A lot of small wineries have informal brokers, some just friends or fans. They don't need formal distributors to sell their wine. They just need to get it to accounts."

Great House of Wine delivers wine legally to consumers in 28 states. This includes seven unlimited states where GHW is a licensed distributor (six states) or the state allows interstate shipments (Alaska); ten reciprocal states; eight states that allow limited wine imports for personal use; and three states that have consumer permit systems in place.

GHW can pick up as little as one case of wine weekly from wineries and warehouses throughout Napa and Sonoma Counties, and weekly or biweekly from San Francisco to Santa Barbara.

Each week, constant-temperature trucks leave Napa for the northeast and Florida with shipments re-packed in Styrofoam labeled for delivery to the consumer and palletized by state. The shipments are offloaded into constant-temperature warehouses in the destination states.

After the shipments arrive in the destination states, a common carrier like UPS picks up the wine on behalf of the cooperating retailer and delivers it to the consumer.

In "limited import" and "reciprocal" states (except California, Oregon, Washington and Idaho), shipments are by overnight air freight from GHW's Napa warehouse. In Oregon, Washington or Idaho it's air freight or UPS. California is UPS only.

Great House of Wine

Classification of states to which it can deliver wine

Unlimited

Limited Import

Consumer Permit

Reciprocal

See www.ghwine.com for details on each state and its regulations.

Wine.com and Winetasting.com

Two large online retailers handle their own logistics, but Winetasting.com also works with other service providers as well.

Doing business as Wine.com, eVineyard, has logistics centers that package and ship from California, Florida, Massachusetts, New Jersey, New York, North Carolina, Ohio, Texas, Washington and Virginia. Overall, they ship wine to 27 states representing more than 75 percent of the domestic market for off-premise wine sales, including each of the top 10 US wine markets.

It recently closed the Oregon center and consolidated its operations to California and Washington. The Washington center will now ship to Colorado, Idaho, Oregon, Washington and Wyoming, formerly served by the Oregon logistics center, and the California center will ship to Alaska, California, Illinois, Iowa, Louisiana, Minnesota, Missouri, Nebraska, New Mexico, Nevada, New Hampshire, North Dakota, West Virginia and Wisconsin.

Winetasting.com is an interesting hybrid that provides web hosting and virtual tasting rooms for about 50 wineries, and also sells from its older Ambrosiawine.com site. Using technology and systems developed for the latter, it provides logistics for these wineries.

President Lesley Berglund says that all the major "pass through" shippers wanted exclusive deals to distribute its wines in states that require using the three-tier system, but she preferred to remain neutral and works with all three depending on the preferences of the wineries the system works with. In effect, she both competes with and does business with some of the other service providers. She finds that wineries feel comfortable working with her firm because of its commitment. Winetasting.com has 11 years of experience as a direct mail catalog (Ambrosia) before it went online. "Some of our new suppliers may consider us almost anal in our attention to details, but they come to appreciate it as they work with us," she says, noting that they get online reporting of order status and other information.

She notes that one service her firm provides to companies that ship all their wine through it is keeping track of shipments to individual consumers to make sure that they don't exceed state limits. wbm

Paul Franson writes from St. Helena, California, about wine and business for the Napa Valley Register, Appellation, Upside, and many others. Check out his websites www.franson.com or www.napalife.com.