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The Future of Flash

January 2013
 
by Andrew Adams
 
 
Blogger-turned-retailer-turned-flash site-operator Walid Romaya admits he had concerns about the flash wine sales market before launching his new website.

During the depth of the recession, flash sites offered good wines at bargain prices; the excess inventory of wineries, wholesalers and distributors fueled those deals. But as the economy recovers, and after all those bargains are purchased, will the excess inventory dry up? This would sound the supposed death knell of the flash retailer.

Not so, say those who lead the channel, as well as newcomers like Romaya, whose site Prince of Wine launched in November. Romaya says he took confidence from the success of other online retailers of electronics and clothing, which are flourishing. “I don’t think it’s something that just happened because of the excess wine, I think it’s here to stay,” he says.

Since WinesVinesDATA first started tracking the flash sales channel two years ago, the number of websites has more than doubled. In 2011, six sites dominated the market. Today about 10 lead the market out of 20 total. From January to November 2012, WinesVinesDATA recorded 4,813 domestic wine offers from flash sites, 42% more than the total for the same period in 2011.

The strong growth of flash sales mirrors the growth of direct-to-consumer sales. In November, the value of DtC shipments was $224 million, and DtC accounted for $1.4 billion in total sales for a 12-month period through July.

How the next generation shops
Phil Hurst is one of the partners behind the Truett Hurst wine company that recently bought out one of the founding partners of the website Wine Spies. He says he watched how his children shop online and figured his company and brands needed an online channel. “I just think the future of selling wine is going to change,” he says.

Hurst admits that people may not do their everyday wine shopping online, but he says they’ll nevertheless increase their online shopping while connecting with certain brands and websites.

“It’s not really about discount sites anymore,” says Rob McMillan, who heads Silicon Valley Bank’s wine division. McMillan says that a website focused simply on the quick deal is not planning for the future. “They’re not flash sites—and if they are, they’re going to go out of business.”

McMillan says any business plan focused on providing the steepest discount for any product is not planning for the future. “Is price the only thing? The answer is absolutely not,” he says. “When you start with a culture of discounting, it’s very hard to shift away from that.”

Targeting millennials
Bob Wilson is one of the founders of Winestyr, a flash site that started a year ago. The site offered what were essentially virtual gift cards that customers could redeem to get deals on featured wines.

Wilson says the Chicago, Ill.-based company is now ditching the coupon arrangement and has launched a new model based around a slick-looking “marketplace” website geared directly for the millennial generation (ages 21-35.) “We see the flash, super-discount thing as something of a fad,” he says. Instead of a race to the bottom for deals, Wilson says Winestyr is going to offer wineries a direct pipeline to younger consumers. “We’ll put your wines in our world, in our marketplace,” he says.

Winestyr will operate as a portal, and Wilson says most wines would be offered at close to retail. The hook, however, is that shoppers won’t have to spend much for shipping. Wilson says younger people want to shop online but detest having to shell out for postage. “Our customer will never ever, regardless of order size, pay more than $10 for shipping.”

Wilson says 60 wineries have signed on to sell through the site, and early sales have been encouraging. Moreover, Wilson says customers are repurchasing at a strong rate. “A lot of people are tired of hunting for deals,” he says. “We’re only going to have great wines.”

‘Fuel on the fire’
Wine Spies was one of the first websites to offer regular deals on wines. Founder Jason Seeber, who goes by the moniker “Agent Red” as part of the site’s spy theme, says the company has been successful because he has always put “quality over discounting.”

He says there was “a glut of product” in recent years, and some companies took advantage of that to offer deals, but “I really don’t agree that that’s a sustainable platform,” he says.

Seeber tells Wines & Vines that Wine Spies has worked with more than 2,000 wineries and has “never had a down quarter” because he has worked to offer consumer-friendly prices that are still fair to wineries. “We choose great wines. We are not where old wines go to die,” he says.

Hurst says he and his partners Bill Hambrecht, Paul Dolan and Dan Carroll liked Wine Spies because it essentially started out as “three guys and a server” yet has stayed competitive against other companies that debuted in the flash channel while announcing multi-million-dollar rounds of investment.

Hurst and his partners, who purchased 50% of the site, see Wine Spies as another way to reach customers in addition to the traditional three-tier or direct-to-consumer routes. The website won’t serve as “an inventory dump” but rather a way for people to connect with brands. “The Internet is a great facility for that,” Hurst says.

He says the Wine Spies likely would undergo a redesign and some other changes to enhance the feel and touch of the site to essentially “pour a little fuel on the fire” that Seeber lit.

Leading the flash channel
Invino accounted for about a quarter of all the flash offers in 2012. The company doubled the number of domestic wines it offered and took the lead in that regard.

Tony Westfall founded the company with his wife Danielle in 2009. Today he says the two employees who handle sourcing have close to 2,000 sample wines to choose from at any time, depending on what best fits the company’s goals. “We get wine all the time, and a very small subset of wine comes onto the site,” Westfa ll says.

The wines may be curated for quality, but it also doesn’t hurt when Invino can offer a 1997 Harlan Estate for almost half off. Westfall says that type of wine, sourced through auction houses and private collections, isn’t a substantial part of the business, but having it “elevates the level of curation for our high-end buyers.”

Invino’s membership has doubled every year, Westfall says, adding that its most dedicated members are “older, rich white men.”

The channel is not suited for every winery, but Westfall says many wineries find it effective and efficient for moving a lot of wine in a short amount of time. He says that could mean excess or obsolete inventory as well as new brand launches. The company has built quite a few strong relationships with wineries by helping them navigate the online market, Westfall says. “It’s a business that’s not going away any time soon.”



 

 
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Wine Industry Metrics
 
Off-Premise Sales » Month   12 Months  
March 2015 $622 million
7%
$7,995 million
5%
March 2014 $582 million $7,588 million
     
Direct-to-Consumer Shipments » Month   12 Months  
March 2015 $252 million
19%
$1,863 million
14%
March 2014 $213 million $1,634 million
     
Winery Job Index » Month   12 Months  
March 2015 356
22%
243
16%
March 2014 292 210
     
 
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