Most wine in American gets sold through the traditional distribution chain.  But, increasingly, wineries are selling direct to the consumer.  Sometimes this takes the form of selling through a tasting room, but more and more wine is now being sold over the Internet and then shipped from the winery to the consumer.  More and more states are allowing “direct to consumer” sales, albeit often under the duress of a court decision.  In many states, however, it’s still illegal.  The rules are Byzantine, and the restrictions, while nominally to protect against sales to minors, are more often to protect the in-state sellers. 

From the wineries point of view, direct to consumer sales has a dual benefit.  First, in many states, it is very difficult for most small wineries to find a distributor who will carry their products.  Even if the distributor can be signed up, all too often the small winery gets lost in the shuffle, and sales are minimal.  So the direct to consumer route allows the winery to sell into states where it otherwise has no viable outlet.  The second benefit is that the distribution cost (half the cost of the wine) is avoided.  There are substitute costs, such as the order processing, packing, and shipping costs, but they are considerably less. So the winery, assuming it can sell its wares for the same price as a retailer, does much better.  That’s why so many wineries have established wine clubs, which often sell their wines at a 20% discount off full retail.

Vinoshipper is one of many Internet outlets for wine sales.

While some are predicting that direct to consumer sales will take over much of the market, I think we should pause a moment before we get too excited.  When contemplating the future of the traditional distribution network, we would do well to take a cue from Mark Twain when he said, “The news of my death has been greatly exaggerated.” While direct sales will continue to expand, realistically, only a relatively few people will make a large share of their wine purchases direct from the winery.  Most of us are going to continue to want to be able to walk into a grocery or wine store, or restaurant, and make our purchase, then and there.  Direct sales, however, will become increasingly important for small wineries.  An amount of direct sales that wouldn’t even register on Gallo’s radar screen can make the difference between success and failure for a small producer.