Posted by Interviews, Out of the Glass | Posted on 02-23-2011| Posted in
Recently, I covered the rise of online wine discounters — and my experiences buying some of my favorite wines through them. Since then, I’ve come across a few other articles exploring the rise of these “flash-sale” sites.
Adam Lee, the winemaker and owner at Siduri and Novy, contacted Terroirist after reading my post to shed some light on how — and why — wineries work with sites like Lot18. The relationship between the two is far more symbiotic than I realized.
First, some background. In late January, Lee emailed the members of his mailing list to let them know that a big buyer — which turned out to be Lot18 — had offered to purchase nearly the entire stock of Novy’s 2007 Page-Nord Vineyard syrah and the 2007 Santa Lucia Highlands syrah. So he put up a small batch of the two bottlings for sale at $14 each — $2 cheaper than Lot18′s $16 sale price — before the discounter contacted its mailing list about the Novy wines. Lee sold out of both bottlings in less than a day.
When I asked Lee why he decided to sell through Lot18, his answer was simple — he needed to clean out his inventory of 2007 syrah. “Normally, we set out to make a certain amount for direct sales and a certain amount for distributors,” he said. “We’ve gotten better over time, to the point where we generally come within 10-20 percent of our guess.”
Now, in 2011, Lee concludes that he made too much syrah in 2007. “With varietals like Syrah and Cabernet Sauvignon, you have to predict demand two or three years out,” he said. “It’s easy to unwittingly produce too much or too little. With the recession, and the fact that syrah generally isn’t selling well, we had some excess inventory.”
Lee knew someone at Lot18 and approached him about buying most of his inventory. Lot18 agreed. But Lot18 didn’t take on the inventory itself — it simply marketed the wine to its email list in exchange for 10 percent of the sale price. So for each $16 bottle sold, Novy took in $14.40 and Lot18 received $1.60. Surprisingly, Lee’s revenue per bottle was actually higher through the discounter.
In effect, Lee rented the discounter’s email list. Novy was still responsible for fulfilling orders. As part of their arrangement, Lot18 reimbursed Novy for shipping costs on orders of fewer than six bottles, but Novy had to absorb the shipping costs associated with orders of six or more bottles.
Lee said that selling directly to consumers makes more business sense for him in the long run, but with the over-supply of syrah in his warehouse, it made sense in the short term to work through Lot18. As an added bonus, he also attracted a couple hundred new customers through Lot18, whom he can now add to his direct e-mail list — and hopefully cultivate into loyal customers.