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The Long Read: Questioning the wisdom of a direct approach

Published:  23 July, 2020

At a time when traditional channels are continuing to diminish and dwindle, direct-to-consumer (DTC) models are unsurprisingly all the rage. What was once a dirty word in regions like Champagne is becoming a de rigueur response to the crisis, as wineries desperately attempt to claw back income lost due to the pandemic.

“We've resisted the lure of direct sales for years, but in light of Covid-19, the evolution towards online sales is inescapable,” said Charles Philipponnat, after he announced that Philipponnat was launching its own DTC platform.

“We realised in May that our online sales were doing very well during lockdown, and our online specialist competitors were ahead of last year in sales. We had been pondering it for some time, and the virus was the trigger.”

Philipponnat's online store is due to go live in the autumn; companies such as Domaines Paul Mas, Alvaro Palacios, Marques de Caceres, Mirabeau, Ramon Bilbao, Torres and Codorniu are already running successful DTC platforms.

Before the pandemic, the DTC market in Europe was predicted to grow by a paltry 1%, as long-established distribution networks maintained their virtual hegemony on wine sales. But as a result of the coronavirus' devastating impact on the hospitality market, all bets are now off. Some analysts are predicting a meteoric rise in the amount of DTC transactions, as wineries and consumers adapt how they do business. This emerging paradigm, they argue, isn't likely to wither and die as we move towards a new normal.

Nevertheless, the barriers to the expansion of a new direct-to-consumer utopia are considerable. The vast majority of producer online portals only service one market; the logistics and bureaucratic headaches surrounding the world of inter-European shipping are considerable. This ensures that establishing a sizeable DTC market for low-end wines is both commercially unrealistic and counterintuitive.

However, for premium and lower volume brands, the motivation to pursue a DTC model is clear, even if sales are confined to one nation.

“During the last economic crisis, we saw middle range, 'accessible premium' wines being delisted from the multiples,” says The Fladgate Partnership CEO Adrian Bridge.

“This was of course devastating for some wine brands, which is why we're now seeing wineries rush to establish online portals. The global on-trade is unlikely to fully recover in the near future and channels are simply evaporating for many premium brands.”

The Fladgate Partnership launched a web portal in 2011 and the site has been invaluable during lockdown, according to Bridge. Selling over 4,000 different references, offers shipping to nations outside of Portugal. Bridge, though, is at pains to emphasise that he isn't competing with his European distributors. Taylor's long-established partners maintain “a vital role” in the marketing and distribution of The Fladgate Partnership's wines. It plays the role of an ancillary service, something that runs in parallel without stepping on anybody's toes, says Bridge. The growing firmament of wineries now embracing the DTC model can, in theory, follow suit.

Yet Bridge has his doubts. Serious doubts in fact.

“I understand the logic behind wineries going down the DTC route, however, there are clearly major risks involved,” he argues.

“In essence, producers rushing to run online platforms are chasing a reactive rather than proactive strategy. Is it really worth alienating your retail partners? Distributors who sell the wines in export markets won’t tolerate being reduced to a ‘brand manager role’, while firms sell ever-wider volumes directly at lower price points. We’re potentially heading for a major confrontation that could change the nature of the supply chain."

The subject of maintaining existing winery/retailer relationships is clearly a sensitive one. Rosé brand Mirabeau has started selling direct into the UK market, although their strategy is to ensure that their prices never undercut those of their retail partner Waitrose.

Other wine brands – off the record – have admitted that either their portals, or newly established online partners, have been undercutting the standard retail price. They simply shrug their shoulders when asked about the dangers of alienating trusted partners – “needs must” is the standard response.

“I don't take this undertaking lightly; we have no desire to compete directly with our retailers,” says Philipponnat.

“However, we need to pursue the DTC model. Retailers shouldn’t be upset as long as prices are coherent and they’re not undercut.”

That, of course, remains to be seen.

There are other headaches to consider as well. Bridge underlines the point that Amazon has conditioned consumers to expect next day, or even same day delivery as par for the course. What happens when stock is late or goes astray? Have you lost a customer for life?

“Businesses need to understand the nightmarish logistics of running what amounts to a wine delivery service,” says Bridge.

“Are they really prepared for that? No matter how important the internet is, it still only amounts to one channel. Firms should be wary about being over-reliant on DTC sales. We need to get back to a paradigm of social interaction and a multi-channel approach.”

Not that such comments will bother the producers. The global on-trade is moribund, while online wine sales are booming. 'Taking Back Control', in the words of that fatuous Brexit slogan, is self-evidently not without risks or dangers. Yet the rewards are simply too great for many wineries to ignore.

Direct-to-consumer sales may be a poisoned chalice, or the salvation of struggling artisan wine brands. But what is undeniable, is that DTC is here to stay.