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Distance Selling

Published:  23 July, 2008

Distance selling is not a recent innovation in the wine trade. Years ago, the lord of the manor would have asked his butler to contact his local wine merchant and place an order. And then, some time later, a coach and horses would arrive with the wine and the deal was done. A primitive form of mail order maybe, but mail order just the same.

The UK has its fair share of mail order merchants with a history going back centuries, not just decades, and the past few years has seen supermarkets make their presence felt in the distance-selling market, with online wine clubs. Obviously, the advent of the internet has transformed distance selling, and has helped companies to keep their customers up to date with all the latest news about their business. It's now possible for wine merchants to update their lists immediately, so that the customer can find out in an instant if a particular wine is still available, when

to drink it and even what to eat with it.

When it comes to distance selling, two companies dominate the market: Direct Wines (owner of Laithwaites and The Sunday Times Wine Club) and, surprise, surprise, Tesco. The supermarket giant began selling wine online 10 years ago, and selling by the case five years ago. Its Wine Club has more than half a million members, and it accounts for nearly half of all wine sold online in the UK. As ever, getting someone from the Tesco inner sanctum to discuss the subject of distance selling is a task that even Hercules would baulk at, but the statistics, in this case, do speak for themselves. If its dominance in the multiple sector and the high street, with its Express stores isn't enough, Tesco is bringing a world of convenience to the distance-selling market, with a range of features that are proving irresistable to UK wine drinkers. Buying six bottles of wine? You get a 5% discount. Ordering 10 cases? Then you'll still only pay a fixed 5 delivery charge. And, in direct contrast to many distance sellers, you can even specify a two-hour delivery slot for your wine. With its vast distribution network, you can see the opportunity Tesco has in this category.

Direct Wines, on the other hand, sees things rather differently. Rather than spread its name around the world, it has adopted a different approach, by buying up companies but keeping their identities, in the case of Averys and Virgin Wines. Because of its size, it is a bit of an easy target in the trade, and gets its fair share of criticism. The car dealer of wine merchants' and over-zealous marketing' are two less-than-sympathetic critiques, but Direct Wines simply powers on, with a turnover of 225 million. In the early '90s, it was a mere 15 million.

Its CEO, Oliver Garland, is very proud of his company's achievements, and makes his feelings clear when the subject of acquisitions is raised: With Averys, there was a real danger that they could disappear,' he says. Here's this fantastic company, with great heritage, with John Avery being a great advert for the business. And we've let them get on with it. With Virgin, it was the same thing. Rowan [Gormley, CEO] is an incredibly creative guy. I get a bit irritated by it because we absolutely did not buy these companies because we're intent on world domination. We did it because these companies would have gone west or disappeared altogether. I think it's very healthy for the category.'

The other topic to raise Garland's ire is that of price. It has been alleged that Direct Wines has offered the same wine at different prices through its various companies in the past, an allegation that really sees the feathers fly: We never have the same wine sold at different prices,' he sighs. Obviously, we have wines on special offer, but what people have got thoroughly confused by is if they see a wine that was on offer a couple of months ago - and that is no different to what anyone else is doing. There are some wines that are common to both, but there are many wines that are exclusive to both. But from the outside, I can see that it's not necessarily transparent.' In fact, Laithwaites and The Sunday Times club share around 900 wines out of a total range of 4,000.

But while Direct Wines and Tesco increase their market share, it will be interesting to see if Tesco can tempt any Direct Wines customers over to the other side. One merchant I spoke to said: With Direct Wines, its most successful area is the 80 case, and relatively low-value wines. And if there's one company that it's worried about, it's Tesco. It is a real threat to Direct Wines.'

Garland doesn't appear to show any anxiety, and is extremely optimistic about the future: Mail order is a very exciting market, and the trend is definitely for people trading up. I believe that we're the biggest seller of fine wine in the country, with the exception of Farr [Vintners] - that is, we're selling wine to people who will actually drink it.'

Widening the net

It's interesting to note how different companies look upon their own websites. Some see them as the logical direction for distance selling, while others, like Berry Bros & Rudd, one of the oldest wine companies in the business, see it as part of the whole package. Marketing manager Chris Maybin is justifiably proud to boast that Berry's has won IWC Wine Website of the Year for four out of the past five years, and that the company uses non-wine websites like Amazon as its benchmark, but he says that the purpose of the Web is more of a promotional guide: Web sales account for around 12% of our total sales, and turnover has been increasing by more than 20% every year since 1999. We're not looking to increase sales of wine through the website hugely, but it's more about using it to promote the whole business.'

Two other traditional wine merchants, Tanners and The Wine Society, have revamped or are in the process of revamping their websites. Although both have been around for more than 100 years, both recognise the value in having an online presence. Oliver Johnson, CEO of the The Wine Society, affectionately describes its site as designed to be functional rather than pretty - as with most things in The Wine Society', but is planning to redesign it, realising that your website does say a lot about your company and its aims.

Tanners redesigned its site last year, and private sales director Robert Boutflower points out how valuable it is to the company, with Web-based sales showing double-digit growth'. He also raises a point of caution about wine on the Web in general, and says that the speed at which companies can check prices on rival sites has led to problems: The problem with the Web is that people go in for price comparisons, and I don't know if that's a good thing, particularly with something like the 2005 Bordeaux vintage. Why are people trying to be ultra-competitive with their competitors and make no money?'

This is an important point. As internet wine sites have increased, so have the number of sales-pitch emails sent to customers. Andrew Shaw at Stone, Vine & Sun says that emailing opens the door to all sorts of bargain-hunters', and that its company philosophy is not to discount too heavily. He says: You end up selling the same non-profit-making wine to the same bargain-hunting customers who will search out any deal from any merchant with little or no loyalty to any merchant/supermarket. Inevitably, when you have stock you have to sell, then discounts are sometimes the only way of doing so, but as a young company, we need to convince our punters that we offer value without discounting.'

Companies such as Stone, Vine & Sun like to be seen as, and indeed, market themselves as the next step for the typical UK wine consumer who is bored with most supermarket offerings and is looking to spend a little bit more and find something different. One major advantage of smaller companies is that they are able to source small parcels of wine and do not insist on producers supplying wine in huge quantities. They are also able to offer a more personal service, and staff generally have more time to discuss potential purchases.

The Harpers team remembers when a colleague visited a large chain (naming no names) to buy a bottle of Champagne, and left frustrated (and empty-handed) when told that all four of the possible bottles under consideration were quite nice'.

Jason Yapp of Yapp Brothers realises this, and explains that very often, the sort of people who set up independent wine merchants have no ambitions to retire to the Bahamas in 10 years, but instead do a job they actually like: No one is ever going to make their fortune selling Iroulleguy or Jasnires, but we enjoy what we do and we seldom get bored. We know our clientele really well, and in turn they know what we offer - interesting wines made by real people.'

Distance sellers certainly appear to be the natural place to look for the 7-10 wines that are not widely available.

The major multiples would probably disagree, and it's true that retailers such as Waitrose do make smaller parcels available in selected stores, but it is generally accepted that consumers put their trust into specialist wine merchants, and will often buy blind based on a staff recommendation.

The other main benefit of mail order companies is the lack of overheads. They don't have the sky-high rents that high-street chains suffer from, nor do they have such high staffing or security costs. Furthermore, by buying direct from the producer, very often they can save money by cutting out the middleman. And as Robert Boutflower of Tanners puts it:

You can sing and dance to your heart's content on the high street, but if there's no one in the high street, you're not going to pick them up.'

One of the drawbacks of smaller merchants is that they cannot hope to compete with the slick logistics set-up of the supermarkets. As has already been mentioned, Tesco offers two-hour delivery windows, which is a world away from some merchants who promise delivery some time next week'. This is one area where the smaller players must improve, as Chris Maybin from Berry Bros appreciates: Customers are demanding things faster. They're being more exacting in their requirements. Supermarkets have raised the bar with their two-hour delivery slots, which at the moment, is very difficult for us to do. We can deliver on a specific day, and customers can request morning or afternoon. Also, we can tell people the day before roughly when the delivery will be. There's often been talk of wine merchants getting together and forming a joint fulfilment company. Courier companies are not keen on wine, because it breaks, it's heavy, and in extreme conditions, it spoils. There are very few people who are willing to deliver wine, so all the wine merchants are using three or four couriers.' Andrew Shaw at Stone, Vine & Sun says that his number one headache' is dealing with irate customers who have been let down by a third-party delivery company. He admits that he feels helpless' at times, but that very few companies own (or can afford) their own fleet of vans.

Acting up

One major piece of legislation that has affected distance sellers is the 2003 Licensing Act. The Act demands that licence holders must apply for a personal licence, which allows them to supply alcohol, or authorise the supply of alcohol, and is valid for 10 years. Such licences only permit the holder to supply alcohol from outlets that also have a premises licence. Moreover, if a mail-order wine merchant keeps its stock in a warehouse, the cost of its premises licence is based around the total rateable value of the warehouse. The feeling among the smaller wine merchants is clear: the Act was ill thought through, with a one-size-fits-all approach that does not appear to have worked.

The Wine & Spirit Trade Association (WSTA) received more than 600 calls on the matter, and also created the Distance Selling Committee in 1992 (first known as Mail Order Committee; it was renamed in 1999). Its two main functions are to keep its members up to date on the main distance-selling issues, and also to maintain the Wine by Mail Code of Practice, which encourages best practice, and also enables members to use the committee logo.

A number of issues are causing the WSTA concern at the moment, aside from the Licensing Act, including underage drinking. It set up a number of test purchases, which found that some retailers' systems need improvement', and admits that it is potentially too easy' for children to buy alcohol over the internet.

But despite concerns over deliveries and licensing, generally speaking, the future for distance sellers looks bright. Despite increased consolidation and more branded offerings, the internet has put the wine consumer in touch with a whole new set of companies that can send unique wines all over the country.

The knowledge level of consumers is increasing all the time, and this should lead to them trading up and seeking out new, interesting wines. There are also some good innovations in the marketplace, such as Direct Wines' Tasting Table in London, which opened in May this year. Customers can taste a whole host of wines, and then order a case or two for delivery. You can't buy a bottle and walk out with it, but the shop is aimed at people planning a dinner party, who go in, taste, then have their wines delivered at the weekend.

As Robert Boutflower puts it: Nowadays, we are a nationwide wine merchant, whereas 20 years ago, we were a regional wine merchant.' And London independent Swig claims: In five years' time, distance selling will account for 90% of all wine sold over 12 a bottle.'