There’s no doubt about it: Changes are coming to the wine industry. And many of the trends we are seeing on the horizon will directly affect DTC wine sales, eCommerce wine sales, and the fulfillment of both.
Being aware of these trends is step one. Strategies going forward will need to take these 7 trends into account and plan accordingly. And we think this can best be done if you take stock and then reach out to a partner who can help guide you through the more challenging aspects.
In no particular order, here’s what to expect:
#1. A National Labor Shortage
Several articles published this year have been sounding the alarm bell about the labor shortage in the wine industry. This labor shortage is affecting the Napa Valley and extends as far north as Washington and as far south and east as Arizona, and it can be seen in a number of roles, from growers and pickers to construction crews to warehouse workers, packers, and anyone in a fulfillment role.
Those of us in the valley have felt this shortage firsthand, as businesses that were virtually landmarks have shuttered, citing labor shortages.
And the shortage will likely get worse before it gets better. There is a construction boom going on in the wine country, especially with efforts to rebuild after the wildfires. This plus a booming hospitality industry is raising the demand for labor to new highs. Add in the current immigration environment, and there simply are not enough workers to go around.
Obviously, a lack of labor can influence business operations, including logistics and fulfillment. Now it makes more sense than ever to look into outsourcing any non-core business operation.
#2. Fewer Drivers
One of the places where the shortage of labor is most keen is in over-the-road drivers. The shortage of drivers is expected to reach 239,000 by 2022, according to national statistics. These people are the lifeblood for moving eCommerce freight. Once, competitive wages and benefits drew people to this vocation, but further competition and regulations mean it’s not quite as lucrative as it once was.
Add in the fact that the up-and-coming millennial generation simply doesn’t find the lifestyle appealing, and it’s no wonder there are fewer and fewer drivers every year. If this trend continues, it could mean significantly higher wages to retain drivers, but longer wait times for shipments and more “last mile” issues for deliveries.
#3. A Stricter Regulatory Environment
States are getting more serious when it comes to license enforcement and reporting (read here about licenses), particularly for retailers. This means that everyone in the supply chain is under a significant amount if scrutiny now, which is creating its own set of delays. For example, state DTC shipping license numbers must be passed to the carriers, and when they are not, carriers are refusing shipments more often. Wineries can’t use rogue shippers for certain states anymore, and even things like media samples are undergoing a closer watch.
Understanding compliance in this stricter environment will be very important. (See, for example, our interviews with Jeff Carroll and Steve Gross.) Wineries will need to partner with folks who are knowledgeable about these topics and can assist in getting reporting completed.
#4. The Wayfair Tax Ruling and DTC Sales Across States
Just this summer, the U.S. Supreme Court handed down its decision in the case of South Dakota v. Wayfair. The case challenges South Dakota’s application of its sales tax to internet retailers who sell into the state but who have no property or employees there.
Basically, the court ruled that South Dakota could levy the tax, and that it was not a burden to interstate commerce (although more far-reaching tax laws could well be). We are not experts on tax law ourselves, but we have noticed just how much confusion the ruling and its various interpretations have caused—especially for online sellers and consumers.
Thus, wineries that sell DTC should expect the confusion to continue—and expect states to pass their own new taxes on eCommerce and DTC goods. Before they do, sellers will need to find ways to keep on top of state sales taxes and charge the appropriate amount at checkout.
#5. Carriers (Still) Raising Rates
Carriers like UPS and FedEx have been raising rates in lock-step over the past few years. In fact, these carriers have had a rate increase every year since 2008, with an average increase of 4.9% per year for both ground and air shipping.
Some of these increases have been in the form of accessorial fees, which are often the hidden or forgotten portion of the bigger picture. 2019 will bring yet another round of price increases, as carriers themselves deal with driver and regulatory issues, and we suspect that the wineries shipping DTC will feel the brunt of this one once again.
#6. An Economy Still Surging Along…
The trends are not all bad news. The good news is that, overall, the economy is still doing well. We are currently in one of the longest periods of growth and expansion in recent history, and there are many signs of a solid economic foundation in place.
In fact, the things we are seeing—price increases, low unemployment, etc.—tend to be symptoms of a good economy that has gone on for some time.
Will the good news continue, or are we due for a downturn? No one knows for sure. We certainly aren’t economists ourselves. What we can say is that, if the economy continues to do well, there will be upward pressure on wages and on prices (inflation). There is good and bad to both; the point is to be prepared.
#7. Tariffs and Trade Wars
The fallout from the most recent round of tariffs is still occurring, and no one yet has a good grip on what they will mean. While wine to countries like China has not historically been a huge source of revenue, winemakers are worried about losing future potential market share.
The California Wine Institute, for example, has been pushing to market California wines in China over the past few years, spending on social media campaigns and trade missions. They expect a 15% Chinese tariff on California wines now, which will undermine most of their efforts.
Things to Ponder, People to Call
Will these trends mean further difficulties for the industry, or new opportunities? Probably both, depending on how you look at them. (Most difficulties are opportunities in disguise!)
We can’t predict the future, but we can prepare for it, based on what we see. We’ve shared some of the trends that we here at Copper Peak are seeing right now, so that our clients and others can think and prepare.
In fact, we feel strongly that future partnerships are in order, if you are a winery or wine merchant and you want to remain competitive in today’s market:
- Labor shortages and stricter regulations mean that using a 3PL for packing and shipping will be more cost effective in the long run than doing these things in-house.
- Tougher enforcement of state DTC shipping regulations means that, if you are using a 3PL, they will have to stay on top of these so that you can continue shipping without disruption. If your 3PL has not mentioned these changes, that could be a red flag.
- Rising carrier rates and labor costs will mean shipping will be more expensive. A true 3PL partner should work with you to find creative ways to offer better shipping deals and/or use additional warehouse locations for shipping .
- Fewer drivers and labor pressure on carriers could mean delays in delivery, or a poorer delivery experience, right at the time when customers have come to expect a fast and seamless delivery experience. Now is the time to brainstorm ways to manage those customer expectations and make them feel more in control, even when there are high costs and delays.
Want more information on how to do these things? Or have some suggestions that don’t appear here? We’d love to hear from you and have made it easy to reach us by using this Contact Us link.
The Team at Copper Peak