Multiple Shipping Facilities – Does it make sense?

Not all strategies wineries can adopt when it comes to wine storage, logistics and DTC shipping are created equal. A good example of this is the question of whether it makes sense to use multiple facilities for shipping.

This might sound like a minor issue. One warehouse or two? Who cares? It sounds like the kind of issue that a shipper or 3PL might worry about, not a winery. But when wineries are the consumer of shipping services, choosing certain services becomes an important business decision. Consider these facts:

  1. The direct-to-consumer (DTC) wine industry saw a record 15.5% increase in sales from 2013 to 2014. Wineries are now able to ship to 42 out of 50 US states, plus Washington DC. And as of January 2016, South Dakota will be the 43rd state allowing DTC shipments of wine.
  2. Most wineries are small-to-medium operations; in fact, they account for over 76% of DTC wine sales. This means that there are many, many players, and only a few really dominant brands. So competition is fierce.
  3. While only about 23% of habitual wine buyers in the US are “online,” that number is set to spike as millennials become increasingly sophisticated about wine – and are more comfortable buying wine online. (Note- See the last CPL whitepaper on building Brand Loyalty with Millennials.

If you are one of these small-to-medium sized wineries, these numbers are a bit frightening. They mean that it is going to be harder and harder to get your brand “out there” and in front of customers.

So what does this have to do with location? Using facilities in multiple locations makes sense when certain goals are part of your sales and marketing strategy—like increasing customer satisfaction with an improved speed to market and the potential to save dollars on shipping cost.

Multiple Locations can Increase Customer Satisfaction

Ecommerce has been around long enough that customers expect certain things. They have grown up in a world where Amazon offers 2-day shipping on just about anything, and “on demand” means, literally, on demand. But if you have a vineyard in California, there’s no way to ground ship to the East coast in that time.

Enter forward staging. With forward staging, some proportion of your inventory is sent to a second location that is more centrally located in the middle of the country for storage. When orders are processed, they are packaged and shipped from the location that is closest to its end destination, thus achieving a faster delivery to market. This multiple location strategy allows you to greatly reduce the time in transit for packages (typically reducing east coast orders from 5 days down to 2 days), and thereby increasing customer satisfaction. This solution also minimizes some of the risk to your product due to weather issues and handling by the carriers.

Multiple Locations can play a Financial Role

True, the above advantages can be had by using air freight, but at a significantly higher cost. Using ground shipping with forward staging can be up to 35% less expensive compared to 2nd Day Air shipping. That’s a significant savings and major impact to your bottom line. (Additional savings can be had as this does not account for fuel surcharges, which are historically charged at higher fees for air service versus ground service.)

So, if you really are focusing on the customer delivery experience as part of your business model, it would be better to use forward staging with ground shipping everywhere in the country. We’ve had clients tell us that this enables them to offer multiple promotions to increase brand loyalty (for example: Shipping Included, Add another bottle for only X dollars, etc.) thus encouraging more reorders and helping retain wine club members[BNT1] .

All that said…

All that said, using multiple shipping locations is not a one-size-fits all, cookie cutter solution for every winery. For example, it does require some additional analytical work and planning ahead to make sure enough product is located in each location to prevent out of stocks. It is a tool that some wineries effectively use to their full advantage when it comes to managing the customer experience and standing out in the crowd.

Things to consider when contemplating multiple shipping locations:

  • The greater the number of skus you have the more complicated it can become. Be careful not to bite off more than you can chew.
  • Decide if you want to handle club shipments as well as daily orders out of a forward staged location. Focusing on club shipments only can simplify things greatly.
  • Analyze your previous shipments by zip code to determine how many customers will see an improvement in their delivery experience, and which ones can be switched to ground shipping if they have been previously shipped using air.
  • Remember to add the time it takes to have product moved in bulk to the second location.
  • Keep it simple – test the waters. Nothing says you can’t take a small sample size and see how it works out – either from a customer or financial point of view.

As we all know competition in the Wine industry is fierce and continues to accelerate. It’s great to have a craft brand experience that wine enthusiasts can enjoy – but when there are literally hundreds of those to choose from, you can’t rest on your history, personality and craft alone to stay memorable and profitable. Executing a multiple location strategy might be the smart move to get your chosen brands into the hands of your customers more quickly, more safely, and at a more affordable rate that can encourage additional sales growth.

Thank you for taking the time to read, if you have any questions, please Contact Us and let us know how we can serve you.

Milton Cornwell- President