You’ve decided to enter the wine space and you’re looking into logistics. You might be considering a 3PL to handle your DTC shipping details. As a winery, an importer/retailer, or as a marketing agent, you will need to become educated as you do your diligence to find the right fulfillment partner.
To help with this process, Copper Peak Logistics has put together five important considerations you will need to research before you begin contacting 3PLs in order to make your engagement more productive.
UPDATE: Since we published this post over a year ago, it has been widely accessed and read. We take that as a sign that people have many questions about getting into the wine business!
So, we’ve taken the time to make a few updates and critical additions. This includes two new considerations, having to do with the plan for marketing your wine. We think this adds some crucial “food for thought” when doing research on “getting into” the wine business. — Dave Dobrow.
Consideration #1: What license type you have dictates which states you can ship to.
Before you contact a 3PL, be clear about what license type you have and set your expectations accordingly:
A Type 02 Winery can ship to as many as 44 states, provided the winery has permits in those states. This license is typically reserved for wine growers.
A Type 17/20 Retailer can ship to as many as 16 states, provided the retailer has permits to ship into those states. Holders of this license are typically considered retailers under state direct-to-consumer shipping statutes.
A Type 85 Online Retailer can ship to 14 states provided the online retailer has permits to ship to those states. Type 85 enables the licensee to make direct sales of wine to consumers via the internet, direct mail or phone (from a location not open to the public) without the requirement to also hold a wholesaler license.
Out of the 50 states, three—Mississippi, Utah, and Kentucky—specifically prohibit the direct shipment of alcoholic beverages to consumers. Some counties within states do as well.
Consideration #2: Compliance is extremely important.
In the wine space, legal compliance is as important as it is complex. A wine retailer basically has three options for handling compliance issues: designate an employee to handle them, choose an independent consultant to handle them, or select a SaaS product such as ShipCompliant to manage your compliance needs. (In some cases a winery may use multiple solutions simultaneously.)
As of this writing, ShipCompliant has been the industry standard for accessing up-to-date state regulations and tax rates for direct shipments to consumers, as well as tracking shipments to ensure compliance. It also handles tax filing, label registration, and much more. To get an idea of what it costs to get a permit in the state you would like to ship to, use ShipCompliant’s handy State Break Even Calculator.
Whatever option you choose, you must have a system in place to ensure proper compliance and keep your business running without legal entanglements.
Consideration #3: Importers face a number of restrictions.
Federal law states that, for an importer to ship Direct-To-Consumer (DTC), they must meet two requirements: 1) the importer needs to have a Federal Basic Permit to import wine, and 2) they must comply with all state and local laws for the states to which they want to ship. For example, many states (Louisiana, Nebraska, New Hampshire, Nevada, North Dakota, Oregon, Virginia, Wyoming, West Virginia) require a direct shipping permit, a license fee and/or application fee, sales and excise taxes, and reporting.
Most states will restrict the types of businesses that can properly receive a permit for DTC sales. For example, a state might require that only properly registered wineries actively practicing winemaking can receive a permit. And, even if an importer has a winemaking operation, states may limit it to wines produced in the United States.
Marketing agents, for their part, act as an agent of sale on behalf of a winery. This usually means a company that is advertising the winery’s products on their platform and then facilitating the sale. The actual sale, however, is between the winery and the consumer. It is up to those parties to determine what states the winery can legally ship to and what restrictions are in place.
Contact information, including websites for the alcohol beverage control board in each state, can be found on the Wine Institute website.
Consideration #4: Not all eCommerce platforms are equally equipped for selling wine and spirits.
eCommerce sites for the wine space differ slightly from typical eCommerce platforms like Magento, Shopify, and WooCommerce. Those platforms do not integrate readily with software solutions like Shipcompliant and others used by fulfillment centers. So, before you engage with a 3PL, make sure that you’ve taken the appropriate steps to ensure your eCommerce platform is suited to the wine space and either is or can be made compatible with standard software solutions.
For example, both Magento and WooCommerce have plug-ins that help with integration (Magento’s plug-in is through a company called Vonnda, while WooCommerce has a plug-in through a company called h2 media). Shopify does not currently have a plug-in, but there is one in development.
eCommerce platforms and sites specialized for the wine industry include eCellar, VineSpring, Vin65, Cultivate, Captina, 750, eWinery, Simply CMS, and many more. These are all compatible with ShipCompliant out-of-the-box. You might want to look into some of these solutions if you plan on conducting online sales in the wine space.
(For a list of all platforms compatible with ShipCompliant, see https://www.shipcompliant.com/current-partners/).
Consideration #5: How Will You Market, and Will You Have a Tasting Room?
One of the most important considerations for any wine business is the way in which it will reach its customer base. While many wineries go through the traditional 3-tier distribution system, more and more of them are reaching out to customers directly (selling direct to consumer, or DTC). There are two ways of doing this: Online, and offline through a tasting room.
Let’s tackle tasting rooms first. Tasting rooms offer a number of advantages when it comes to winning loyal customers for your brand:
- They create an atmosphere and context around your wine and your brand. This, along with direct consumer engagement, helps form a distinct experience for your customers.
- They provide an opportunity to sign-up for a wine club subscription service, right at the point where customers are most engaged.
- Positive feelings created during the experience can drive future online and wine club sales.
- They can provide added sales channels in the form of tasting fees and branded merchandise. Look for our upcoming Whitepaper on Merchandising in the tasting room this fall!
- They lend themselves to sample several wines and explore both their tastes and your offerings.
- In some cases, it is easier to track spend and determine customer acquisition costs.
Thus, tasting rooms often carry their weight when it comes to marketing your products. That said, tasting rooms have their own set of challenges, not the least of which is regulatory compliance (see consideration #2 above). When determining how to enter the market, you should put some real thought into the break-even point for your tasting room and do some research to find out what the regulations are for tasting rooms in your state.
Consideration #6: How will you reach out to your market, and will you sell online?
These days, wineries and wine merchants are doing a robust business online. But simply putting up an online store is not enough to drive traffic and fill shopping carts. If you have a tasting room, you already have one way to drive future online purchases. If you do not, you will have to find other ways to drive traffic to your website and encourage wine club subscriptions. Either way, you will have to be a superb marketer – and a superb digital marketer at that.
These days, much of the engagement with brands outside of tasting rooms happens on digital platforms: social media, mobile marketing, email campaigning, and so on. This is especially true as millennials make up more and more of the wine drinking market.
Those digital platforms can be—indeed, are meant to be—more than just messaging platforms for your brand. Digital platforms are tools for engaging your customers regularly, telling your brand story, and giving them new experiences. Let’s be frank, mobile and digital are a part of our everyday culture. How many times have you looked at your iPhone, Samsung or Android today?
Doing this takes some work and planning; however, you will have to carefully plan how you will curate content, gather data on your customers, encourage sharing and loyalty, and ultimately how you will tap into those things to increase customer spend. This means that the cost of acquisition will be higher to start, especially as more and more competitors are entering the arena and competing for the largest online “footprint.”
The payoff can be huge, however—especially when it comes to subscription services. It is possible to create excitement and “buzz” around each shipment and then capitalize on the unboxing experience afterward.
Consideration #7: Will you need warehousing, fulfillment, or both?
Warehousing and fulfillment are often seen as two separate sides of the same coin. You can engage a partner for handling one, the other, or both. There are business models that make sense with each choice.
Typically a fulfillment center is not a bonded facility. The fulfillment center would only want enough tax paid inventory on hand to fill a certain amount of orders. For example, they might only want a 30 or 60 day supply of the SKUs you are selling. Once that inventory is depleted, the winery will pay any taxes to the government and then the product will move from the bonded storage facility to a fulfillment operation.
For that reason, many wineries will use a bonded/long-term storage warehouse facility to store the majority of their goods until it is time to sell the product. Since importers pay their tax at time of import and retailers pay tax at the time of purchase from a winery or importer, the inventory is technically tax paid. The inventory can go directly to a fulfillment center when needed or else stay in a long-term storage facility.
There are only a few companies that offer bonded/long-term storage of goods, and even fewer of those can offer DTC fulfillment in addition to the storage. They are two different business models. You will need to carefully consider your needs and search for partners that can fulfill those needs, keeping in mind there are usually additional costs associated with moving wine into and out of storage.
The Final Word: Considerations for a Wine Business
Making and selling wine can be a fulfilling line of work, as well as a tremendous business opportunity, but it cannot be taken lightly. Before you craft a business model around DTC sales, consider several issues with regard to licensing, compliance, technology, warehousing, and fulfillment.
If you feel you have these areas covered, and you are ready to speak with a representative from a 3PL, we suggest you download our Wine Fulfillment Pre-Engagement Checklist. This will help you organize your questions and make the engagement process more productive.
*** Please note that Copper Peak Logistics is neither a compliance expert nor a legal expert, nor are our employees lawyers. Therefore, the material in this post is for informational purposes only and not for the purpose of providing legal advice. Please check with an appropriate legal or compliance expert if that is your need.