The term "direct to consumer" or DTC is being bandied about the wine world more and more every day. Unfortunately, if you're not a winery shipping your wine directly to the consumer, you're not DTC. This means etailers, retailers, importers, wholesalers and brokers are not DTC as the whole idea behind direct marketing is to eliminate the middleman. Even being a direct importer, or an exclusive retailer doesn't make put them in the DTC camp as they are in the middle of the sale to the consumer.
With all the buzz around Direct to Consumer, I fully expect some retailers to position themselves as DtC even though they're not.
Real DTC is about that one to one relationship with the customer. It is not about working through the endless maze of the wine sales route that is present due to the three tier system, where the winery doesn't always even know who bought their wines without lots of time and effort to hopefully find out.
At it's very core direct to consumer is all about the relationship between the brand and customer, and that implies the very premise of disintermediation of anything in between, because for real DTC there has to be no middleman.
What's real DTC?
Let's start with Sears. For years DieHard batteries, Craftsman tools and Kenmore appliances were all great example of selling three very successful product lines as direct to consumer brands, as the only place to buy those branded products was at Sears.
When you shop at the Apple Store or apple.com and buy a new iPhone, that's DTC. Many forget when the only place you could initially purchase an iPhone was from Apple (grey market excluded) Today buying an iPhone from Verizon or T-Mobile or at Best Buy is all about Apple selling through the channel to broaden distribtion and gain market share because in effect the iPhone is the razor, while apps, music and video are the blades.
The same DTC approach holds true when you shop for a new pair of running shoes at the Nike store vs. going to a sporting goods retailer. Nike makes more money, and builds a closer relationship with the runner.
When you buy an airline ticket from United or Delta's website you've gone direct, vs. going through Expedia or American Express who are "travel agents," the long time middlemen of the travel industry which the internet put a massive hurt on. Just look at how hotel brands want you to book direct on their site, and reward you with points versus giving you less perks when you check in via one of the opaque booking sites.
Brands that choose to go DTC go that route so they can keep more of the profit margin, which is why more and more wineries are going "direct to consumer" and it's why they are stepping up their hiring and spending on it. Margin is the difference between the COGS (cost of goods sold) and the selling price. If you sell via the wholesale channel your margin is likely 50% or less. If you go DTC and sell at full retail your COGS can drop to half that and your profit take is much greater.
For example, that bottle of wine that costs a winery to make at $5.00 all in (bottle, wine, cork, capsule, label) is wholesaled for $10.00. The wholesaler then sells it to the retailer for $15.00 or more. And the retailer sells that bottle for $25.00 or more. In essence the winery by going indirect to the consumer is losing $15.00 or more per bottle. When they sell that $5.00 bottle direct to a customer from the winery, they make the $20.00.
As with any "buzz word" or hot topic, I fully expect some retailers (or etailers) to jump on the Direct To Consumer platform, but they don't pass the duck test, yet.
Comments