Stomach and Cellar Capacity
Flash Sites, the Thin Line Between Wine Gavage & Cellar Share, and it's all about "Liquid on Lips"
In 2004, a site called Woot launched and changed online retailers forever. The founders, Matt Rutledge, an electronics wholesaler, took a cue from brick-and-mortar sales techniques from the 80s and '90s, where they delivered a limited-time offer for consumers to come into their store for large discounted products to either attract consumers during slow times or deplete lazy inventory. Woot's offer was simple: every day, they'd have one offer, at a significant discount, posted on the site until midnight, and then the cycle would repeat over and over again. They had a fun, ephemeral style of marketing the products, but more importantly, they created a vibrant, active community (https://forums.woot.com/) that still exists today.
In 2006, and surprisingly, Woot's first category expansion was into wine at wine.woot.com.
Their site inspired a tidal wave of Flash sites taking advantage of the financial pressures on businesses and consumers from the 2008 recession. With an ocean of unsold inventory and services, companies like Gilt, Groupon, Rue La La, Fab, and more launched. They sold everything from two-for-one pizza slices to half-off tickets to amusement parks and all manner of consumer goods.
In parallel, wine sites like Cinderella Wine (powered by Wine Library), the disaster Lot18, WinesTillSoldOut (WTSO), WineSpies, and more found a significant category in wine and emerged as wine e-commerce pioneers. With excess inventory from the recession, they were able to acquire wines not previously available for e-commerce. However, they simultaneously had to navigate the complex and retailer-unfriendly interstate regulations that hampered their growth plus the false stigma that a brand was in trouble if it was on a Flash site.
However, the Flash sale era receded almost as fast as it exploded. Consumer deal fatigue, coupled with business fatigue from poor customer delivery, both reduced sales and participants. Moreover, to increase profits, some Flash sites began to develop their own brands, often with price inflation, to misrepresent a meaningful discount. However, where other categories stumbled, wine continued to flourish and grow.
As for Woot, they sold to Amazon, but Wine.woot was shuttered in 2017 after Amazon purchased Whole Foods. The previous Woot founders returned to wine by founding Casemates, but due to increased competition, never the market prominence of their former company.
In the 15 years since the initial wave of wine Flash sites emerged, they have become a significant part of our small wine e-commerce ecosphere. However, the industry's view of Flash sale sites (and e-commerce in general) is full of misconceptions and misunderstandings. So, what makes these platforms work, and what makes them special?
Flash sites are highly dependent on excess, at-risk, lazy inventory, or more (see below) - which, in combination with the volume of brands worldwide, the increasing challenges of the retail/wholesale channels, and the current declines in consumption and sales, they will have plenty of inventory for the next five to ten years.
But, even if a winery has any qualifying points from above, it often still has to overcome its brand ego. I can't tell you how many brands I know in the wine industry (who have excess inventory) have told me that being on a Flash site would ruin their brand. Or that their scores warrant sales via DTC or traditional channels. But, only in the rarest situations, mainly with wines that market themselves as allocated or iconic brands like Sassicaia, Opus One, DRC, and Salon, that being in a Flash sale harms a winery's brand. But in reality, wines with ratings of 95-99 from top critics are sold on these sites daily.
Retailers often blame Flash sales for channel conflict or "lowering the lake." The benefit of these sites is they avoid being listed long enough for a price crawler like WineSearcher (which is increasingly becoming a marketplace and competing with its retailer partners) to record those prices. Again, only in rare cases is that true, but it does create a narrative of why a business should get a lower price or a refund. Tools like WineSearcher, combined with retailers selling at far below standard prices, affect wine brands far more adversely. I know three Flash sites that negotiate with wine brands by referencing the lowest price on WineSearcher. They then tell the winery they need to purchase the wine at a cost that enables them to sell it at 30%-50% below that lowest price.
Like a wine shelf, Flash sales have limited slots to feature wine, ranging from 700 to 150 placements. When you consider the quantity of wine in the US, that's a fraction of a fraction. Even if you add up all the major sites and assume there's no duplication, there are still only approximately 3,000 placements per year to earn.
There are over thirty Flash sites, but only about ten have a customer base of 250K to 2M active buyers. I've listed eight below.
What is remarkable about a Flash site is that people who buy from those sites are real wine lovers. They range from people at the beginning of their wine journey to avid readers of wine critics or explorers looking to find something new and exciting at a reduced cost. Above the midpoint of the chart, these buyers know the difference between Philipe Melka and Heidi Barret, between Russian River and Carneros, and between a Barolo and a Brunello. These consumers are a finite audience who are savvy enough to distinguish unique brands, wines, regions, varieties, winemakers, and reviewers. However, for Flash sales specializing in blue chip products or private labels, most of their consumers are less frequent drinkers, and their stomach/cellar share has far less capacity, so the total customer audience needs to be more significant. But because they are infrequent wine drinkers, their purchasing via these sites is far less often than impulse purchases at their usual physical retail options (supermarkets, wine/liquor stores, etc.). Moreover, standing out from the avalanche of Flash emails (especially for the consumers who subscribe to more than one site) has become more challenging than ever.
However, the customer crossover is also fairly significant, and the wine gavage to stuff stomachs or cellars becomes painfully apparent. Most customers of these sites belong to at least two or three platforms. So, depending on their subscriptions, they receive between 600 and 3000 offers per year. Assuming they are on the lower side of that equation and only buy 10% of the offers sent to them with a purchase amount of 6-12 bottles at an average price of $30, they are adding 360-720 bottles to their cellar and spending between approximately $11K-$22K per year. Even if you half that equation or make it 1%, they still buy 36-72 bottles yearly. As a reference point, most wine fridges average 28 to 72 bottles. Like the first wave of deal sites, the probability of deal fatigue in this audience is palpable and exacerbated by the customer overlap between the platforms. Anecdotally, I've had conversations with multiple customers of these platforms who have unsubscribed from the deluge of emails to only belong to one or two sites. Or others who have told me they ignore or delete most of the emails. Most sites must find and convert new, less wine-engaged consumers to grow the category. Force-feeding the highly valuable, wine-engaged is not sustainable.
Remember that one of the fundamentals of wine is "getting liquid on lips." But that's a challenging exercise that increases in difficulty every dollar above $15 and exponentially above $20 SRP—it's normal human behavior explained by risk aversion. Most people are twice as willing to choose something that is a sure bet rather than risk an unpredictable outcome, even if the potential reward is higher.
So, to encourage liquid on lips, traditional methods have been tasting rooms, wine events, winemaker dinners, and on-premise placements—especially wine by the glass. But in reality, all of these exercises are meant to reduce risk. And when you think of a Flash sale, they reduce the risk by lowering the price of wine for a minimal time and amount. Essentially, it encourages a paid tasting of that product. It is good for the consumer to discover a wine through these sites because after sampling the wine, when they reencounter it in the market, they have a reduced risk aversion coefficient, thus catalyzing a sale at a restaurant, retailer, or even the winery.
Using Flash sites to earn customer loyalty is not a hypothetical scenario but a proven model, evidenced repeatedly by various wineries. My favorite anecdote was a small winery out of Rutherford. They had a brand that was barely a three-thousand-case winery with a lot of lazy and at-risk inventory. Their neighbors warned them that going on a Flash site would signal to the market that they were in trouble and "ruin their brand." The CEO had the foresight to recognize that everyone telling them not to sell via Flash sales was doing it themselves. Their warnings were merely a ruse to protect their potential to earn one of the limited placements over the year. Their ownership shared the concern of brand damage, but the CEO also dared to tell them, "Pick twenty random people in a supermarket wine aisle and ask them if they know and have tried our wines, if even one has said they've known AND have tasted our wines, we won't participate." The challenge was accepted, and only one person had "heard" of the wine, but none had tasted it. But this CEO was way more intelligent than the average bear. After securing a meeting with the Flash site's ownership and earning their purchase of the troubled inventory, they did something brilliant. They offered to make a spotlight wine that would be a captive product for that site, not as a second or private label but as a fully branded product from the winery. They made the wine overdeliver in QPR (quality to price ratio). They made the wine to retail easily at $75-$85, but it sold on the site for $29.95. They made a 30% margin with nearly zero cost of sales. In year one, the Flash site purchased 56 cases. At the end of the year, the site purchased 6K cases (still at a 30% margin) and planned to buy 9K cases the following year. Customers who purchased the spotlight wine started showing up at retailers asking for the winery's product. Even more amazingly, they started showing up at the winery and buying their DTC wines at full retail ($125-$185 SRP). It was an absolute success.
Flash sales are increasingly becoming features vs. a platform with many wine retailers, increasing competition of highly engaged consumers for wallet, stomach, and cellar share. More and more wine sellers, like Big Hammer Wines, are adding "Deal of the Day" to their offerings. Even more interesting is that wineries are also adding Flash sales to their e-commerce toolbelt. The most notable is Treasury Wine Estates, which owns over 70 brands and created The Wine Event. Not only was it innovative because AI entirely built it, but it was also a brilliant business initiative to service their large customer base and gain margins back from selling to Flash sites at low margins or a loss.
As I said, we view these platforms with a warped eye. Instead of viewing them as a sales channel, wineries must view them as a marketing exercise. You can put liquid on lips, and a brand can introduce itself to consumers. Very few places on the planet allow for the successful introduction of a brand to hundreds of thousands of high-purchase intent, qualified wine buyers with the endorsement of being specially selected or seed a market like a Flash site. Flash sites can provide more value to their winery partners when they understand their power and purpose beyond selling wine. Reports sharing the audience, click and buying responses to offers, and geographic and psychographic insights will amplify the value of being chosen as an offer and allow savvy marketers to understand their consumers and sell and market via geo-targeting to catalyze increased sales. Optimally, the best sites to partner with sell via deals and have multichannel sales tools (e-commerce and wine clubs). That way, they can hold prices and sell the wines for those who have tried them but also put them in programs that obfuscate discounting while driving volume and liquid on lips. Moreover, if they have a halo of expertise that helps consumers doubly feel like their choices have minimal or no risk. Companies, especially WineAccess and SommSelect, fit the profile and sometimes WTSO (depending on your brand/style). In fact WineAccess has already imbued this philosophy into their culture.
“We like to think of ourselves as a marketing arm of the winery. We can drive more awareness to a wine thanks to our highly engaged audience, coupled with our third party endorsement of the wine. We offer our consumers a trusted stamp of approval to buy and try the wines.” says CEO Joe Fisch.
Ultimately, the key to success is how well wine Flash sites find a whole new cohort of wine consumers and add value beyond selling wine and when wineries genuinely understand that the sites are not only a sales channel but a powerful marketing platform.
However, it's crucial for wineries to recognize that these platforms are more than just a sales channel; they serve as an invaluable marketing resource for engaging with highly qualified online wine purchasers.
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