Tag Archives: Internet wine sales

Amazon can revolutionize grocery stores, but it still can’t sell wine

amazon

Nary a wine bottle in sight, because even Amazon can’t solve the three-tier system.

Amazon has invented a cash register-less supermarket, but it can’t beat the three-tier system

Amazon says it will open convenience stores that are actually convenient by eliminating the checkout process, using technology to make shopping quicker and easier.

The grocery store business is agog with the news; the blog’s grocery store consultant told me “The idea is not new, but I think the technological advances are what make it possible now. Getting rid of the most hated part of the shopping experience is brilliant.”

Perhaps, but the irony is not lost on the Wine Curmudgeon. Some seven years ago, Amazon killed a program to sell wine over the Internet. The pilot, called AmazonWine, would have allowed consumers to buy wine like we buy everything else from the Internet giant. Search, click, and wait for it to show up at the door – and likely with free delivery for Prime customers.

So consider this: The world’s largest Internet retailer, whose technology, efficiency, and clout have changed the way we shop, says it can open a store without an employee working a cash register. Which is mind boggling. But it has never been able to figure out how to sell wine given the antiquated, decades-old regulatory system that governs alcohol sales in the U.S. — 50 laws for 50 states, and the requirement that almost every bottle of wine pass through a distributor licensed to sell wine in that state.

Ain’t three-tier grand?

Amazon “sells” wine today, but it’s a tiny part of its business and is nothing more than a way for wineries to sell directly to consumers. All Amazon does is charge wineries a fee to appear on the Amazon website, and the wineries do the rest of the work, just like they do when selling directly from their own websites.

And, because I do appreciate irony so much, one last thought. Not only did Amazon give up trying to sell wine, it apparently never made an effort to change the laws. What does it say about three-tier is when it’s easier to invent a store without a cash register using technology that didn’t exist a decade ago than it is to change laws that are almost a century old and mostly obsolete?

Could the Internet screw up direct shipping?

direct shippingThe perfect world of direct shipping — where we can buy any wine we want from any retailer we want, just like we buy computers or tennis shoes — will likely never happen, given the three-tier system and its death grip on the wine business. But, assuming we could make three-tier vanish, would direct shipping actually be that perfect?

Maybe. And then again, maybe not, says Steve Tadelis, Ph.D, an economist and Internet search expert at the University of California, Berkeley’s Haas School of Business. Tadelis’ research, summarized quite nicely in this article from The Economist, has found that consumers don’t necessarily use the Internet the way we think they should. His work, based on search patterns on eBay from people shopping for classical music, found that price or the music itself didn’t necessarily matter. Sometimes, they were searching just to search.

“They were looking for music not so much to buy music as to learn about music,” he says. “And when they bought something, it wasn’t always for the lowest price. And I can see that applying to wine, where buying isn’t as important as learning about wine.”

In other words, we may not care that direct shipping will make possible the ultimate wine retail experience. We may still buy wine the same we always have, or do it in some way no one has figured out yet. Tadelis says this is because we know little about how consumers use the Internet; after all, the idea of Internet shopping is still very new in comparison to the centuries of traditional retail. We assume, because it seems logical, that consumers will shop online the same way they shop in a store. But that’s not necessarily true.

“In hindsight, I shouldn’t have been surprised by our results, but I was,” he says. “But that’s because I based my assumption on my behavior, which is searching for the best deal on items that I know I want, and because traditional economic theory says search is a friction, and that shoppers try to avoid friction. But searching on the Internet isn’t the same kind of friction as driving from store to store.”

Further complicating the issue: Shipping costs, which don’t figure into music purchases, and the idea that wine is experential, which means we tend to buy something we’ve had before, based on our experience with it. With music, it’s not only easier to experiment with something new, but Mozart is Mozart, regardless of who is performing it.

Finally, the idea that direct shipping will lower prices, since it will increase competition and make it easier to find the same wine for less, may not be entirely true. In some cases, it could increase demand, which would raise prices as part of something economists call the long tail. If I make a rare wine without an apparent audience, and I can only sell it from my winery, demand is limited to the people who visit my winery. But if I sell it over the Internet, millions of people could learn about it, and I will be able to sell the wine more easily and at a higher price. This could lead, says Tadelis, to more experimentation and more unique and intriguing wines.

Wine studies, wine analysts, and wine foolishness

A couple of months ago, I wrote about what I thought was the dumbest thing ever written about the wine business: That chardonnay was declining in popularity because more Hispanics were drinking wine.

Turns out I was the dumb one, because a study released last month was even sillier ? that the Internet and big retailers would eventually put the local wine store out of business. Where do people get these things? And who is goofy enough to pay them to write this stuff? More, after the jump:

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