How Direct to Consumer is set to transform sales and take more market share away from major supermarkets
By Richard Siddle
If you look through the most coveted and important jobs in the mainstream, commercial, what you might call belt and braces wine industry, then national account managers are right up there on the pecking order.
Those responsible for managing, predicting and coping with every possible need, whim, concern, or opportunity there might be working with a major national customer. Be it a supermarket chain, a discounter, national distributor, wholesaler, hotel and restaurant group. They are the equivalents of royalty in the mass market wine industry who have to be treated as such.
But will that be the case in five or 10 years time? Yes, there will still be a need for national account managers, but will the currently all powerful national chains and groups be as important to us all down the line?
Not if the current momentum towards selling direct to consumer continues at the pace it is and meets just some of the expectations of the industry’s pundits and forecasters.
Now there is a lot spoken, and written about the direct to consumer market. Or DTC as it prefers to be called. Some of the hype is well justified. Some of it not. But one thing is certain the model of cutting out the traditional wholesale and retail channels is transforming the world we live in. It just depends on what market you in to what extent.
What consumers want
The consumer wants and likes being sold to direct. Shoppers are actively seeking out and responding to brands that allow them just to click and buy and get the products they most engage with online.
The smartphone has long given them the power to make their own decisions, to discover brands and services that most appeal to them and if means cutting out all the margins and costs involved in the traditional retail chain then all the better. It also connects directly with their desire to buy products and brands that they believe in and want to support.
Now the DTC market is some parts of the wine industry is already the dominant player. Like buying direct from wineries in California. The Silicon Valley Bank claims in its 2019 industry report that DTC sales make up 61% of the revenue of the average family Californian winery. Be it through their tasting room (42% of sales) and wine club (36%).
If the US legislation to allow state to state DTC sales finally goes though then the opportunities in the US are enormous. Both for wineries, brand owners and retailers. The ramifications of which can only add fuel to the fire of DTC wine sales in other mature wine markets around the world, particularly in Europe.
You also only have to look at the growth trends in the overall US wine market. While the mainstream retail channels still dominate the majority of sales, it’s not where the future growth is coming from. That’s all about online and DTC.
Take the latest scanning data from Nielsen. It shows that in June total off-trade still and sparkling sales increased by 1% to $808m, and for the year it was also only 1% growth to $11.3 billion. On- premise sales data from Nielsen CGA for the year also showed just a 1% increase.
But if we look at the DTC market (using Wines Vines Analytics/ShipCompliant data) then value sales were up 9% to admittedly a much lower figure of $145 million and volumes were up 8%. Widen that out to the last 12 months and the DTC market was up 7% to $1.5 billion and 5% in volume.
The biggest brands are already well on top of the DTC opportunity. Nike, for example, predicts its DTC sales will grow by 250% in the next five years. With sales up to $16 billion by 2020, a massive increase of $6.6 billion in 2015. You can only buy a Tesla car direct.
Switch in power
In most major wine markets around the world the pendulum of power is slowly beginning to switch away from the major multiples. But crucially the market share they are losing is being spread across a number of channels, particularly online and DTC.
A key factor in all this, is not just that consumers want the ease of having products delivered direct to them. It is far cheaper too. In the UK, for example, the IGD’s latest grocery channel report claims shoppers will remain extremely price sensitive until at least 2024.
Which is why the major supermarkets are really feeling the pinch. The IGD predicts in the next five years the market share of the major supermarkets will drop from 46.5% in 2019 to 42.6% in 2024, with only 3.1% overall growth. It will be the first time since supermarkets have been so dominant that we we would see their collective market share drop so significantly.
Noticeably the IGD expects to the majority of future growth, up to 12.4% coming from other channels up to 2024. The fastest of which will be online which is set to increase by 43.8% over the next five years, up from £11.6bn to £16.7bn.
The fastest online growth will come from dynamic subscription, meal box and delivery operators. All major DTC players.
Right place, right time
In many ways it makes perfect sense that DTC will become increasingly significant for all sectors of the wine industry. It goes hand in hand and is best placed to benefit with the huge advances taking place in technology. Particularly around machine learning and being able to provide people with an even more personalised, fast track, on demand service.
Amazon has shown what is possible with one click, personalised marketing online. But for all its success it is largely more of a transaction than an emotional, engaging experience. That is where DTC has the biggest opportunities in the future. To make online shopping truly dynamic. Enhanced by more effective use of augmented reality and voice.
Which is where wine has the chance to shine. After all it is one of the best placed categories to benefit as it has so many back stories to tell, direct from vineyards and winemakers all over the world.
Those brands, producers, distributors and retailers that can make DTC work will not only have potentially lots of new customers, they will suddenly be given access to all shopping data too, giving them the chance to connect, engage and talk to in ways not possible before.
California is already showing what can be done. It won’t be long before the rest of the global wine industry starts to make DTC a priority too. And those national account managers might need to be looking for a new job.