"It's very hard to get through that bottleneck of the wholesale trade for these smaller wineries," said Chris Spear, vice president of TradePulse, a Novato firm that tracks beverage sales data. "It they (Amazon) start selling wine below $35 (a bottle) in any volume, there would be a lot more screaming from the wholesale trade."
Amazon's first foray into the wine business was in 2000. Teaming up with venture capital firm Kleiner Perkins Caufield & Byers, Amazon was an investor in Wineshopper.com, an Internet retailer that aimed to dominate online wine sales. Launching one state at the time, the company planned to meet with every state regulatory agency to ensure it complied with the myriad rules of shipping to consumers, said Sara Mann, attorney with Hinman & Carmichael in San Francisco, who was general counsel at Wineshopper.com.
"It was very tough to even explain it to a lot of regulators, because the Internet was still very young at that point," she said. "The whole thing went over a lot of the regulators' heads."
At its height the company employed about 100 people in San Francisco, but fell victim to the dot-com crash and declared bankruptcy in 2001.
"It built up really fast and just went out with a bang," Mann said.
New Vine Logistics arose out of that company in 2001, Mann said, using the same warehouse and working with many of the same employees, and Amazon planned to launch with that company.
But New Vine's investors pulled out in June 2009, the same month the California Alcoholic Beverage Control agency issued an advisory that essentially made it illegal for third-party retailers operating websites to make money off the sale of alcohol without a license. At the time, Amazon had been planning to offer a platform for licensed wineries to sell their wine, but not to hold the licenses, Mann explained.
"The ABC with the advisory was saying that was as good as a sale, and everyone who was doing it had to get a license," Mann said. "It really took the wind out of the sails of the program."
That changed about a year ago, when the ABC released another advisory stating that a third party, such as a website, could be involved in the sale of alcohol as long as the winery, or license holder, controlled and was ultimately responsible for the transaction.
"It was really significant in giving a green light to these third-party providers, as long as they follow the guidelines," Mann said.
Wine shoppers can already find wine using Amazon's website, but Amazon's role is similar to a search engine, directing buyers to external websites where they can complete the transaction. In the new model, buyers will make the purchase without leaving Amazon.com.
Participating wineries like Coppola will handle the compliance and shipping involved with each sale, even though the sales transaction will take place on the Amazon website.
"They've shifted all that burden onto the winery," said Tom Wark, owner of Wark Communications, a wine industry PR firm. "The winery is controlling the transaction. Amazon is somewhere in the middle."
Wineries are weighing whether they are prepared to handle the compliance and shipping responsibilities, and whether their product offerings are the right mix. Moving inventory through a massive mainstream retailer can chip away at a wine brand's sense of exclusivity.
Like other wineries, Hess produces a number of small-lot wines that aren't available for purchase outside the tasting room and wine club, offering a sense of exclusivity that customers appreciate.
"They know they're getting something special and unique," Caudill said.
Even so, Hess produces about 650,000 cases of wine per year. The winery was contacted by an executive at WineDirect, a shipping and compliance firm based in Napa that's working closely with Amazon on the new venture, Caudill said. The winery plans to meet with Amazon soon to learn about the opportunity.
"One of the questions for us is, do we even have the product mix to participate?" he asked. "We want to know everything that they're offering. ... There's an awful lot to be intrigued by."
(c)2012 The Press Democrat (Santa Rosa, Calif.)
Visit The Press Democrat (Santa Rosa, Calif.) at www.pressdemocrat.com
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