Thinking about the Box in Which we are Thinking Inside the Box

By Ian Consoli

I remember the day Proprietor Jason Haas came to me with the decision to allocate a portion of our 2021 Patelin de Tablas Rosé to release in the Bag in Box (BIB) format. We had addressed the idea in multiple managers' meetings, so it wasn't a surprise, but we had a quick turnaround ahead of us. On a short timeline, we picked up a standardized, cardstock, square box, printed the same label we would put on a bottle, and wrapped it over two sides of the box. While we all knew we could make a bigger statement from a design standpoint, our belief in the concept outweighed our worry about the aesthetics. We turned to the old adage of don't let perfect be the enemy of good and carried forward.

The launch, as you may already know, was incredibly successful. Another day I will never forget was releasing 300 3L BIBs in an email and watching the website traffic go off the charts while Jason saw the sales pinging away. We were walking back and forth between our offices with our hands on our heads in jubilant exasperation to the oft-frequented term, "bonkers!"

300 boxes filled with premium wine at $95 a piece sold in four hours without a single comment on the lack of design on the box. Yeah, bonkers.

We released 400 more, followed by the 2021 Patelin de Tablas Blanc and 2021 Patelin de Tablas red. Noting the program's success as we entered the second year of releases, we knew we wanted to expand the BIB program from our mailing list to retail shelves. As Jason highlighted in this blog, there were significant barriers to scaling the program up. We just had to figure out how to work around them.

So begins the next chapter in our premium BIB story.

Jason told the story of our boxed wine success as the keynote speaker at the 2023 DTC Wine Symposium, noting the positive reception in the DTC market and the current limitations preventing us from offering these boxes to wine shops requesting them.

Afterwards, Jake Whitman of Really Good Boxed Wine (RGBW) approached us. While we and other wineries had worked to build the reputation of premium BIBs in the DTC market, Jake and RGBW had been paving the way for a premium category of BIBs on retail shelves. He thought there might be a way for us to collaborate to solve some of the issues we addressed and work together to develop the category.

We worked with the team at Really Good Boxed Wine over the past year to expand production and design a box that would stand out on retail shelves nationwide. We are happy to introduce that box to you now, along with its benefits:

Design: The previous version of our boxed wine made sense for our current customers. Our wine club and mailing list know who we are; they read our reasons for releasing the wine, know the wine is good, and see the benefits of the BIB packaging. What does it matter what the packaging says when the contents are what you want?

This is not the case when it comes to retail shelves. We needed a box that would speak for us. One of the significant benefits of a box is the real estate on which we can share information. This contrasts with a wine label, where information must be limited. We used an entire panel to summarize the key benefits of the BIB format from one of our blogs, effectively communicating with a consumer who might not know who we are or why our BIB wine is priced differently from the BIBs they are used to seeing.

Shape: RGBW noticed retailers placed their earlier boxed wine designs in, well, the boxed wine section. A $70 BIB targeting a premium consumer in a section where budget shoppers are looking at $15, $20, and $25 BIBs is not competitive. In response, their team designed a box the width of a burgundy bottle. That size allows them to fit alongside wines in bottles in the premium category where they belong. It also means it will be easier for consumers to identify high-quality wine in BIB.

Shipping: The benefits are not all for the wholesale market. Our early trials revealed an issue with shipping multiple BIBs. An initial three-box limit proved too many, as the boxes would crush each other en route to their location, arriving in a dismal state. We then limited purchases to two boxes, shoving craft paper all around them to protect them. The presentation was as hodge-podge as it sounds.

Jake and his team developed shipping boxes specifically for this BIB design. They have grids that hold each box in place for one-packs, two-packs, and three-packs. Thanks to this change, we can now increase our limit back to three BIBs per customer!

Perception: We knew our original design was not a long-term solution. Premium wine in a box should feel premium, and this new box does. It is sturdy, has a clean design, and communicates our message of sustainability. We chose black ink on cardstock (similar to our case boxes) to ensure the recyclability of the packaging. This package will stand out on retail shelves and look nice in the fridge.

We plan to release about 950 boxes of the 2023 Patelin de Tablas Rosé in its newest package (Check those emails) and around 800 to retailers in California and a few other hand-selected states soon. These retailers (many of whom commented on our social media posts or responded to our emails to express interest), represent a test that, if successful, could lead to us rolling these boxes out more broadly around the country in 2025. We don't want to be the only ones talking about the benefits in sustainability, shelf-life, and space that boxes offer, and this gives us a chance to activate the network of cool independent retailers and hopefully even a few restaurants!

That national program will launch later this month, so feel free to contact us if you hope to find the boxes near you.

It only makes sense for me to conclude this blog post by thanking the team that made it all possible. The resources given freely by Jake and Michelle at Really Good Boxed Wine are on a level indicative of the most hospitable of the wine industry. With a rising tide lifts all ships mentality, they are to be admired. I strongly encourage you to find their wines near you or order online. Oh yeah, and the wine is Really Good.

Tablas Creek can now ship to Connecticut and South Dakota! Why did it take so long?

In 2021, I wrote a Wine Shipping State of the Union, in which I broke out the 50 states and the District of Columbia into seven tiers based on the cost and convenience for a winery to ship to that state's consumers. If this isn't something you follow, you might be surprised that it can vary so much from state to state, but blame the 21st Amendment, which repealed Prohibition. That Amendment, intended so that states that wished to remain "dry" could do so, gives states broad leeway to regulate the sale of alcohol within their borders, and this has meant that no two states are alike in the licensing, fees, reporting, and restrictions that they've put in place.¹

Each winery makes a different calculation as to which states are worth the costs of doing business there. Some smaller wineries only ship to their home state, but most wineries with significant direct-to-consumer business ship to most of the 33 states that I put in my tiers I - III. There are another 12 states (my tiers IV - VI) in which shipping is possible for most wineries, if they're willing to absorb the costs and jump through the right hoops, and 6 to which it's essentially prohibited (my tier VII). At the time, we shipped to 8 of those 12 in tiers IV - VI. I am pleased to announce that we've done the work to add two more shipping states to our list: Connecticut and South Dakota. Our new shipping map:

What do South Dakota and Connecticut have in common? They're both states with label registration requirements. You might think that the federal label registration that we have to go through to sell our wines in America would be enough, but these two states have seen a potential revenue opportunity, and ask any winery that wants to sell its wines in that state to individually register each label with the state government. For South Dakota, it's $25/year for registering the first label and $17.50 for each subsequent label, paid to the South Dakota Secretary of Revenue. For Connecticut, it's $200/label, with each registration lasting three years and being transferrable across vintages, as long as you don't change the varietal mix or need a new federal label approval.

A quick look at our online order form will show our challenge: we currently list 34 different wines, and if you count different sizes and vintages there are a total of 51 different products listed. Each vintage of our blends is a little different, and we believe that it is important that our labels reflect that. All that leads to a lot of additional expense and hassle for the states which require us to register labels. The biggest reason that we haven't worked with those two states to date has been our worry that something will slip through the cracks and we'll get in trouble for sending wine we aren't registered to sell, as well as the burden this places on our back-office team. But I'm generally a believer that we need to do everything we reasonably can to make our wines available to the customers who want to buy them, even if the costs of doing so are high. So, we've jumped through these hoops² and I'm pleased to announce that customers from Connecticut and South Dakota who wish to order wine or sign up for one of our wine clubs can now do so.

That said, I still hope that these two states see reason and realize that the amount of revenue that these registration requirements bring in is a drop in the bucket of their state's budget. I don't know how it compares to the amount that they have to pay staff to administer the programs, but I'm guessing it's a wash. And like most state protectionism, it's ultimately the state's citizens who lose by paying higher prices and having less selection. 

The next state in our sights is Alabama. The state legislature there passed a shipping law in 2021, but it included some unworkable provisions that needed to be ironed out by the state ABC board, mostly owner citizenship and residency requirements that were unworkable for wineries with foreign partners like us. It appears that's been done. Stay tuned. Meanwhile we've at least found a work-around for Alabamans: while we can't ship to private homes or businesses yet, we can ship orders to a state ABC store for pickup. If this is something you'd like to try, please give us a call. 

Every time I dive into the arcana that is our alcohol regulatory framework, it drives home the wisdom of the founding fathers in including the Commerce Clause into the US Constitution. This clause prohibits state interference in interstate commerce, which means that the producers of most products don't have to hire compliance companies or dedicate staff members to making sure that all the different licenses, reports, and remissions are done properly. That clause is probably most eloquently explained in the 1949 Supreme Court decision H.P. Hood & Sons vs. Du Mond:

"Our system, fostered by the Commerce Clause, is that every farmer and every craftsman shall be encouraged to produce by the certainty that he will have free access to every market in the Nation… Neither the power to tax nor the police power may be used by the state of destination with the aim and effect of establishing an economic barrier against competition with the products of another state or the labor of its residents."

We may not be close to "free access to every market in the Nation"... but at least we've increased the number of those markets from 41 to 43. Number 44 is on the horizon. That's something to celebrate.

Footnotes:

1. If you'd like to get involved in the push for more open direct shipping laws, the nonprofit Free the Grapes, on whose board of directors I serve, has information, resources, and templates for contacting state representatives. 
2. Thank you to the Wine Institute for intervening with Connecticut to help us overcome the largest hurdle: that because we sell our wine wholesale through Vineyard Brands (an importer with a wholesaler network in all 50 states) instead of directly to a wholesaler there, the state needed to make accommodation for the same winery to have its labels registered by two different companies. Until recently, this wasn't possible.

Behind Every Good Company is a Great Accountant: An Interview with Senior Accountant Trina Meulpolder

By Ian Consoli

Every company is full of unsung heroes. These silent warriors typically dwell in departments such as IT, HR, and (of course) Accounting. For the newest addition to our "Get to know the Tablas Cru" series, we wanted to shine a light on a key member of our team, Senior Accountant Trina Meulpolder. Trina joined Tablas Creek in August 2021 and made an immediate impression. She occupies one of the desks that line the hallway of our offices. This position comes with a fair amount of pressure because it is hard for those walking by to resist saying hi. Trina has risen to the pressure since day one, between her readily available smile and quick-witted humor.

Trina holds an essential job as an accountant. She ensures that our suppliers get paid, our customers get their products, and our operation has the data it needs to understand what our options are when we need to and has the money that it needs in the right places at the right times. Her ability to organize, communicate, and maneuver around a spreadsheet help dial in many of the backend processes at Tablas Creek. She's a big part of making everything tick, so we can get you your wines without delay. We are thankful for everything Trina does. I can't wait for you to meet her:

Who are you?

I am Trina Meulpolder, the Senior Accountant at Tablas Creek.

Where did you grow up?

Sacramento, California. And I relocated to the area in 2005.

What's your family life like?

Awesome. I have a wonderful husband, a daughter of my own, six stepkids, and three beautiful grandkids. It is a big family, and it's wonderful. They are all here on the Central Coast, so I see them often.

What do you do in your free time?

In my free time, we like to go camping in the mountains and desert and go out to eat with our friends. My hobbies are napping and spending time with our three grandkids.

How did you get into the wine industry?

After relocating here, I was looking for a job. Justin Winery had a position for a marketing assistant, and I decided to apply for it. That was my door into the wine industry.

What other experience did you have before Tablas Creek?

Nothing in the wine industry. I started out as a receptionist for a recycling data processing company right out of high school and worked my way up through the company into an accounting role. I took a few accounting courses and had a wonderful mentor who taught me everything I needed to know to move up in the company.

How did you hear about Tablas Creek?

After 14 years at Justin Winery, I decided it was time to move on. I saw a job posting for Tablas Creek and decided to look into the company. After researching, I decided I really liked what Tablas Creek stood for and wanted to be a part of the team.

How do you like jobs so far?

I love it. I love the people I work for and what Tablas Creek stands for.

What is the most interesting piece of your job?

Learning the vineyard side of the business. I worked at a winery but never got involved in the vineyard/growing side. I enjoy learning about the biodynamic practices of Tablas Creek.

What excites you the most about Tablas Creek?

That we are always striving to do better, we want to take care of the earth, reduce our carbon footprint, take care of our farm workers, and we're never ever satisfied with where we are.

What are you most excited about in your role?

To see how a different winery does things and bring a new perspective on how to do things here at Tablas.

How do you define happiness?

Spending time with my husband and family.

Any closing thoughts?

I love working here. I love being part of what Tablas stands for and am excited to see what's to come.

Need another incentive to move to lightweight glass? How about $2.2 million over 14 years?

In recent months we've been thinking a lot about alternatives to the glass bottle. We've been focusing on reusable stainless steel kegs for sale to restaurants and wine bars and for our tasting room. We've put our first few wines in boxes, and received an enthusiastic response. That's important; finding packaging for wines that allow us to forego the bottle entirely is a key part of moving wine to a more sustainable future. But the reality is that no one has come up with a package that's comparable to glass for wines that are meant to age. Its combination of inertness, impermeability, durability, and track record means that most of our wines are likely to remain packaged in glass for the foreseeable future. That's why I'm so happy that we made the call back in 2010 to move to lightweight glass for all our wines.

Lightweight glass has a number of advantages. It takes fewer raw materials and less energy to make. It weighs less empty and full, so cases require less fuel to transport. You can fit more pallets on a truck before you reach the truck's weight limit. It makes bottles that are easier to pour and fit better in most people's wine racks. And according to the California Sustainable Winegrowing Alliance, a winery can reduce its total carbon footprint by 10% just by moving from average glass bottles (around 23 ounces each) to lightweight glass (around 16). If they instead are using a heavy bottle (something like 30 ounces, and there are even heavier bottles out there) the savings are even more substantial: something like 22%. From the CSWA's report:

All those are good reasons to move to lighter bottles. And those, along with the perception that our packaging was out of step with the environmental initiatives we'd implemented in the vineyard, are pretty much the reasons we did so. From a blog I wrote in 2010:

As we thought about the challenge and looked at bottle after bottle we came to the conclusion that the aesthetic idea that a broader, taller bottle is higher quality may be becoming a relic of a more profligate age, in the same way that it's easy to imagine a future where the luxury SUV -- for a time the epitome of solid, prosperous respectability -- carries an ever-greater implication of environmental tone-deafness.

For all that we knew that lighter glass costs less to make and transport, that consideration wasn't central to our decision. So when I was asked by a writer last week how much we were saving by using lighter glass, I needed to calculate it. When I did, I didn't believe what I had learned. That decision, back in 2010, has saved us something like $2,236,346 over the last 14 years. To come to this figure, I looked at just two sources of cost: what we pay for the bottles themselves, and what we pay to ship the filled bottles to our customers via UPS and FedEx. First, a little then-and-now. In our pre-2010 period, we were using two different bottles. One was a somewhat-lighter-than-average bottle, around 19 ounces, which we used for around 80% of our production. The other was a big, impressive, heavy bottle, modeled after the one used at Beaucastel, that weighed 31.5 ounces and which we reserved for the Esprit de Beaucastel, Esprit de Beaucastel Blanc, and Panoplie. We put about 20% of our production in that heavy bottle.

Looking back at our invoices that show what we paid for our new 16.5 ounce bottle vs. what we were paying for the previous bottles gives us the first figure. When we made the move, we paid $0.60/bottle less than the heavy bottle, and a little more than $0.06/bottle less than the mid-weight bottle we had been using. At our average 30,000 case/year (360,000 bottle/year) output, that produced a savings of $43,440 per year for the 20% of our production that had been packaged in heavy glass, and $19,760 for the 80% of our production that had been going into the mid-weight bottle. Add them up, and that's $63,200 per year in savings on glass purchases.

For the shipping, we looked at what we're charged by UPS and FedEx to ship our wines to our customers. It's not as simple as just calculating the reduction in weight, because shippers charge based on a combination of package dimensions and weight, but there are still significant savings. The average cost increase to ship mid-weight bottles vs. our current lightweight bottles would be about 5%. The average increase were we to ship heavy bottles (which weigh 30.6% more full than our current bottles) would be 16%. Last year, we spent $1,340,820 on shipping wine. It's our single largest expense after payroll. Adding 5% to our costs of shipping the 80% of our production that was in mid-weight bottles would increase that bill by $53,633 per year. Adding 16% to our costs of shipping the 20% in heavy bottles would add another $42,906. Together that's $96,539 of additional shipping costs that we'd be incurring now if we were still using the bottle mix we were in 2009. 

Add the $63,200 to the $96,539 and you get $159,739 per year. Over 14 years that adds up to $2,236,346. Wowza.

It's worth noting that this almost certainly understates the savings. Glass has gotten more expensive over the last 14 years, so the difference between lighter and heavier bottles has likely increased. I didn't try to calculate the difference in truckloads of palletized wine going our for distribution or to our shipping fulfilment provider. I didn't add in the greater physical footprint needed for the larger cases that are needed for larger bottles. And we were only using heavy bottles for 20% of our wine. If we'd been using 100% heavy bottles and had made this switch, our savings would have calculated out at $446,211 per year.

It seems like we're reaching a tipping point on moving toward lighter glass, driven by advocacy within the industry (from groups like the IWCA) and from press (shout-out to Jancis Robinson for being at the forefront). I'm hopeful that wineries are doing this from a genuine commitment to sustainability. But if they're not, there are other incentives out there. Millions of small, green, rectangular ones.

Wine marketing doesn't look like most consumer marketing... and it shouldn't.

I got involved in one of my more interesting Twitter conversations in a while this week. It began with a post from Robert Joseph, wine producer, writer, critic and consultant, sharing a 2019 Harvard Business Review article that talks about how wine has leveraged education marketing to create lasting connections with consumers. I shared the article with my own thoughts in a Tweet:

Thx @robertjoseph for sharing this @HarvardBiz piece. Wine often gets criticized for its marketing, yet it’s a product that engenders tremendous loyalty and brand association. This is a great explanation why, and what other industries could learn from it. https://t.co/y1ghm4UdDd

— Jason Haas (@jasonchaas) November 15, 2021

The conversation that followed was one of the reasons that I find such value in wine Twitter. Wine experts across borders and roles (including Robert himself) weighed in to give their thoughts on the piece, expand on which sorts of wines benefit from this marketing, and which don't. The consensus of the conversation seemed to be that wineries who have good exposure in the direct-to-consumer world can use this sort of marketing to great effect, but it's harder to leverage for the wines that are sold wholesale, except to the extent which that sort of marketing impacts the opinions of writers and reviewers.

That distinction between direct marketing to consumers (for direct sales and relationships) and "influencing the influencer" marketing for a cumulative impact on harder-to-reach restaurant and retail sales makes intuitive sense to me, probably unsurprising given that it's how we have approached our own marketing at Tablas Creek. One of the first things I realized when I joined my dad out here twenty years ago was that we'd set ourselves a major challenge in making wines that were blends (which didn't have a category in most outlets) from grapes that people didn't know and couldn't pronounce, made in a part of California they'd never heard of, with French names that mostly didn't mean anything to them. That was at least four strikes against us. As I wrote a few years ago here in a piece I titled 30 Years of Tablas Creek: 10 Things We Got Right (and Wrong) we decided that our only viable way forward was to do our best to bring people into our world by pulling the curtain back on our own decision-making. And little by little it worked. We opened our tasting room and took as many people as would join us on tours into the vineyard and winery. We started an educational seminar series here and prioritized outside events where we could be up on stage telling our story. We wrote newsletters with pieces researching the grapes we grow and the way that we grow them. A few years later, I started this blog. Over the last decade, social media has given us ever-more-powerful tools to connect the educational content we've been producing with customers and key people in our distribution chain. 

Fast-forward twenty years. We have gone from struggling with built-up inventory, slow-growing sales, and little market presence to sustained success. We have direct relationships with 11,000 wine club members and another 30,000 mailing list members. Our retention rate in our wine club is somewhere between two- and three-times the industry average. The same wines that were a struggle to sell in wholesale two decades ago (heck, even one decade ago) are easier and easier. And our relationships with the writers, sommeliers, and influencers out in the world have grown with our profile. So, I'm predisposed to agreeing with the sentiment in the article, but it's not just us. We're part of a larger trend, where in just the last decade direct-to-consumer sales, the lifeblood of most smaller wineries, has nearly tripled (graph from the 2021 Sovos DtC Wine Shipping Report):

The set of characteristics that make wine particularly fertile ground for education marketing are well laid out in the HBR article:

Consumers looking to buy a bottle of wine confront thousands of choices. In fact, many of the shoppers we spoke to described the experience as stressful; they were fearful of making a poor choice and looking ignorant or of missing an opportunity to make an evening more special.

While our own experience has convinced me that making an investment in educating your customers and those who might be in a position to reach new customers can work, I'm more interested in what it is about wine that dictates a different sort of marketing from most consumer products. I would submit that it boils down to three things.

Wine Can Be Complicated and Intimidating
Although wine has been a routine part of many societies for millennia, the modern wine world can be daunting. A bottle of wine in a neighborhood wine shop might come from any of 100 regions and 50 grapes in 25 countries. Some wines are named by the place they come from. Others are named by the grapes they contain. Yet others are fanciful names. Wine labels are famously arcane and many of the words foreign. What's more, wine in popular culture (think the "Somm" series of films) often celebrates the competitive, arcane memorization of obscure facts or the remarkable challenge of identifying wines through blind tasting done to achieve wine certifications through the Court of Master Sommeliers or the Master of Wine program. Those feats of deductive logic all paint a picture of wine as something to be mastered through obsessive study, and I would submit make most people less confident in their own judgments. I get wine lovers every week telling me, apologetically, "I just like what I like". Why should this be something you need to apologize for? Giving people a vocabulary to explain what they like, or an understanding of what goes into a wine they love, helps people feel like they have a safe harbor in what can feel like a big, rough ocean of wine. No wonder it's a good way to foster loyalty.

What's more, traditional marketing requires broad penetration into markets. For a winery like Tablas Creek, which does have at least nominal distribution in all 50 states, you might think that advertising or product placement or some other sort of broad approach that might touch hundreds of thousands or millions of people would be effective. It's not. We're not big enough to be on even a small fraction of the 100,000+ restaurant and retail outlets in the country. Last year, for example, we sold wine to about 800 different shops and restaurants around the country. That's less than a 1% penetration of the possible places one might find wine. All but the largest wineries will struggle to be in 10% of the available outlets. Compare that to, say, beer, where a larger brewery might expect to be in most retailers and a decent slice of restaurants. Or to one of the many products (think consumer electronics, or cars, or cereal) where there are perhaps a few dozen options, all of which are distributed pretty much everywhere in the country. And for a small winery, who sells most or all of their production direct from their tasting room or website? Forget about it. That means that small, targeted campaigns that reinforce your existing customers' connection with you -- and put them in a position to recommend you to friends and family with confidence -- are likely to be more rewarding.

While Most American Wine Is Made by Big Wineries, Most American Wineries Are Small
There are more than 10,000 wineries in America now, in all 50 states. Well over 90% of these wineries are our size or smaller. And yet the distribution channels are dominated by a handful of large wine companies; estimates are that the three largest wine conglomerates produce half the wine sold in America each year and the twenty largest firms account for 90% of the market. For these very large wine companies, or at least their largest brands (because it can be a full-time job keeping track of the many, many brands that these large companies make) the marketing choices probably are similar to many other consumer products. But it's a different story for most wineries. The rise of wine country tourism as a regular recreational activity has brought more customers to more wineries than ever before, accounting for 43 million visits from more than 13 million tourists annually. Combine these opportunities with  the challenge of breaking into a national wholesale market dominated by big players, and you give small wineries both the motive and the opportunity to come up with new and creative ways to differentiate themselves. Education is one of the tools, with the winery tasting room an ideal environment to build lasting connections with new customers. Again from the 2021 Sovos DtC Wine Shipping Report:

Plus, no winery is in this alone. Wine buying is not zero-sum like car buying, where if someone buys a Mazda they're not also buying a Volkswagen. Most wine lovers don't drink a single brand or single grape, but instead use things they love as gateways into discovering other things they might want to try. Think about it this way. If someone buys a Rhone blend from another California producer, does that make them less likely to buy a bottle of Tablas Creek? No, I would assert that it makes it more likely. If they buy a bottle of wine from a different Paso Robles producer, same thing. So we're not competing with Bonny Doon, or Qupe, or Halter Ranch, or J. Lohr. The community of California Rhone producers works together to establish the category (see: the Rhone Rangers, or Hospice du Rhone). The Paso Robles community works together to establish the region (see: the Paso Robles Wine Country Alliance). This changes the incentives for wineries. We're likely to be working alongside other producers in our category to educate people about the category we share. We're happy to recommend other wineries to people who ask, because the success of our neighbors helps ensure our own. These sorts of relationships create a positive feedback loop that builds community but also incentivizes educational approaches because doing so makes your neighbors more likely to recommend their customers to you, because the more you know about the category the more likely you are to return.

Wine Buyers Are Just as Heterogeneous as Wineries
Did you know that Consumer Reports used to review wine? They don't any more. The idea that there is a single "right" style or category of wine feels hopelessly out of date. Some people love lush, oaky Chardonnays. Others prefer aromatic reds, or sweet wines, or funky natural wines that might be bottled cloudy. We each have our own preferences, which is great. But how do we learn which sorts of wines we're likely to love? That's where wineries have some control over what happens next. And it turns out wine is the perfect product for long-tail marketing.

There are something like 77 million regular wine drinkers in the United States. At Tablas Creek, we make around 30,000 cases (360,000 bottles) each year. We don't make enough wine for even 1% of the regular wine drinkers to open once a year. And our true number of customers is surely a lot less than that, given that many of our fans will buy multiple bottles per year. How many fans do we need to be successful? 50,000? 30,000? 11,000 (the number of our wine club members)? Whatever the number is, it's smaller than one tenth of one percent of the American wine drinking population. If we can thrive reaching less than one one-thousandth of American wine drinkers, and most wineries are even smaller than we are, most of us don't need to be chasing the same audience. We just need to be consistent in the style of wines we make and do our best to educate the consumers, trade, and media on who we are so they can help the people who might love us find us. It is for that reason that I think that you don't see smaller wineries chasing the current style or grape varieties that happen to be popular right now. Leave that to the big guys. For the rest of us, just let us find our niche and do everything we can to keep the customers who find us happy.

And the best tool for that? Education.

Wine Shipping State of the Union, 2021 Edition

Six years ago, I wrote my own State of the Union, Wine Shipping Edition, breaking down the 50 states and one district into tiers based on how expensive and difficult it was for us to send wine into each. Casual wine lovers might be surprised to know that not only are there some states to which we are prohibited from shipping wine, but that each state to which we can ship has its own laws, permits, fees, and reporting requirements. Managing this morass takes specialized software and still a big chunk time for one of the members of our accounting team, so it's far from the uniform, frictionless open market that Section 8 of the US Constitution promises:

"The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;"

I mentioned in my post from 2015 that diving into the arcane details of these state laws only highlights the wisdom of the founding fathers and generations of Supreme Court justices in prioritizing the Commerce Clause, which protects the federal government's exclusive role in regulating interstate commerce. The 21st Amendment, which repealed Prohibition in 1933, as a side-effect sheltered states from the Commerce Clause's requirement to maintain an open, fair market for all players. This means that the wine market provides a glimpse into what a world absent the Commerce Clause might look like. We should all be thankful that most products we might want to buy don't have to face a similar regulatory nightmare. Our current map:

Below you can find an updated summary of what the world of DTC (direct-to-consumer) wine shipping looks like, from a winery's perspective, as we enter 2021, with states broken down into tiers based on the cost and ease of doing business there.

One thing that has changed since 2015 is that the playing field has been made harder to summarize by the rise of "economic nexus" statutes, driven by the 2018 Supreme Court ruling South Dakota v. Wayfair, Inc. This ruling said that states could require out-of-state companies to collect and remit sales taxes, whereas previous rulings had held that states could only comply tax collection and remittance from companies with a physical location (a "nexus") in that state. In practice, this has meant that states have begun to implement transaction thresholds, above which wineries have had to remit state (and sometimes local) taxes, but below which they don't. That annual threshold has tended to be somewhere around 200 shipments or $100,000. For us, we're over that threshold in places like Colorado, Illinois, and of course California, but not in Iowa, DC, or Minnesota (though we're getting close). So, the numbers below reflect the conditions for a winery of our basic size and profile. I've noted the states with current or upcoming economic nexus laws with asterisks (*) below, with some explanatory notes.  

Tier I: The no-brainers (AK, DC*, MN*, MO*)

• Right now, there are three states and the District of Columbia that have neither permit fees nor significant reporting requirements. Thank goodness for them! But, 4 of 51 isn't a great percentage. All of the others make it more difficult or expensive to ship wine to customers who want it. It's also worth noting that the permit-free status of these states is a holdover from pre-Granholm conditions and it's unclear that continuing without required permits is constitutional. DC and Minnesota are "economic nexus" destinations. If you're large enough to trigger those thresholds, bump them up to Tier II. Missouri will join them as a nexus state next year.
• Total percentage of US population: 4.02%
• Total number of reports required annually: 2
• Total permit fees: $0

Tier II: Inexpensive and/or fairly easy (CA*, FL, ID, IA*, KS, MA, ME, MD, MI, MT, NC, ND, NY, OH, OR, WA, WI)

• There are an additional seventeen states with permit fees of $200/year or less and modest reporting requirements (0-24 times per year). These states include some big ones like our home state of California, Florida, New York, Oregon, and Washington, but even for the smaller ones, the number of orders that a winery would need to fill in order to pay for the annual investment is very reasonable. You'll notice that most of the major wine-producing states fall into this tier. The two states with potential nexus-triggered reporting include Iowa (a small enough market that most wineries won't hit the nexus threshold) and California (where wineries who are based here likely already have the infrastructure in place). If you're an out-of-California winery selling here, or a winery big enough to trigger Iowa's nexus status, they'd both probably move to Tier III. 
• Total percentage of US population: 46.93%
• Total number of reports required annually: 178 (10.5/state avg.)
• Total permit fees: $1,225 ($72/state avg.)

Tier III: Moderate expense or requirements (AZ, CO*, GA, IL*, IN, NV, NH, NM, PA, TX, VT, VA)

• Once you get to the next tier of twelve, a small winery would be excused for starting to run cost-benefit analyses before springing for the permits.  Some permits start to get expensive in this tier, like Illinois' $350/year or Vermont's $330/year. Others are less expensive, but have difficult reporting requirements, like Georgia and Nevada (36 reports/year each). Colorado would be in Tier II except for the nexus requirements, which are pretty arcane. If you're small enough not to trigger the statute, move it down a tier. Illinois is probably Tier III even if you don't trigger the nexus, with separate excise tax reporting required for the city of Chicago. But even with their added challenges and expense, there are some pretty large-population states in this tier, and most wineries choose to ship to all or nearly all of them.
• Total percentage of US population: 30.72%
• Total number of reports required annually: 289 (24/state avg.)
• Total permit fees: $2,063 ($172/state avg.)

Tier IV: Difficult or expensive enough to be a real question (HI, NE, SC, WV)

• At this point, we get to four small states with difficult requirements, to the point that it's not worth it for many wineries to bother. Permits cost as much as $500/year (Nebraska) and $600/two years (South Carolina). West Virginia charges $250/year and requires the submission of 36 reports. And Hawaii requires you to get separate annual permits from each county, at a total cost of $324, and to submit 25 reports. With limited rewards, these costs tend to feel disproportionate.
• Total percentage of the US population: 3.14%
• Total number of reports required annually: 78 (19.5/state avg.)
• Total permit fees: $1374 ($344/state avg.)

Tier V: Compliance Headaches (KY, OK, SD, TN, WY)

• This next tier of five states aren't hugely expensive, but each has at least one unusual requirement. These include South Dakota's requirement that you register every label you're planning to ship into the state at a cost of $25/label/year, Oklahoma's prohibition from using fulfillment houses (so everything must be shipped from the winery location), and very low per-person or per-household import limits: 1 case/month and 3 cases/year maximum per person in Tennessee, and 4 cases/year per household in Wyoming. I could have added Minnesota in here as well, with its 2 cases/customer/year limit, but it's otherwise so easy (no permit, no reporting) that I left it in Tier I. Kentucky is the newest state to pass a direct-shipping law, and is still working out the kinks. It will probably end up in Tier II, but for now, it's like Oklahoma and not allowing wineries to use fulfillment houses, instead requiring that they ship only from their winery. A headache. 
• Total percentage of the US population: 5.10%
• Total number of reports required annually: 68 (13.6/state avg.)
• Total permit fees: $550 ($110/state avg.)

Tier VI: Extremely Difficult/Expensive (CT, LA, NJ)

• Connecticut is a shipping state for many wineries, but its expenses and challenges are significant. First, it's a costly permit, at $315/year, and requires 36 reports to be filed annually. Second, you must register each label you propose to sell in the state at a cost of $200/label, renewable every 3 years. At Tablas Creek, we sold 28 different wines direct last year (different wines, not different vintages). That would require a $5600 investment, adding $1866 to the already-considerable annual $1295 cost of permit and reporting. And finally, you can't have different label registrants for wholesale and direct sales. So, if you're like us and sell our wines to our Connecticut distributor through an agent (ours is Vineyard Brands) we couldn't register the same wines ourselves for direct sale.
• Louisiana, at $400 and 36 reports/year, would be the most expensive state in Tier IV even if it didn't add the extra hurdle of requiring you to choose between selling a wine direct and selling it through wholesale. But it does, and that pushes it over the edge for us. There used to be more states with "distributor exclusivity" requirements like this, but Louisiana is the last one left.
• How does New Jersey make direct shipping difficult? Let me count the ways. The permit is the country's most expensive at $938 and there are 29 reports to submit annually. There is a significant bond wineries have to post. There are registration fees of $150 per partner per year, an issue for a winery like ours owned by two families, each with several owners. Receiving a permit means that we have established a nexus with the state of NJ and are liable for paying an annual corporate income tax of at least $500. Plus there's a capacity cap of 250,000 gallons (around 100,000 cases) to ship that we fall under, but many wineries don't.
• Total percentage of the US population: 5.18%
• Total number of reports required annually: 101 (33.7/state avg.)
• Total permit fees: $1653 ($551/state avg.)

Tier VII: Almost entirely prohibited (AL, AR, DE, MS, RI, UT)

• Three states (Arkansas, Delaware, and Rhode Island) allow a winery to ship with few hurdles and minimal reporting requirements if a customer purchases wine at a winery, but won't allow the same customer to order wine by phone or email from home. The logic written into the laws is typically couched in the guise of ensuring that only of-age buyers can purchase, but given that common carriers routinely check ID's in the 40+ states that allow direct shipping, it doesn't pass critical muster and is better understood as local protectionism.
• Three other states (Alabama, Mississippi, and Utah) allow customers to order wine from a winery, have it shipped to a state-licensed store, where taxes are collected, and then the wine released to the customer. It's slow and expensive, because it requires the customer to request and complete a state "special order" permit before shipping, and while the taxes aren't massive in Alabama, they're a whopping 88% in Utah. Mississippi's permit program is brand new, and may not be workable as initially published. In all three cases, the process is cumbersome enough that the Wine Institute still lists the three states as "prohibited".
• Total percentage of the US population: 4.92%

Every winery has a different breaking point. For us, it comes in the middle of Tier V. We've decided that 41 states (everything in Tiers I-IV, plus Tennessee and Wyoming) warrant the expense of the annual permits and the reporting. Kentucky will come on line soon to be our 42nd, and I'm going to take another look at South Dakota now that we have a full team in our accounting department. That leaves 8 states that we either can't ship to, or have found that the requirements to do so are unreasonable. At what cost? Shipping to the 43 "shipping" states in Tiers I-V costs a total of $5,212 in permit fees plus the time and expense of preparing and filing 615 reports each year. Figure an hour for each report, at $25/hour ($15,375) for a total expense of $20,587. But for that cost, we can ship to 89.9% of the US population. Available tools (like SOVOS ShipCompliant and Avalara) provide a savings over the labor of preparing the many individual reports and are indispensable for wineries looking to ship to a broad swath of states, but still come with a cost.

Why are there some states that have made it so difficult or expensive that they're choosing to give up the state income that direct shipping would provide? The reasons vary, but mostly fall into one of two camps. Either they're making it difficult for religious or cultural reasons (think the deep south, or Utah) or they've crafted their laws in a way that protects distributors from as much competition as possible. This occurs because alcohol distributors (which are all state-licensed) see direct shipping as a threat to their businesses and are also some of the largest donors to state legislative campaigns.

So, while wine in America is not sold in a free and open market, most of that market is at least accessible to most wineries with some effort and expense. And if we're a long way from the Supreme Court's 1949 ode to the Commerce Clause of the US Constitution in H.P. Hood & Sons vs. Du Mond, the relevant text of which is below, we're at least making incremental progress:

"Our system, fostered by the Commerce Clause, is that every farmer and every craftsman shall be encouraged to produce by the certainty that he will have free access to every market in the Nation… Neither the power to tax nor the police power may be used by the state of destination with the aim and effect of establishing an economic barrier against competition with the products of another state or the labor of its residents."

Notes

1. If you're interested in diving into the state-by-state regulations, the Wine Institute's Direct Shipping Laws for Wineries page is a great place to start.
2. Thank you to Jeff Carroll, GM of Avalara for Beverage Alcohol for his feedback on this topic and particularly for his explanation of the growing challenge that economic nexus laws will pose.
3. If you'd like to get involved in the push for more open direct shipping laws, the nonprofit Free the Grapes, on whose board of directors I serve, has information, resources, and templates for contacting state representatives. 

Which of the many Covid-19 changes to the wine industry will prove enduring?

Usually, at this time of year, I'm locking in the plans for the market visits I'll be making for the busy fall selling season. When I travel, I typically spend my days riding around with distributor reps calling on restaurant and retail accounts to show them our new releases, and my evenings hosting in-store tastings and winemaker dinners to help those same accounts tell the Tablas Creek story to their customers. But I won't be visiting any out-of-state markets the rest of 2020. That's for sure, and I think the first half of 2021 is likely to be more of the same.

Instead, I've been scheduling Zoom meetings and arranging for sample deliveries to wholesale accounts, working on a national strategy to organize virtual tastings around the releases of the 2018 Esprit de Tablas and Esprit de Tablas Blanc, trying to figure out what sorts of trade visits to Tablas Creek we can safely host, and finalizing details with my guest for Wednesday's Instagram Live broadcast.

I think it's safe to say that this pandemic will be a generation-defining event, in the way that 9-11 was, or the Vietnam War. Covid has spurred changes large and small to nearly everyone's personal and work lives. I've been thinking a lot about which of the changes that we're making to our business will be things that will endure even after the pandemic is in the rear-view mirror, and which will fade away as we get back to normal life. Here are my current thoughts.

Things that seem like they will endure

• Virtual trade tastings. These sorts of tastings have been (in my opinion) exceptionally effective. We've figured out how to rebottle wines into sample bottles and get those samples to the restaurant and retail buyers (and media) in a relatively cost-effective way. Then, over Zoom, we can present the wines, have a conversation, show photos, answer (and ask) questions, and generally be interactive. Compare this to the closest thing in the before world: a trade lunch or trade seminar. People have to physically get to your location, you always get tons of cancellations, it's expensive, and it's inflexible. What you lose from being online is negligible, but what you gain is massive. People can be anywhere. There are no commute costs and no one cancels because they're stuck in traffic. You can add people up to the last minute, and you can even record the events for people who couldn't join you to watch later.    
• An increased focus on reaching consumers online with live events. At Tablas Creek, Neil and I both started doing live broadcasts weekly at the beginning of the pandemic, him on Facebook and me on Instagram. They've both been sufficiently compelling that although we've moved to an ever-other-week schedule, we're planning on keeping them going indefinitely. I've written about how one of the things this pandemic has done is encourage us (and other wineries) to meet consumers where they are, rather than force them to come to us. This is a great way to do this, at very low cost, and they're archived and posted on our social media channels for people to revisit at their leisure. 
• Shift toward e-commerce and delivery. Our baseline of weekly phone and internet orders during the pandemic was roughly three and a half times what it was last year. That's a huge increase. I know that some of it was an unsustainable surge in people stocking up, and some of it was that everyone was at home cooking instead of out at restaurants (and so they needed to buy wine to go with those meals). But that's a lot of customers who now know how to use the online tools who didn't before, and I think it's extremely unlikely that the baseline will go down to where it was before. I've read in other industries that the pandemic spurred five years of changes in behavior in a few months. That sounds right to me, at least for this metric.
• Tastings by appointment at wineries. We've always been proud that you didn't need an appointment to taste at Tablas Creek, and felt that allowing someone who is recommended to visit to make a spur-of-the-moment decision to do so was central to our mission to spread the word on the Rhone Rangers category. But we realized that there was no way that we could control our flow of tasters (which then allows us to maintain distancing and ensure a good experience for those who come) without appointments. So, we implemented them. The results have been quite positive. The average sale per customer has gone up about 13%, as have wine club conversions, and we haven't lost much traffic, because when visitors see that Saturday is sold out, they've been booking Friday or Sunday visits instead. That means we can give everyone better experiences, and we've seen the results in sales and club signups. I can easily imagine not wanting to go back.
• Fewer wine cruises. We've hosted wonderful cruises that brought people to Beaucastel and around French, Spanish, and Italian wine regions each odd-numbered year since 2013. And we were far from the only ones. By the past few years, it seemed like every winery, wine region, and wine association was sponsoring a wine cruise somewhere. I don't think they will go away, but I do think that we'll see fewer of them, as I think it will take a long time for people's tolerance for close quarters and enclosed spaces to return to where it was pre-Covid.
• Wine and drinks to-go from restaurants. One of the relief measures that most states passed in the immediate aftermath of shut-down orders was to allow restaurants to sell beer, wine, and cocktails for takeout with their food. And it's been wonderful, with really no negative impacts on anyone that I can think of. While a few places might re-enact restrictions on this business, I think most of them will stay in place, not least because restaurants are likely to be struggling with reduced capacity or outside dining only for quite a long time. By the time things get back to normal, I just can't see state governments choosing to punish restaurants by taking away this revenue source. 

Things that likely won't endure

• The end of wine festivals. There just aren't going to be wine festivals, at least not as we know them, until there's a Covid vaccine. Sure, events will move online. (Along those lines, if you want to experience the famously exclusive Aspen Food & Wine Classic, you can do so online for free. One of our wines is even included in a seminar!) But I don't think that this spells the end of wine festivals, because the online experience is so far removed from what you get if you go to an event and can choose from hundreds of wines from dozens of wineries, and sample tastes from scores of restaurants. That doesn't translate online very well, and as soon as people feel safe in crowds, I expect these sorts of events to come roaring back.
• Virtual consumer tastings. We pivoted to offer virtual wine tastings during the three months when our tasting room was closed. And we enjoyed them, and got lots of positive feedback. But as things have moved toward reopening, we've seen demand fall pretty sharply. In April, we sold 58 of our virtual tasting packs per week. In May, that declined to 23 per week. In June, it fell to 8 per week. Some of that was other wineries jumping into that same space. But a lot of it was, I think, Zoom fatigue, and the fact that sitting in front of a computer is a pale reflection of a winery visit, no matter how engaging a winery tries to make it. We're going to plan to continue to offer virtual tastings, but I don't expect the demand to be huge. The sorts of virtual events that I do think will endure are those that offer experiences that aren't a knockoff of what you can get at a winery, like panel discussions including far-flung members of the wine community, and offering deep insights into regions, grapes, or techniques. 
• Cheap wine shipping. There were a ton of pressures, both short- and long-term, for wineries to offer free or discounted shipping during the first round of stay-at-home orders. And we did, offering $10 flat-rate shipping for more than three months. It seemed the least we could do to help people sheltering at home, and we were worried that the closure of restaurants would mean that a big outlet for our wines would disappear, leaving us with lots of extra inventory. As it turned out, we did lose most of that restaurant business, but the growth in direct sales mostly made up for it, though at the cost of hundreds of thousands of dollars in shipping subsidies. Boutique wineries can generally not easily replicate Amazon and other e-commerce giants' infrastructure of having warehouses around the country, and therefore being able to offer fast, cheap ground shipping. Many wines are made in tiny quantities, and the logistical challenges of splitting, say, 70 total cases of inventory of our newly-released 2019 Picardan among multiple warehouses and our tasting room are really thorny. Because wine is perishable, two-day shipping or faster is pretty much non-negotiable. And because wine bottles are heavy, air shipping is expensive. Even with the better rates that our fulfillment center can negotiate because of their volume, it's around $100 for us to send a case of wine to the east coast, and not much less to go to Texas or the Midwest. That's a lot of cost to eat if you're offering free or steeply discounted shipping, particularly if your wines aren't $50 or more per bottle. Essentially, nothing has changed since this Twitter thread I shared in February. All together, this means that I don't think that most wineries will be able to keep up free or nearly-free shipping indefinitely:   

A short thread on customer expectations and wine shipping. 12 years ago, we surveyed wine club members who had canceled in recent years to learn more about why. One response we got repeatedly was that people expected free or very cheap shipping. https://t.co/JwhKebLKdb 1/

— Jason Haas (@jasonchaas) February 21, 2020

So, I'm curious. What did I miss? Any big wine industry changes that you're seeing that you think are here to stay? Or that will be relegated to the dustbin of history as soon as we have a Covid vaccine? Please share in the comments.

Are the gloomy messages about the state of the wine industry warranted? I say not for wineries like us.

I've spent much of the last two weeks at wine industry symposia: first the Direct to Consumer Wine Symposium in Concord, CA, and then the Unified Wine & Grape Symposium another hour north in Sacramento. I spoke on panels at both, at the first on measuring ROI on winery events, and at the second on technical and market challenges and opportunities for rosés. But I also took advantage of being there already -- and the free passes that come with being a speaker -- to sit in on some of the other sessions. Both events began with "state of the industry" reports, with quite different outlooks.

Photo courtesy DTC Wine Symposium

The core message I took home from the DTC Symposium was mostly positive: that direct-to-consumer wine sales continue to grow at a healthy rate, with shipping totals topping $3 billion for the first time in 2018, and growth coming broadly across wineries of all sizes.  What's more, the tools that wineries have to capture, analyze, and fulfill these consumer-direct sales have never been better.  The take-home message from Unified was less positive, with worries about declining sales at restaurants and supermarkets, grape market oversupply, demographic challenges for wineries as their prime customer base (mostly Baby Boomers) ages, and challenges connecting with Millennials through traditional wine marketing. These have spawned some much-discussed articles (within the wine community, anyway) containing lots of hand-wringing about what the future might bring to California wine. A couple (click-bait titles notwithstanding) will give you a sense of the worries:

• Wine and Sex off the Millennial Menu (W. Blake Gray, Wine Searcher)
• Can the Wine Industry Survive Millennials (Leslie Gevirtz, Wine Enthusiast)
• Challenging Years Ahead for Wine Industry? (Taylor Hillman, AgNet West)

In a second piece, on his own blog (Millennials are talking but the wine industry isn't listening) Blake Gray identifies some of the barriers that may be keeping Millennials from gravitating toward wine, at least at this point in their lives: the industry's resistance to transparency in labeling, its steadfast promotion of just a small handful of grape varieties, and an inability (or unwillingness) on behalf of wineries to engage with the Millennial consumer. I'd add a few others, including the often high price of premium wines and winery experiences, which puts them outside the reach of many cash-strapped Millennials, the marketing of wine as elite (which often crosses the line and comes across as elitist, to an audience that prizes authenticity), and the dominance of shelf space in the wholesale and grocery markets by a handful of large wine companies, when what every study of Millennials indicates they want is 1) a closer relationship with real people behind the products they consume, and 2) confidence that those products are produced in a way that matches their values.

So, which is it? Are wineries in good shape, or are there dark clouds on the horizon? As is usual with complicated questions, it depends on where you're looking, and over what time frame.

Let's look at the negatives first. Some of the largest wine companies (including Bronco, Gallo, and Constellation Brands, all of whose sales skew toward lower-priced wine in chain retail) saw sales decline last year. Many traditional fine dining restaurants have closed or rebranded as consumer trends have shifted toward more casual experiences. Nielsen data showed that overall wine retail sales declined slightly (0.5%) by volume last year, at least in the 70% of retailers that participate in the Nielsen data collection.¹ The combination of distributor consolidation and winery proliferation have made it harder for most small-to-medium wineries to sell through the wholesale channel. And tasting room visitation was down in many established regions in 2018, including Napa and Sonoma, even as tourism was up.² So, if you are a small-to-medium winery who wants to sell their production through wholesale, a large winery whose sales skew toward the lower end of the retail spectrum, or a winery in an established region whose customer acquisition mostly happens in your tasting room, you likely have cause to worry.

On the positive side, winery direct-to-consumer shipped sales grew again in 2018, by about 12%, to more than $3 billion, a figure nearly triple what it was just in 2011.³ Wineries can now ship to 90% of the US population, with the right permits. The average price of a bottle of wine sold increased both in three-tier retail and in direct-to-consumer last year. Although tasting room visits are down in many areas, our experience is that people are spending longer when they do visit, are more interested than ever in learning the story and the practices behind the wines, and are happy to spend more: our average sale per visitor was up 8% last year. The price ranges of wine that saw sales declines were the under-$10 bottles (at which, I think it's fair to say, California does not excel) while all higher price points saw sales growth. And most importantly, total winery sales, when you take direct-to-consumer into account, grew 4% in 2018. That means that the pie continues to grow, and it seems like it's primed to continue to grow in the segments that most impact wineries of our general size (small to medium) and profile (producing wines between $25 and $60, with DTC providing the majority but not the totality of our revenue).

Some of what I see as more equivocal data has been painted in the most negative light. There are some demographic trends that wineries need to plan for. Wine's largest audience, for the last two decades, has been Baby Boomers, and with the average Boomer reaching retirement age -- the time at which, historically, cohorts start spending less on wine -- they will need younger generations to step in. And GenXers, of which I am a proud member, have been doing so. Will Millennials, who are a larger cohort than GenX, step up when it is their turn? It remains to be seen. But I think that the doom and gloom about them is pretty overblown. The median age of a Millennial is 30, but the Millennials at the peak of the demographic bubble are just 24. Were many Baby Boomers drinking wine at age 30, let alone 24? No. How about GenX? Not much. Millennials are drinking more wine than preceding generations were at the same age, which should be a positive enough trend. But I think the news is better than that, at least for wineries like us. They are also much more likely to drink craft beer or craft cocktails, to be interested in the source and making of the foods and drinks they consume, to have grown up in a wine-drinking household, and to be open to trying wines from new grapes and new growing areas.

Are many Millennials hamstrung by the poor job market when they entered the work force and saddled with student debt? Absolutely. But even if they never attain the buying power of earlier generations, it seems to me that the sorts of wines that Millennials are likely to embrace are the sorts of wines that wineries like Tablas Creek would like them to embrace: smaller family run wineries, from organically farmed vineyards, incorporating grapes that may be outside the mainstream but are good fits for their growing locations, and wines that offer value, at whatever price point.

Does that sound like a gloomy future? Not to me.

Footnotes:

• 1. Note that there are some important retailers whose data is not included, most notably Costco, and that the Nielsen data also does not include winery DTC sales.
• 2. All these data points are from (and beautifully explained in) the 2019 SVB Wine Report, the industry's gold standard for data collection and analysis. 
• 3. This data point and the ones that follow come from the 2019 ShipCompliant Direct to Consumer Wine Shipping Report. 

Direct Shipping Shenanigans, Delaware Edition

After a burst of progress on wine direct shipping in 2016, in which Pennsylvania, Indiana, and Arizona all opened up, we've had a bit of a pause for the last 18 months or so. Some of that is because most states are now open, and most of the states that are left are relatively small wine markets without their own wine industries, which reduces the pressure both from consumers in that state and from job-creating wineries.  Some of that is because the holdouts tend to be clustered in areas like the deep south (where cultural norms tend to resist the liberalization of alcohol laws) or the northeast (where arcane blue laws, most of which protect powerful distributor lobbies, are long-entrenched). But for the first time in over a year, we have a bill up for vote in a non-shipping state that has the potential of opening a formerly closed market to wine shipments.  Sure, the state is Delaware, the 39th largest state in wine consumption and only 0.42% of the American wine market. But I identified it a few years ago as the likely next state to open up, and we'll happily take any progress we can get.

Enter Delaware bill HB 165. It contains pretty standard wine direct shipping language, establishing a reasonable annual permit ($100) for wineries wanting to ship wine into the state and requiring that wineries collect and remit taxes as though the sale were completed in the location where the wine was delivered.  Common carriers are responsible for checking ID's at delivery.  Reporting requirements are reasonable (quarterly). There is a quantity restriction (three 9-liter cases per household per year) that I don't think is necessary, but it shouldn't cause too many people much angst.  In essence, it's a good bill, and would put Delaware in Tier 2 of the five-tier hierarchy I devised a few years back to evaluate the ease and cost of state shipping regulations.

Except for one clause. A restriction, found in Section d, Clause 5 (lines 61 and 62 of the bill's text) dictates that:

A wine direct shipper licensee may not ... Ship wine that is listed in the current publication designated by the Commissioner for sale by Importers in this State to retailers in this State."

What's the big deal here? Delaware is one of many states that require that any wholesaler register with the state any alcohol product that they offer for sale within the state's borders. States see a role for themselves here in ensuring that wine, beer, and liquor be offered equitably to different retailers and restaurants, and that it not be (for example) given away to prejudice an account into giving preferential treatment to one wholesaler or another. Again, this is fairly routine.  But this shipping bill would eliminate any wine that a Delaware wholesaler is offering for sale from the direct shipping permit. Although this seems straightforward on its face -- you're opening access to the market for wines that aren't available in distribution, and wineries without a wholesaler relationship in Delaware would see this as a win -- it's a major headache for several reasons.

First, just because wineries have a wine listed with a distributor doesn't mean that this wine is actually in stock in retail anywhere.  A quick search of wine-searcher.com for Tablas Creek in Delaware shows four wines available, all at one shop in Claymont.  Only one is current vintage (the 2015 Patelin de Tablas), one is back vintage (the 2013 Esprit de Tablas) and two look like they're the Cotes de Tablas and Cotes de Tablas Blanc, but don't have vintages listed.  I know that our distributor there, who also covers Virginia and West Virginia, also has Esprit de Tablas Blanc, Patelin de Tablas Blanc, and Patelin de Tablas Rosé available for sale.  It's possible that they just haven't sold any recently (our total wholesale sales in Delaware in the last 12 months totaled just 24 cases), or that what they've sold has all gone to restaurants.  But in either case, even the wines that aren't in stock wouldn't be eligible to ship to Delaware consumers. 

Second, just because it's at retail, it doesn't mean it's convenient to a customer.  I had to look up where Claymont, Delaware is, and learned that it's north of Wilmington, at the very northern tip of the state, right on the Pennsylvania line. If a consumer is in the middle of the state (think Dover) they're looking at a drive of about an hour, without traffic.  It's a two-hour trip each way for a resident of a southern town like Laurel.

Third, wineries typically sell a different mix of wines in wholesale than they do direct. Our wine club shipments include early access to our top wines (like our Esprit de Tablas and Esprit de Tablas Blanc) as well as small-production wines that don't make it into distribution. A restriction like this means that our wine club shipments wouldn't be legal to ship into Delaware, which means that we couldn't sign up club members.  Our point of sale system -- which is one of the most sophisticated winery platforms available -- isn't capable of restricting residents of certain states to only certain wines, so we wouldn't be able to take any orders online from Delaware, or would have to then cancel out the portion of orders that weren't eligible for shipment, which would be a nightmare.

Taken together, if that restriction stays in HB 165, it wouldn't make any sense for us to get a shipping permit.  And there are many, many wineries like us out there, which means that the bill wouldn't do much to make available new wines to Delaware consumers, and will likely leave them frustrated and baffled as to why some of their favorite wineries will ship to them and others won't.

Why would this restriction have been entered into the bill?  It's a case of wholesaler (and retailer) protection.  Wholesalers (and retailers) are state-licensed companies, and contribute big money to state campaigns ($107 million in the last decade, according to one study) to protect their share of this $135 billion industry.  Although some individual distributors have more progressive views, wholesaler associations see direct shipping as a threat, and have consistently opposed the liberalization of shipping laws.  They tend to argue that restricting shipping combats underage drinking and ensures the orderly collection of taxes, but given that no one has ever shown a link between wine direct shipping and underage drinking, and that most shipping bills add revenue to state coffers, neither holds up, and it's pretty clear to me that this resistance is at its root protectionism, pure and simple.

Opposing these forces are an array of winery and consumer groups, most notably the Wine Institute and Free the Grapes, both of which support liberalized direct shipping and have seen a remarkable run of success in opening up one state after another since the 2005 Granholm v. Heald decision struck down laws that protected in-state wineries right to ship to consumers but prohibited out-of-state wineries from doing the same.  It was on the Facebook page of Free the Grapes that I found a remarkable exchange that included Paul Baumbach, the principal sponsor of HB 165.  Free the Grapes was urging consumers to contact their Delaware representative and support an amendment to HB 165 (Amendment 1, proposed by Delaware House Rep Deborah Hudson) that proposed the elimination of lines 61 and 62 that restrict the shipping permit to non-distributed wines.  Rep. Baumbach wrote the following (remarkable) comment:

This post is paid for, not by those concerned about Delaware vineyards, but by a California lobbyist organization. Why does HB165, which I am prime-sponsoring, prohibiting the Direct shipping of Delaware wines which are available in our stores? Because they are available in our stores! This bill s designed to help Delaware wine consumers have access to all wines? That means that it works to provide access to wines which aren’t legally available to Delaware residents? HB165 as filed accomplishes that, despite what a California group is spending money on Facebook to make you believe. Make sense?

The level of obfuscation here is pretty remarkable, and makes clear that the goal is not in fact to "help Delaware wine consumers have access to all wines". I would submit that it's in fact a delaying tactic, in much the manner that New Jersey has done, appearing to pass a shipping bill while not actually opening the market much and protecting as much of the state-licensed distributors' profits as possible.

I hope consumers see through this.  If you live in Delaware, please make your voice heard, and support the bill provided it includes House Amendment 1.  An interface on the Free the Grapes Web site makes it easy to contact your elected officials.

Direct Shipping is not a Zero Sum Game

Earlier this year, I was having lunch in Boston with a key account manager from our Massachusetts distributor.  We were talking about what I'd done on my last visit, which included a really cool dinner at (sadly now closed) Blue Ginger that had such a large consumer response that they had to move the dinner into a larger room.  I also conducted a sold-out tasting seminar at the terrific retailer Gordon's in Waltham.  I mentioned that we'd sent news about the events out to our mailing list and wine club members, and that I thought this was a big reason why we'd gotten such a good turnout for the events.  His response took me by surprise, though it shouldn't have.  He said, "I know, we oppose direct shipping, but I guess it can have its uses."

I've been meaning ever since to write a blog post about how misunderstood direct shipping is among most actors in the wholesale market, and how those misunderstandings have driven policy positions that harm wholesalers' interests in the long run. After all, our wholesale business in Massachusetts is up 38% this year, and was up in 2016 and 2015 after nearly a decade of essentially flat sales.  Our Massachusetts wholesaler is on a pace to sell 55% more wine than it did in 2014.  Most businesses would kill for this sort of performance. So, what turned things around?

Direct shipping opened in February of 2015, bringing Massachusetts into the growing majority of states.

At first, it seems counter-intuitive that opening up a state to shipments of wines from wineries in other states should help the sales of that winery's wholesaler.  Doesn't each sale offset another in-state sale?  Not really.  Here's why the ability for a winery to ship to a state should generally increase their wholesale sales there:

• Wineries are better able to make and cultivate fans. This, I think, makes a lot of sense, and it works in at least a few ways. Each year, a winery like ours sees visitors from every, or nearly every, state.  Of course, more are from California than anywhere else, and a disproportionate number are from the larger western states, but we see a few hundred visitors from a state like Massachusetts each year.  
  • If these visitors can't sign up for our wine club and can't order wine from us, it's a lot harder for us to establish a meaningful connection with them.  That means that when these people return home and see a Tablas Creek wine on a wine list or the shelf of a wine shop, we're less likely to have developed enough of a connection with them that they choose that wine over others.  
  • They are also less likely to bring Tablas Creek to friends' houses, and therefore the critical peer-to-peer market is harder to activate.  
  • I also think -- though this would be hard data to gather -- that shipping bans discourage wine tourism from those states, since those consumers are likely to experience some degree of frustration in getting any new discoveries home.
• The wines that people order are not the same wines they buy at retail. The idea that consumers will exchange a purchase at their local shop for a purchase of the same bottle online is pretty far-fetched.  Consider why:
  • Wine is fundamentally a difficult product to ship direct to consumers.  It's heavy and perishable, which means that even if (like us) you subsidize the shipping costs, it's at least a few dollars per bottle to get that product shipped across the country.  Because it's alcohol, all packages have to be signed for upon delivery.  You have to wait at least a few days to get the wine.  And because of the mess left behind by Prohibition's repeal and the 21st Amendment's decree that states have the rights to legislate how they treat alcohol, wineries have to jump through significant legal and compliance hoops to get shipping permits.  The net result is that it's not worth it to ship inexpensive wines, or wines that have good representation in distribution, direct to consumers. The average price of a bottle of wine sold in the United States is about $7. Even with growing demand for higher-end wines, the vast majority of wines won't ever make sense to ship direct.  From a winery's perspective, it's not until you get to the $20 and up category where the shipping costs don't outweigh the extra margin a winery makes on a sale.
  • So, what sorts of wine do make sense for both wineries and consumers to order direct?  Those they can't find, or at least can't find nearby.  Direct shipping opens up the power and opportunities of long-tail marketing to wine lovers and producers.  We don't produce enough volume or have enough demand to have wines on the shelves of dozens of stores in each state outside of California.  So, in many cases, consumers don't have any Tablas Creek on the shelf anywhere near them.  And if they do, it's likely that what's easiest to find is our Patelin de Tablas line, which makes up about 70% of what we sell wholesale nationally.  What if they've read about our Vermentino, or our new Terret Noir?  Too bad.  As you would expect, the Patelin wines represented a much smaller proportion -- just under 15% -- of what we sold direct last year.  What did we sell?  A mix of everything.  But more than half of what we sold was our small-production varietals and blends that aren't found in distribution.  
  • I would guess that most wineries' data would show the same thing, and it's backed up anecdotally.  On a visit to another high-end winery near us last week, our server explained that they have two entirely separate lineups of wine for their wholesale sales and their tasting room.  And, of course, a large number of wineries don't distribute any of their wine nationally. 
• Restaurants work differently. Although many restaurants offer corkage, where customers can bring in their own wines and have them served at their table for a fee, and there are some states who allow wineries to sell direct to restaurants, the challenging logistics and planning (and cost) required means that nearly 100% of wine sold in restaurant comes through a state-licensed wholesaler.  Does opening direct shipping impact restaurant sales negatively?  Not at all.  And we have found that it is our wine club members -- read superfans -- who are the most likely to order our wines at a restaurant.  They feel a proprietary pride in the success of their favorite wineries, and when they are dining with friends it is often these restaurant opportunities that encourage the peer-to-peer sharing that starts new customers on the path to fandom.  If we can't ship direct to a state, it's a lot harder to sign up wine club members (they can, of course, have wine shipped to friends or relatives in nearby shipping-allowed states, but that's cumbersome and difficult). And the restaurant sales those club members will make don't happen.  
• Direct shipping changes wineries' incentives. All those reasons aside, I think the most important reason that we have seen our wholesale sales increase in state after state after that state opens to direct shipping is this last one.  Judging from our own actions, it's not in our interest to lavish the same amount of attention on states to which we are prohibited from shipping directly as we do to states to which we can ship.  I know that before 2015, I hadn't visited the Massachusetts market in several years, despite that I went to both high school and college in Massachusetts and have lots of friends -- and sports teams -- in Boston I love to see.  It just wasn't worth it.  In a state like New York or Illinios, where we can ship, I can go, spend my days working with our distributor reps to get the wines into new accounts, and spend my evenings doing consumer events at restaurants or wine shops.  I can help ensure that those events succeed, making the accounts that host them happy, by promoting the events to our consumer mailing list in the area.  And I can hopefully come out of those events with a new collection of names that I can add to our mailing list.  This makes these people more likely to come out to Tablas Creek, and to eventually join our wine club or buy wine from us.  Everyone is happy.  In a non-shipping state, I can still do the work days with the distributor, but I can't do much to help promote consumer events (so they're less likely to be successful) and I can't do much with any consumer contacts I make at these events.  Both time and marketing dollars are finite for any winery.  Wineries are only behaving rationally by focusing their attention where they can have the greatest impact, which means that states without direct shipping don't get as much winery-level help with their wholesale sales.

Whatever the reason or combination of reasons, Massachusetts isn't the only state where we've seen wholesale sales increase in the aftermath of the state opening to direct shipping. It has happened again and again.  Between 2005 and 2013, our wholesale sales rose an average of 8% per year.  Check out how much some of the larger states (that opened to direct shipping over that period) grew in the first two years after they allowed direct shipping.  The year that we started shipping to each is in parentheses:

• New York (2005): + 68.0%
• Florida (2006): -38.1%
• Texas (2006): +61.7%
• Ohio (2007): +14.3%
• Georgia (2008): +24.0%
• Washington DC (2008): +72.5%
• Maryland (2011): +160.9%

On average, our wholesale sales in these seven states increased 51.9% in the two years after we received our direct shipping permit.  Why was Florida the one state to decline?  I didn't realize it had, until I pulled this data.  But I have a few guesses.  First, it's a state from which we see relatively few visitors, at least for the size of its population.  It's also a state with a very spread-out population, where (unlike, say, in New York or Washington DC) it's hard to schedule events in places that are central to a collection of mailing list members.  We also struggled to set up good consumer events in our early years there, so I doubt we were able to leverage or build our mailing list particularly efficiently.  Anyway, the rest of the states show a pretty strong trend, and our sales in Florida have rebounded strongly in recent years, so I'm not going to worry too much about the one data point.

Instead, I just booked my flights for my second work trip this year to Boston.  I'll fly in Tuesday.  Wednesday, I'll work with one of the distributor's top reps, and we'll try to get the wine into some more cool restaurants, before I host a dinner at Porto in Boston's Back Bay.  Thursday, I'll do it all again, and Friday I'll fly home.  I'll catch the Patriots season-opener on TV with some friends who live there.  And none of this would have happened if Massachusetts -- with a push from former Patriot turned vintner Drew Bledsoe -- hadn't decided to open their borders to wine shipping two years ago.