VINEXPO NEW YORK

v i n e x p o n e w y o r k . c o m

Jointly organized with

Wine Spectator Presents: The Changing World of Wine Retail in the U.S.

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WINE SPECTATOR PRESENTS: THE CHANGING WORLD OF WINE RETAIL IN THE U.S.

Moderator: Thomas Matthews, executive editor, Wine Spectator Panelists: Gary Fisch, CEO and owner, Gary’s Wine & Marketplace Christian Navarro, president and principal, Wally’s Wine & Spirits Michael Osborn, founder, Wine.com Robert Trone, owner, Total Wine and More

Matthews noted that the wine business in America is not like any other business. As many as 34,000 establishments in the U.S. sell wine, beer and spirits (that number excludes drug stores, gas stations, etc.) representing a total of $54 billion in revenues. Most Vinexpo New York attendees are in the trade and deal primarily with others in the trade—the producers, importers and distributors. They share a language and a data set and know how to think about wine and talk about wine, but they have an artificial idea of what the wine market really is. The people who really understand what it takes to connect a bottle of wine with an actual wine drinker are those on the front lines in the retail stores.

WINE SPECTATOR PRESENTS: THE CHANGING WORLD OF WINE RETAIL IN THE U.S.

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Gary’s Wine & Marketplace Gary Fisch has been in the wine business for more than 30 years. He launched the first Gary’s Wine & Marketplace in Madison, New Jersey in 1987, and has expanded into three more New Jersey locations over the years. The stores not only have a great wine selection but sell beer, spirits and food as well. In October 2019, Fisch opened his first store in Napa Valley, adding to his business model a concierge service that can facilitate winery visits, restaurant reservations, hotel bookings, and more. Fisch’s son will soon join the family business, overseeing technology and marketing so Fisch can concentrate on the customers. The next generation will see Gary’s Wine & Marketplace continue to follow the model on which it was founded as it expands into multiple states. It will continue to be a passion-driven, wine-centric business.

Wally’s Wine & Spirits Christian Navarro has transformed what was a mom-and-pop liquor store, founded in Los Angeles in 1968, into a luxury, experiential retail and restaurant operation that’s replicable on a global scale. Wally’s recently opened a second store in Beverly Hills. It’s a new lifestyle concept that connects with people in numerous ways, reaching people across age and socioeconomic status—all sharing the same idea of pleasure. Already this year there have been four marriage proposals in the store. Wally’s brings in more than 1,000 people a day. When they enter, the smell of garlic and rosemary piques their senses. They can have a glass of wine, some charcuterie and shop around. For Wally’s, moving into the future means going back to the way things were before, when merchants actually connected with people. Navarro said he has been to his office only once in the past year and a half. He spends his time with his customers. By doing so, he sells twice the product, makes customers twice as happy, and has made friends. His business is moving away from email in favor of connecting in person (he does use social media). This is changing the

marketplace and is proving to be much more profitable. Wally’s is open from 9 a.m. to 2 a.m. It offers 125 wines by the glass—all of which are available for purchase.

Wine.com Wine.com was the first major online wine retailer. Founded by Osborn in 1988 as Virtual Vineyards, it has shipped and sold more than $1 billion in wine. Osborn said Wine.com coined the term three-tier e-commerce (3TE). Its purpose is to find customers for its clients’ wines, amplifying the stories they have to tell, whether it’s through text, photographs or, better yet, powerful short videos, and getting that story to the end consumer. It’s a bottle business; rarely do customers buy cases. Wine.com is at a local retail level. Because U.S. regulations are highly constraining, the company set up local logistics centers, starting in 1999 in the Northwest, New York and Miami, and later Texas, Boston, and New Jersey. That footprint gives Wine.com access to 42 states and Washington, D.C., an area that accounts for about 98% of wine consumption in the U.S.

Wine.com’s range of merchandise spans the smallest production wines to the largest. Its customers value the discovery of wine. In the beginning, if the company didn’t have the particular wine a customer wanted, the search capabilities weren’t sophisticated enough to help them find an alternative. Now, customers can filter and sort the database by grape, region, Wine Spectator rating, and so on, making it easy for them to discover new wines. About three years ago, Wine.com added live chat and since then has taken more than 1 million chat sessions. Consumers ask everything from novice to expert questions and get live advice. The idea is not to replace people with technology but to add technology-enabled people who can help customers discover great wines.

Osborn said smart phones have been a tipping point in the industry—everyone carries a phone with them and whether they’re in a restaurant or

WINE SPECTATOR PRESENTS: THE CHANGING WORLD OF WINE RETAIL IN THE U.S.

at a friend’s home, they’re getting information about wines straight from their phone. So while Wine.com started with a web-enabled site, a couple of years ago it added an app. This has improved the customer interaction. It’s an opportunity for the Wine.com team to learn customers’ preferences and share out what else they might like. Consumers are getting their way in terms of guidance and doing so in the mobile environment. If you’re focused on mobile to provide selection and guidance, you end up with a young consumer base, Osborn said, adding that millennials represent one-third of his consumer base and are growing the fastest, up almost 40% in the past year.

Total Wine and More Robert Trone and his brother founded the company in 1991 with one store; now Total Wine and More has 205 stores in 24 states, including Florida, Texas and California. It is growing by 15 stores a year, a pace Trone expects to continue for the next several years. These are superstores with a huge inventory of 7,000+ wines (the

primary focus, at 46% of the business) as well as spirits (33%) and beer (16%). The environment is self-service, with staff available to help customers pick their items. Each store has a unique selection, buying from wholesalers in its state. Stores include tasting bars in states where it’s legal. Total Wine and More is at the higher end of the price category; the grocery channel dominates the lower end. Its focus is on super premium (more than $50 per bottle), working with smaller producers throughout the world. There’s more margin and opportunity for the company to deliver fine wine on the import side. Total Wine and More is projected to reach $3.9B in sales in 2020.

Trone recognizes that an educated team is essential to the customer experience; in addition to an initial three-week training, there is a strong emphasis on continuing education, including staff seminars and educational trips. Among the industry trends he sees are wholesaler consolidation (there used to be 20 major wholesalers, now there are three),

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WINE SPECTATOR PRESENTS: THE CHANGING WORLD OF WINE RETAIL IN THE U.S.

retailer consolidation and globalization. Consumers are not looking specifically for California, French or Italian wines and are more open to new brands. This depends on a salesperson on the floor making a personal connection with the customer to show them.

Matthews asked the panelists to share what two or three things producers can do to be successful in their retail environment. Trone emphasized the store’s Winery-Direct model, which sources directly from about 800 producers around the world. Osborn stressed the importance of digital assets. Customers don’t see the wine itself until it’s delivered so a strong digital asset repository of label shots, bottles, and storytelling content is crucial. Matthews summarized that both Total Wine and More and Wine.com have a fairly open-door policy but it’s up to the producer to push that door open.

Navarro said that producers who want their wines on the shelves at Wally’s have to be best of breed. “If you’re the best, we’ll help you build

your brand,” he said. The store’s price point is high, starting at $20 and averaging $148.

Fisch cautioned producers not to put all their eggs in one basket. Rather, they should look for a group of independent retailers, like The Wine and Spirits Guild of America, which are all family-owned, multi-generational businesses that pick brands that over-deliver. The advantage to producers it that instead of one solution, they’re in many solutions around the country.

Matthews asked if the panelists think brick and mortar will become obsolete.

Fisch said digital accounts for 10-12% of his total business and he sees that continuing to grow but added that to Navarro’s point there has to be a connection to touch and feel. People want interactions with other people, and wine in particular is a sensory experience. He loves what Navarro has done to build a sense of community for Wally’s and hopes to create a similar spirit in his Napa Valley store.

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WINE SPECTATOR PRESENTS: THE CHANGING WORLD OF WINE RETAIL IN THE U.S.

Navarro agreed that digital is going to grow, particularly in markets like Los Angeles and New York where it’s a challenge to get across town to pick up anything. But he cautioned that Wally’s is focused on building brands, not selling wine inexpensively. When he buys something online, he’s looking for the cheapest price, and Wally’s is never going to be that. That said, he feels that other retailers’ strong online presence is helpful to his business. Consumers can explore and purchase wines online but when they want the full experience they’ll get out from behind their screen and come to Wally’s.

Matthews then invited questions from the audience.

Q. How does Wine.com navigate legal barriers when selling direct to consumers? Does it sell to more than 15 states?

Osborn responded that while the regulatory environment is improving, there will never be a time in which wine retailers will be able to serve the entire nation with one warehouse.

It takes a combination of local presence and direct shipping permits. Wine.com is a licensed retailer with a physical presence in six states. Its customers are sheltered from that aspect of it. A Seattle customer only sees the selection and pricing available from the Berkeley warehouse, for instance. FedEx is the company’s sole carrier, which gives it the ability to service customers quickly. The average delivery time is 1.7 days.

Q. What kind of growth are you seeing in the low- and no-alcohol beverage business?

Trone responded that it’s growing very slowly. Navarro is not yet seeing an impact. He said consumers are enjoying moscato wines with lower alcohol, for instance, but that it’s still a very small category. Fisch agreed that it’s a small category, but his business is embracing it with defined spaces in all stores. Matthews noted that Dry January was bigger this year from a media standpoint than ever, and that non-alcoholic cocktails are getting more creative and interesting.