California Wine to Flow Through Amazon

Internet retail giant Amazon.com is muscling into the wine industry.

The company plans to start selling wine from California’s Napa Valley and other wine-producing regions in the U.S. later this year.

Patty Smith, director of corporate communications at Amazon, declined to comment, saying the company “does not comment on rumors and speculation.”

However, Terry Hall, communications director for the Napa Valley Vintners Association, told the E-Commerce Times that Amazon’s push into the wine business is already in the works.

The nonprofit trade group counts 315 of the approximately 400 wineries in Napa as its members.

The association has already held one workshop for its members to become familiar with selling wine through Amazon’s heavily trafficked Web site. Another such workshop is scheduled for Friday.

“We expect to see about 80 different wineries between the workshop we held on Sept. 4 and the one scheduled for tomorrow,” Hall said.

Good for the Wine Business

“Amazon isn’t the first company to sell wine over the Internet, but they have a lot of pull in the online market as the world’s largest online retailer,” Hall noted. “That’s the exciting part. Consumers will get access to all those wines. It gives consumers a greater choice in what they can purchase, and gives wineries another venue to get their products out to consumers.”

With two-thirds of the wineries in Napa producing fewer than 10,000 cases of wine per year, Hall predicts many of the region’s wineries that opt to sell through Amazon will be larger in size.

That’s because much of the inventory at smaller wineries is already committed to restaurants, bars, wine shops and other brick-and-mortar retailers.

“Whether these small wineries have the wine to fulfill orders through Amazon is an open question,” Hall said, “but even the smaller ones could end up putting their rare, hard-to-find wines or their premium wines on Amazon.”

A Tangle of Distribution Laws

Unlike most of the items available on Amazon, alcohol is strictly regulated by a tangle of state laws, some of which date back to the Prohibition era.

It won’t be easy for Amazon to navigate this system of often arcane laws.

“The biggest legal challenge Amazon will face is whether they can deliver wine to their customers,” Sucharita Mulpuru, an analyst with Forrester Research, told the E-Commerce Times. “There are pretty serious restrictions around delivery. You have to have someone sign for it.”

That’s one of the reasons that Amazon is working with New Vine Logistics, a Napa, Calif.-based firm that handles wine order fulfillment.

“Through the New Vine model Amazon is using, the company has distribution into 26 states, so about half of the states will be involved,” Hall said. “Internet wine sales are not allowed in all states, and that goes back to alcohol distribution laws that were passed during the Prohibition era.”

First Books, Then DVDs, Now Wine

Amazon’s entry into the wine business comes as no surprise to Forrester’s Mulpuru.

“They’re pretty much in every category except selling cars, travel and real estate. Those are the only holdouts I see,” she said.

However, selling wine is not likely to be as big a business for Amazon as selling books, CDs, consumer electronics devices and DVDs.

“I don’t think online wine selling is a huge industry,” Mulpuru said. “If Amazon can pick up an additional (US)$20 million to $30 million in sales per year, I don’t see much downside to this. I don’t see this as a risky proposition.”

Amazon isn’t the only player selling wine over the Internet. Wine.com has been doing so for years. In fact, Amazon could end up partnering with sites like Wine.com, suggested Mulpuru.

“I don’t think Amazon is out there to take anyone out of business,” she said. “More likely, they look to partner with a lot of these sites. If Amazon could partner with Wine.com and get them to pay for the distribution while they just pay for the marketing, that would be a win-win.”