The Business of a Bundle: behind the scenes running a wine club
This last year has been full of incredible ups and downs and learnings for me as I launched WineSkipping wine club and bottle shop. I wanted to share with you a few of the challenges and behind the scenes aspects of the wine business.
The Three Tier System
To sell wine in the US you must be either a 1) producer, 2) a distributor or 3) a retailer. Each type of business requires a license from its state's ABC (alcohol and beverage control) authority. These 3 entities represent the "3 tiers" which were established after the repeal of prohibition. Producers (or importers) may only sell to distributors who can only sell to retailers who in turn can only sell to consumers. Some businesses (like wineries or brewpubs) are granted loopholes whereby they can produce and sell direct to consumers. But that is the gist of the "3 tier system" set up after prohibition. The intent was to prevent a producer from controlling what is available for consumers to purchase, while enabling the state to regulate and collect taxes along the way. Hence anyone involved in the selling of alcohol needs a license issued by their state(s). Each state has different rules and licensing available.
Selling Wine & Licensing
Before I even thought of running a wine club, I started down the path of getting my retailers license. I wanted to enable my virtual event clients to buy wines direct through me as a "one stop shop". So I started the process of getting my ABC license. The license that made the most sense is an "off premises wine retailer" license. I can sell wine only, and can only sell it via internet or mail direct to consumers. I can buy from either wineries or distributors. The process to obtain the license involved
- 3 months of waiting
- a home inspection by an ABC rep
- 10 forms filled out and mailed to Sacramento
- fingerprinting and FBI background checks for all members of my family
- approval from my neighbors
- $900 for the first year plus $500 in additional fees, $360 annual renewal
After all that, I got my license to sell wine from my base in California.
The Making of Club
After all that work getting the license, I decided to make the most of it. Thinking about what I love the most (connecting wine-curious people with small producers they wouldn't otherwise find on their own, while educating and sharing my enthusiasm) I decided to start a social wine club. I'd offer social avenues (like virtual pickup parties and classes, in person events) to learn about new wine while offering small batch wines farmed ethically on a regular basis. I decided to price and model the club after a few other small businesses I'd seen (3 wines every 3 months) and priced it at $99 per shipment.
Pricing it Right
When arriving at the pricing I failed to account for all the hidden costs of running a business... boxes to ship the wine in, marketing, web site platform fees, domain fees, point of sale fees, etc.
It's also interesting how you buy wine. As a retailer, I can buy direct from a winery or from a distributor. Either way, I can enjoy wholesale pricing which is less than retail but it varies. The catch is that my purchases are by the case. So if I have 25 club members that I need to ship wine, have to buy 3 cases of each wine. Meaning there is always a risk that 11 bottles won't get sold. My goal with each shipment is to get my membership as close to a case threshold (12, 24, 36, 48...) as possible.
So with each shipment I try to offer my members pricing at or below retail without going broke. It's a dance! I also try to pick wines that I'm really excited about from producers doing good things in the world who have an interesting story. This type of research takes time. But there are some really amazing wine makers out there to help fuel my enthusiasm!
Because each state controls its own ABC laws, shipping per state varies wildly! I don't pretend to know all the ins and outs here but at a very high level, to ship wine (or any alcohol) into any state, you need a permit to do so. By applying for a permit you also need to agree to to pay taxes and file reports annually. Permits run from free to $1500 annually and require significant hassle and paperwork to maintain.
For large companies like NakedWines they can employ a team of compliance experts to manage these logistics for them. Small wineries often do business through a third party (VinoShipper) who carries the permits on their behalf. Small wine clubs like mine are left fending for themselves. Many ship into states via UPS, GLS or FedEx without the necessary permits, hoping the states don't find them out. When caught they are fined and prohibited from shipping to that state. Others use another shipper that carries the permits for them at an additional expense. I use two different solutions depending on the destination and timing. I can ship via PostalAnnex to any state, but at a huge expense ($10 per shipment markup!). Or I can drive a 5-hour round trip to Napa to ship through a fulfillment center with their own permits. It ain't easy or cheap regardless.
Since my house is not the ideal storage location for cases upon cases of wine (for so many reasons) I also had to contract with a special "Type 14" warehouse facility for storing the wine. I had to learn how to use a variety of web site and point-of-sale platforms before arriving at one that worked well with alcohol and subscriptions. I have to file quarterly sales taxes with the state and try to stay on top of legal and compliance issues related to alcohol and running a business.
But do you know what takes the most time and effort in all this?
Marketing and content creation for Instagram, Facebook and newsletters! It's the outreach to current and future customers that consume the majority of my head space and time.
Have any questions for me about the wine biz? Drop a comment below!