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RETAIL: INTERNET – The Go-betweens
Providing a direct link between producer and consumer, will the internet render retail middlemen redundant? asks Margaret Rand
There’s a strange cyberspace game of musical chairs going on in the wine trade at the moment. Round and round they go, merchant after merchant, redoing their websites, reinventing themselves, hanging on to their margins; all very, very keen not to be the middleman who will, if expectations are correct, be cut out by the internet.
Will it happen? It hasn’t yet – but as James Miles of Liv-ex points out, “If the web was overhyped five years ago, it’s coming true now.” Oliver Hartley of Corney & Barrow points out that it’s already happening in the City, where middlemen are finding life more precarious than it was. “General merchants will struggle in time,” he predicts.
The reasons are fairly obvious: the internet offers opportunities for producers and consumers to sell direct to each other; and it offers transparency of pricing, via sites like wine-searcher.com. “The web has created transparency, and shifted power to the consumer; both are good,” says Adam Brett-Smith of Corney & Barrow. “The implications of that are that it’s raised the ante on the ‘added-value’ brigade. You have the producer at one end, and a logistics expert at the other. In between, you get squeezed.”
Extra reach
It doesn’t sound a pretty picture, but each merchant deals with it in its own way. Adnams, for example, with three shops and a mail-order side, regards the internet as “just another business channel”, according to Sarah Groves. “It gives us extra reach.” At the moment 15% of Adnams’ private home-delivery customers are internet; but as with all merchants, being certain how much new internet business is the result of your website reaching new people, and how much is cannibalised from existing business, is difficult. For Millésima, for example, the website is simply its mailshots in a different form. It reckons that between five and 10% of new contacts are through the net, according to Stéphanie Roque, with much depending on the quality of the vintage; online sales comprise 20% of Millésima’s turnover. At Berry Bros, online sales are 15% of the total, says Alex Murray. “It could go as high as 40%; it’s hard to judge,” he says. At Direct Wine, a purely mail-order company that has had to come to terms with the net, Chris Terelak says, “We had a problem getting the internet to work in a complementary way to direct mail: when we started the website we used to get less response than with direct mail. Now the technology landscape of the web has changed a lot. We experimented with extra price reductions online, but it wasn’t a clever way forward. Now we use offers tactically on the web. Lesser lines sell better on the web. And while mailings are structured around particular recommendations, you get nearly the whole inventory on the website.”
Murray expresses horror that the BBR website could ever be regarded as just another way of selling wine. “It’s an educational tool for customers,” he says. “The more they know about wine, the more they trade up.” Customers do their research online, he says, and then come into the shop armed with reams of paper; which certainly doesn’t suggest that, for BBR at least, the internet is likely to replace personal contact. Or maybe customers just like the BBR shop: who wouldn’t? But while not wishing to decry the pleasure of browsing in a good wine merchant – the pleasure of picking up bottles and looking at labels – it’s worth pointing out that the antiquarian book trade, where you might think that the pleasure of turning over pages was half the fun, is now dominated by the internet.
>Personal recommendations
Terry McBride of Nettwerk Music Group in Vancouver has some pointed views on how the wine trade could learn from other industries. “You have to turn people into your sales and marketing force,” he says. “60% of the internet is created by individuals on their own websites, with content ripped off from other sources. And over two-thirds of the internet is generated by people over the age of 25.” So you give away a graphic on a wine label, or a 30-second video, for people to put on their websites. It’s also peer-to-peer recommendations. “People are more likely to buy on a personal recommendation than on a Parker recommendation, at the low to semi-high end.” Music is talked about in chatrooms, he says; so is wine. “The results are incremental, and can be long-lasting. There can be no need ever to go to retail, and your profits rise enormously.”
McBride is talking about direct selling from the producer. Google “infolust” and you will find details of how to have a barcode on a label that can be scanned with a Blackberry at a restaurant table. For example, you like the wine, you want to buy it, and you get straight into that producer’s website – as opposed to going home, forgetting the name and never getting round to it.
But of course, as Brett-Smith at Corney & Barrow points out, “The reason that producers are kind enough to use people like us is because they don’t want to get involved in streams of customers coming to them; that’s our job. They just want to make wine. The easier an agent makes it for them to do that, the happier they are.”
So perhaps the real middlemen, whose fate we should be watching closely, are the négoces of Bordeaux. Millésima sells direct; others, like Dourthe or Yvon Mau or Sichel, have brands they are working hard at building up, and often own châteaux as well. But pure négociant business? Those châteaux that are on the Place purport to be happy with it – but go to Latour’s website and you will be invited to become “a friend of Latour”. Why?
Brett-Smith is understandably pleased that about 15 years ago C&B embarked on an “exclusivity of producer” policy. About 145-150 of its producer relationships are now exclusive. “We’re a middleman, but not one of two or three,” he says. What C&B would like to see is producers not using the web to sell direct but using it to list their authorised distributors in different countries, the way that Rolex does.
Price monitoring
What then of Liv-ex, which arguably set itself up as a middleman, albeit one intended to cut out other middlemen? It has 150 members, all merchants, and offers an online wine exchange. “If you want to find the price of Lafite 1995, you can see what orders there are on-screen, what stocks, exactly where all the big stockholders in Europe are and where it’s traded. You can chart information like a fund manager in the City,” says James Miles. If you’re a private collector you can monitor prices, post your interest and merchants will contact you. Liv-ex is, says Miles, “hitting 30% to 40% of the world market, at very low cost”.
Costs were rather higher at Uvine – enough to drive the company into receivership in late September. It had 25,000 clients, and Christopher Burr MW, chairman of Uvine, claimed, before the business went bankrupt, that “break-even point was 20,000 clients, which it hit after four years”. Its ideal size, he said, would be 50,000. “The amount of stock on offer is even more important. In a supermarket, if you have a lot of shelf-space you get more sales,” said Burr. He reckoned to sell about 10% of what’s on offer each month; and spent about £30,000 a year on ads and PR. “If we’re getting, say, 20 new users a month, which is a conservative estimate, the cost to us is over £100 per recruit. But we get 10% per sale – 5% from the buyer and 5% from the seller – and the average spend is £3,500, so £350 per transaction comes to us. It’s worth it.”
The landscape is changing, even as I write this. As Corney & Barrow’s Oliver Hartley says, tongue-in-cheek, “We held off for a long time; people were spending a lot on getting little return. BBR has done a lot of learning for us. I must remember to thank Alun Griffiths the next time I see him.”
© db November 2006