Online wine: Retailers must get creative on delivery

Fulfilling online wine orders is “the single biggest problem” for wine e-commerce and online retailers need to get more savvy and creative to solve it, industry experts have warned.

The cost of fulfillment has always been a problem, according to Negociants UK md Simon Thorpe – and this has been boosted by the consumer’s expectation that products bought in different channels should cost the same.

“It is very difficult to charge a premium, but it costs a lot to deliver, especially within the demands of the modern consumers who expects something now, or exactly when they want it”, Thorpe said. “The biggest challenge of online retailing is the price premium [retailers] need and the price they want to charge.”

With online giants such as Amazon promising timed one-hour slots, this is only likely to accelerate, potentially opening up a “minefield” for retailers, according to Andrew Steel of importer and agent Connoisseur Estates.

“I look forward to it [the expansion of online retailing] but also fear how it will develop, as it will become more cut-throat due to the ability to deliver.” he said. “We can all give a nice price on a bottle of win, but once you add £10 on for delivery no top, it makes it a different proposition, and there is a big difference. This is where [retailers] should really concentrate – not on the price of the bottle. I don’t think they look at it enough. And if more people are climbing into online retail, are they really aware of all the issues.”

He argues that retailers and delivery companies need to get their heads around the true cost of fulfillment above the more ‘obvious’ delivery cost.

“How much do breakages really cost – and how much will you actually be covered for by insurance?” he asked. “Transporters and couriers might not see the difference between a box containing £10 bottles and one containing £200 bottles – but all of that must come into the cost of fulfillment.”

Basket sizes

Part of this problem lies in retailers of all sizes bringing themselves in line with their competitors’ costs in order to compete, Neil Palmer of independent supplier Vintage Roots points out, and for many, this means subsiding delivery costs. “You do get dragged along with everyone else,” he said. “A few years ago we used to offer free delivery on orders over £250 but we thought we ought to bring ourselves into line [with other retailers]. It is a big dent in margin and on any profits, but you almost feel like you have to do it to be competitive.”

However Palmer said doing away with the “smoke and mirrors” that allow retailers not to charge full cost of fulfilling an order – either by absorbing costs themselves or putting up the price of the wine itself to cover it – would be tricky. “But you have to pay for it at some stage to keep in business,” he added.

According to Tim Wilson of the Wilson Drinks Report, baskets need to be over a certain figure to make online operations profitable.

“You’ve got to sell a lot to make it work,” he said. “If you sell a case for £120, that is £100 net of VAT, take the duty off and its shrunk to £75. Even if the margin is 20%, then there isn’t much left after logistics and fulfilment costs. However, if you are operating on Click and Collect, then there should be significant savings on fulfilment costs, which is why so many retailers are keen to take advantage of opportunities for Click & Collect.”

New ways of solving this dilemma are needed, Steel argues, pointing to the opportunity of greater collaboration, or increased creativity, such as scaling costs beyond certain areas and greater use of click and collect for online retailer who operate their own stores.Some of the recent developments include Naked Wines’s use of Majestic stores for click and collect, Aldi’s tie in with the CollectPlus network for its online wine sales, and Amazon’s proliferation of lockers through Doddle and Inpost.

One bright spot is that as the online landscape evolves and adapt to the seismic changes happening in the wider retail landscape, online operators will be able to take advantage of new opportunities, according to Andrew Bewes of Hallgarten Druitt. “Each one has to find their nice in the market – if they compete at the entry level and are adding on the cost of delivery, it will go the way of all thing. It truly  is a matter of adding the value the consumers is looking for, and for which they are prepared to pay.”

People, he argues are prepared to pay for delivery of premium products.

And as Thorp points out, the more premium the unit price the better, and the more efficient, the more economically viable it will prove in the longer term, fulfilment notwithstanding.

To find out more about the key trends and growth opportunities within beers, wines and spirits retailing, you can purchase and download a copy of the latest WDR report here.