The Oldest Business Needs Innovation
Since the dawn of recorded history wine has been central to human culture and daily life. From the Biblical story of Noah (planted a vineyard when leaving the ark) to the hit song by UB40 “Red Red Wine,” we have consecrated and celebrated with wine. However most of us, in modern era, have lost our connection to the land, to the process of winemaking.
We buy wine in bottles in a store on the street. More removed from the earth of the vineyard you couldn’t get. And besides the complete lack of connection between the drinking of the wine and everything that it takes to make that gorgeous elixir, over the past several millennium a multi-leveled business structure developed around wine — which basically has not changed much.
You have the vineyard owners, the winemakers (sometimes these are owned by the same people), and then the distribution system. For thousands of years wine has been exported on a global scale. The Roman Empire is credited with helping to develop a systematic trade system, but shipping wine far pre-dates the Roman Empire. For an interesting historical review see this article on Vinepair, which looks at over 8,000 years of wine shipping.
Of course all this complicated logistics led to a economic stratification…many hands (literally) handled wine as it made its’ way from the hills of the Galilee to Alexandria, Rome and more.
Beyond the logistics, which two thousand years ago were not yet fully taking advantage of the internet (think then it was a raven based system, slower even than dial-up) — there were many risk takers, who each wanted to be paid. You placed a season’s work on a ship in port and hoped it would make its’ way to customers eagerly waiting on the other side of the sea.
The basic economic tiers that developed way back when are the same today. Once the winemaker “releases” a wine, ownership will be passed to a broker, then a global distribution company, then a more local distribution company, then a store. Only then does the actual intended consumer plunk down some stored value (we call money) and buy the wine. Between the winery and the consumer are a long line of players, each taking a measure of risk on this wine — with the store obviously being on the front line of risk, but theoretically the one who knows best if their usual audience will buy this product.
Not so different than many products you say? Well, yes, some of the above is similar, but most other branded products have gone through a transformation greatly shaped over the past 20 years by the proliferation of the internet and ecommerce. Now, no matter where I am, I can be in direct interaction with the maker of the product. When I go to the website of Apple, and buy an iPhone — Apple is directly interacting with me. No long line of risk takers adding to the price. Wine, however, is still largely sold the same way it has been for thousands of years.
In addition wine has been regulated differently in many parts of the world. In the USA wine still feels the effects of Prohibition, when any alcohol was illegal to make or sell. While that federal restriction was removed long ago (Prohibition lasted in the USA from 1920–1933) many states still restrict the sale of wine to “authorized” distributors and points of sale. Obviously this also serves to keep in place a system that is designed to distance the consumer from the producer. Who benefits from this? Well, definitely the folks along the way who are made necessary by the regulation. But remember — it is not a free ride for anyone. Everyone involved takes on a level of risk. The importer, the distributor, the store. Most of the time each of these actually takes ownership of the wine for a period of time.
In the EU and other parts of the world regulatory environment is a bit better, but still have local regulations (what alcohol level is the maximum for wine, what the labels need to say, etc.).
And finally, wine is different than most retail products because it takes much longer to make. If electric scooters are selling well, production can be ramped up within weeks — at most months. Wine, especially good wine, takes years to make. And even then, will often get better the longer you wait to consume it (quite different from your iPhone, which gets to seem “old” months after you bought it!). If a particular wine is doing well, no real way to simply “make more.”
As a wine consumer for many years I was aware of the lack of business innovation in the wine industry, but didn’t fully appreciate how little the industry would change. In 2012 I co-founded my own winery, and simply assumed that most of our sales would take place on-line….and then met reality. How to get the wine to a consumer, who will take care of the regulatory process, expenses of the logistics, state-by-state differences in terms of shipping laws, and lack of digital platforms to allow us as a new winery to simply drag and drop and sell.
In 2012 so many platforms already existed for selling books (Amazon) or pez dispensers (ebay) or even something as complicated as travel (e.g. Airbnb was founded in 2008), and would continue to develop in so many verticals. The internet allows for buyers and sellers around the world to be drawn closer together and cut out a lot of the middle people, who added value in a pre-internet era but not so much value when I can simply click-buy and have something delivered from Shanghai to Cleveland (and track the shipment along the way).
Flash forward to 2019. Thank the wine gods — there is some movement to bring to the wine world some positive disruption!
I co-founded a company last year to take on some of the above challenges (for more on that see here). But I am not alone — there are others, and I welcome coopetition. We are proud members of La Wine Tech, an association of wine related start-ups.
The wine industry currently generates over $300 Billion a year. Yup, that is billion. Much of that revenue goes to support a distribution system that is thousands of years old. Not many start-ups can say they are bringing disruption to a 8000 year old system! I truly believe that what we are doing will increase the pie (or in this case, the bottle). We are not simply about circumventing the current way most people buy wine (but that is part of our story). Through innovations in experience, price, and being part of the native digital culture we will actually increase the amount of wine being sold. A modern day miracle of turning water into wine.
All the current players have a potential role to play in this innovation story. It is still too early to tell exactly how it will all play out — but I guarantee one thing, we will still be drinking wine. L’haim! Cheers!
