The Financial Times published a story, Amazon to enter US wine market, that infers a new strategic move by Amazon into US wine sales based on a recruiting specification for a senior wine buyer to be responsible for a "massive new product selection." What's it all mean?
The Opportunity for Amazon
- The $25+ billion U.S. wine market is simply too big for the world's largest retailer to ignore.
- Wine has truly gone mainstream or Amazon wouldn't deal with the potentially negative PR of selling alcohol (see Top ten reasons driving wine's growing popularity).
- Selling wine complements Amazon's move into groceries, which includes national sales of more than 22,000 non-perishable items and a pilot program in Seattle called AmazonFresh that includes perishable items delivered locally.
- Amazon competitors in groceries such as Costco and Safeway sell wine online (see Safeway expanding into online wine sales) so Amazon needs to respond.
Amazon's intentions
While the FT article indicated Amazon declined to comment on its plans, the reference to a "massive" selection implies national online sales as one wouldn't bother to build up a large wine inventory as a mere adjunct to the pilot program of AmazonFresh.
Challenges for Amazon
- Licenses - Selling wine requires Amazon to become licensed in one (or more) states depending on whether they fulfill orders from a single location or from multiple states.
- Shipping laws - Interstate shipping of wine involves a maze of confusing regulations that may be a new form of challenge for Amazon's highly regarded fulfillment operation. Hopefully, Amazon will throw their weight and financial resources behind the SWRA's initiatives to streamline these laws.
- Supply requirements - Amazon's mass market retailing approach implies a focus on wines at lower price points that tend to be available in larger quantities.
- Age verification of buyers - This would be a new requirement to implement in an online context that isn't currently part of Amazon's ecommerce capabilities.
- Perishable nature of wine - If Amazon plans to ship nationally, it will need to contend with weather conditions during shipment that potentially damage the product.
Inherent advantages supporting Amazon's move
- Purchasing clout - Amazon can buy in volume and negotiate better pricing than other retailers (although this doesn't really apply to more sought-after, limited production wines that don't need to offer financial incentives to sell their full production).
- Low shipping costs - If one can use Amazon Prime (free two-day shipping for an annual fee of $79) for a 40 lb case of wine, then this delivers real savings to the consumer.
- Online marketing skillset - Amazon has a reputation for pioneering online marketing features which become industry standards.
Conclusions
- Amazon is well positioned to make inroads into online wine retailing but will need to conquer the same challenges currently frustrating others to succeed.
- The competitive landscape for online retailers selling mainstream, high-volume wine brands is likely to become much tougher.
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