Amazon Wine will shut down by the end of the year. The online giant informed wine sellers they will no longer be able to sell their wines through the Amazon Marketplace after December 31.
How Does This Affect Me?
Wineries and other wine sellers who use Amazon Wine will need to find other means to reach customers and distribute their products. As the Amazon situation demonstrates, it can be tricky to compliantly operate as a marketplace provider in the beverage alcohol market. The good news is there are other online marketplaces available.
Established online marketplaces are a potential alternative, and some, like eBay, already offer services for wineries. Or, you can look for wine-specific marketplaces, like Vivino. Another option, Woot.Wine, has been an active marketplace for wineries for many years. However, Woot is also an independent subsidiary of Amazon and could potentially fall into the same troubled area as Amazon Wine.
Of course, operating your own personal shopping platform through your website is always an option. The advantage Amazon Wine or other marketplaces bring, though, is that a wider range of buyers will have a chance to see your wines, as opposed to only your active fans who actively search for your products.
Why Is Amazon Wine Shutting Down?
Amazon’s announcement is not wholly unexpected. Ever since purchasing Whole Foods earlier this summer, Amazon has been in a regulatory limbo.
Many states’ Tied-House rules – and in particular, California’s – prohibit most cross-tier collaborations between producers and retailers. As long as Amazon acted merely as a marketplace for producers, it could claim its hands were clean. But, with the purchase of Whole Foods — including Whole Foods’ retail liquor licenses — Amazon could no longer maintain that claim.
Amazon’s position became even more tenuous after it began signaling it would use its Amazon Fresh and Prime Now to market wine sold from its Whole Foods locations. By both serving as a marketer for wineries and a retailer, Amazon would be entering a regulatory minefield.
If nothing else, it would be competing against itself — any wines sold by a winery through the Marketplace would potentially compete with sales at Whole Foods locations. Or worse, Amazon would be set for potential cross-tier shenanigans and collusions. For example, if Amazon required wineries using its Marketplace to also distribute to Whole Foods locations, or vice versa, that would be a paramount example of illegal inducements prohibited by Tied-House rules.
As a result, Amazon was faced with a difficult choice of options: Convince regulators it somehow wasn’t violating Tied-House rules, convince legislators to change Tied-House rules, or shut down either Amazon Wine or Whole Foods liquor stores. Amazon made the decision that maintaining Amazon Wine was the least profitable choice.
It will be interesting to see if Amazon can succeed in establishing a functioning liquor market through Amazon Fresh and Prime Now. Amazon now faces the difficulty of having to act as a compliant retail licensee, and will be restricted by those rules.
Anyone paying attention to this market knows online sales by retailers is an extremely fraught affair. Only 13 states currently allow out-of-state retailers to sell directly to their residents.
For more on retail direct to consumer, stay tuned to this blog and our social media accounts over the next several weeks as we plan to post a series on retail DtC.
Many states permit in-state retailers to deliver to customers. However, various regulatory restrictions – such as restrictions on using common carriers – could complicate Amazon’s established business model. Amazon will also only be able to fulfill from local Whole Foods stores that have liquor licenses, though it will be able to offer whatever those stores are licensed to sell — including beer and spirits. While this is no small number, it will likely mean many past customers of Amazon Wine may not be able to enjoy its replacement.
It’s a bit too early to predict what affect Amazon’s decision will have on the DtC market or on the beverage alcohol industry at large. A great number of wineries use Amazon to market their products to a wider range of potential customers than they can reach on their own. These wineries will have to find new resources.
But if Amazon can raise more awareness of DtC sales, there could be residual effects for other market participants. One of the main benefits of DtC wine sales has been the opportunity for wine drinkers to find products in their local markets. If the wine they want is not on Amazon – or is no longer available on Amazon – they’ll be cued to search elsewhere online. In that case, Amazon will be limited to marketing products sold through its Whole Foods licenses. If customers keep asking for wines not available in these stores, that could spur an expansion in the number of wines carried at Whole Foods.
And then there is the potential regulatory impact that Amazon could have. With the retail giant joining the ranks of brick-and-mortar retailers through its Whole Foods acquisition, it could throw its weight and money behind more pro-retailer regulatory changes, including any efforts to expand retailer DtC.
Because of its size, Amazon has an immense impact on various industries whenever it does anything. The decision to shutter Amazon Wine will no doubt affect the entire beverage alcohol market, not just DtC sales. The nature of these effects, though, are only going to become clear in the coming months.