Amazon Does An Abrupt About-Face, Recorks Its Wine Plans

After fostering excitement among winery owners and engaging in about two years of preparation, Amazon has decided to put the cork back in a plan to sell wine over the Internet. The E-Commerce giant is staying tightlipped about the reasons for its sudden attack of cold feet, and many are pointing to the myriad rules, regulations, taxes, fees and laws involved in selling and shipping vino in the U.S.

Amazon planned to have a California company with which it partnered, New Vine Logistics (NVL), handle the complex order-fulfillment hassles and legalities. That didn't quite work out as NVL, citing a "financial crisis," went out of business in July. Although Inertia Beverage Group subsequently purchased NVL, some have argued that NVL's problems played a part in Amazon's retreat from wine.

This is not the first time Amazon has tried selling wine and been sidetracked by bad economic conditions. Back in 2000, Amazon bought almost half of WineShopper for $30 million. But the dot-com implosion that summer wound its way to the wine seller and brought stock prices into the cellar, too. WineShopper merged with another crushed grape E-tailer, Wine.com, and the combined company went bankrupt and was sold in 2001, according to Wine Spectator, which added that Wine.com operates today with new owners.

Lewis Perdue, editor of Wine Industry Insight reported that NVL spent tons of money getting ready to handle Amazon business that never came despite all indications it was on track. "They had a beta test of the [Amazonwines.com] site up and running this past summer and I saw it, courtesy of one of the people who had a password," he said. "They had a system, and it had supposedly advanced toward the late beta stage."

In his publication, Perdue noted that NVL, in preparation for the onslaught of Amazon business, "ramped up shipping and fulfillment capabilities by expanding into a 380,000 square foot warehouse facility." However, he noted that an NVL investor told him he became weary of waiting for the Amazon deal to become reality. "We got tired of hearing 'Amazon, Amazon, Amazon,'" from NVL, Perdue quoted the investor as saying. "I felt like I was back at a college production of Waiting For Godot. I didn’t like the play then, and I certainly didn't like having my money wait any longer," the investor added.

On October 23, many wine industry executives received an E-mail from Dini V. Rao, Amazon’s senior account manager for Business Development, Wine, in which Rao said, "I am very sorry to let you know we have recently decided not to resume shipping. As you know, we were excited to work with you to build the AmazonWine business. For that reason, this was a very tough choice for us. Many of you took the time and leap of faith to really support us. Thank you so much! I am sorry that we won’t get to realize the vision on which we have collaborated. Be well and may we work together again soon."

On his Web site, Perdue cited "insiders familiar with the situation" in reporting that, by September, Amazon began "to distance itself from New Vine/Inertia Beverage Group as a fulfillment partner." That, he added, "left other fulfillment partners—who have been concentrating on their own businesses—less eager to 'get into bed' with Amazon, especially since it has been seen as dragging its feet and unreasonably stringing its partners along."

In an interview, Perdue said he thinks Amazon wanted out of the wine business for reasons beyond the hassles of regulatory compliance. "Another thing that happened, which threw a curveball into the whole thing, was a ruling by California's alcoholic beverage commission that any sort of performance-based advertising or compensation on the Web would be considered illegal," Perdue said. "They pretty much outlawed things like the typical affiliate system."Because a great deal of Amazon's traffic comes through affiliates, the new rule is likely to have played a big part in making wine look less profitable to Jeff Bezos and company, Perdue said. "I think they were counting on all of the tens of thousands of wine bloggers and writers picking up on the affiliate program and popping up links to make a buck or 50 cents on each bottle sold," he said. "That was going to go away and the inability for them to use a proven, successful promotional system probably was one more piece of the backdrop. This just steadily accreted to the point that they looked at it and said it just is not going to be possible to get a comfort level with this like we can with power saws and books."

Perdue also cited the company's probable fear of legal action and its uncertainty that NVL could live up to Amazon's strong reputation for speedy and accurate delivery.

"I think that the closer Amazon got to throwing the switch and opening this up to commerce, the more their feet got cold because, at the end of the day, no matter how good a third-party logistics company might be, Amazon is the big wallet at the end of the legal chain," Perdue said. "I think they were convinced something was going to go wrong and they were going to end up liable and quite possibly not be able to fulfill customer orders with the same degree of confidence they have demonstrated well in other areas."

Amazon's retreat from online wine sales was also analyzed in a blog posting by Jeff Carroll, vice president of compliance at ShipCompliant.com, a company that "sells compliance software for wineries, wine retailers and importers to comply with local and state wine and liquor regulations." He wrote that "the prospect of Amazon's wine site sent a wave of excitement throughout the industry as small and medium sized domestic brands with limited distribution saw an opportunity to get exposure through Amazon's enormous book of active customers."

Carroll also wrote that foreign wine sellers would have really benefitted from the Amazon effort because imported brands "don't have the same rights to ship wine directly to consumers as U.S.-produced brands do" and the Amazon program might have been a way around that roadblock. "Because of the large number of brands (6,000+ wineries in the United States alone) and labels that exist in the world, the wine industry seemed ripe for an aggregator like Amazon to come in and help consumers discover and purchase wines that they otherwise couldn't find in their local wine shops and restaurants," noted Carroll. "Sites like Amazon and the Apple iTunes Store are great platforms for exposing the "long tail" of industries that have large selections."

However, as did Perdue, Carroll pointed to the special hassles of distributing wine on a multi-state basis thanks to the 21st Amendment, which gives states the power to regulate alcohol distribution.

"This system has led to a hodgepodge of antiquated laws that are very different from state to state," Carroll wrote. "Much of the existing legislation that regulates the sale and distribution of alcohol was written at a time when lawmakers had no vision for today’s technology that allows for automated payments, electronic title and funds transfers, real-time compliance checks and online age verification. Because of the conflict between available technology and written law, alcohol regulators are often put in a tough position when the time comes to establish administrative policy and to enforce their statutes."

Perdue pointed out that "many people are saying nobody can do it if Amazon can't," but he doesn't buy that argument. "It's probably true that nobody will ever be able to do it, with wine, as reliably as Amazon does it with the products it does sell," Perdue said. "The companies that are doing it do an excellent job. But because of the inherent uncertainties in shipping within a complicated compliance environment, they might not always be able to guarantee delivery within a guaranteed time envelope."

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