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07.08.2010

The Latest Thing: Flash Sale / Closeout / Massive Discount Web Sites for Wine

One of the nice things about having so many high quality wine blogs around is that on occasion people write articles that I was going to write, and simply save me the trouble. I had been sketching in my mind an article about the phenomenon of Flash Sale wine web sites -- you know, those sites that sell closeout wines in limited quantities for deep deep discounts -- but Jeff over at Good Grape wrote a very nice piece about them yesterday that says most of what I was interested in saying.

Jeff contends that a shakeout of these sites is coming, and points to the acquisition of Woot! by Amazon.Com last week as a harbinger of greater consolidation and/or lots of fallout in this space.

I agree that such a shakeout is inevitable, but I disagree with Jeff about when. From everyone I've talked to, the amount of excess wine inventory on the market is truly massive. The consolidation in distributors in this country (from 7000 to 700 in the last 20 years according to Barbara Insel of Stonebridge Research Group) combined with the drop in demand for wine over $40 means that there are thousands of smaller wineries with millions of cases of expensive wine out there that most retailers, restaurants and distributors aren't touching with a ten foot pole.

These wines will need to get sold somewhere, as they can't just sit around. They not only have to get out of the way for the next vintages that need to sit in the warehouse, they need to be turned into cash to pay for labor for the harvest, barrels for the next vintage, and all the other cash intensive aspects of keeping a winery going. For more detail, see my article: The Coming Carnage in the California Wine Industry.

How much inventory is out there? No one knows the complete answer, but I think it's plenty enough to easily support another year or two of these deep discounters, who will continue to proliferate (I know of two more waiting in the wings about to launch) until, as Jeff says, they start going "poof" just like the wine.

Until then, there are some amazing deals to be had by anyone who has the means to be buying wine in this economy.

Here's the list of the deep discounters / closeout artists / flash sales for wine that I know of:

Wine Woot!
Wines 'til Sold Out
Wine Spies
Cinderella Wine
Wine Heist
Vinfolio Flash Sales
Cellar Thief
Winery Insider
Wineshopper
Vinobest (French)

Read Jeff's article.

Comments (22)

07.09.10 at 7:58 AM

Totally agree: the excess inventory is massive, though just how massive is probably a secret so dirty no one in the industry wants to whisper, let alone share it.

For the fun of it, here's some back-of-the-envelope math using numbers just for Napa Valley: There are over 500 wineries producing around +/- 9 million cases a year. The average bottle (all varietals baked in) retails for $43. Some estimates say that as much as 10% of Napa wineries are expected to go belly up in the next year. Let's say that's high - way high - and it'll only be 5%. Now who knows which 5% that'll be, but given the price points where we've seen demand erosion (too kind a word for falling off a cliff), let's just say that demand has largely evaporated for bottles over $40 - or half the value of bottles produced in Napa. Not entirely sound math, but we'll more than compensate for that in a sec - and this is just a lark anyway.

If we further assume that somehow, miraculously, the 95% of wineries that will not go belly up this year are completely unaffected by the drop in demand and only those 5% of wineries in trouble will be seeking the assistance of virtual clearing houses. And as long as we're dreaming, let's also assume that they've somehow managed to liquidate their 2006 inventory, so they've only got their 2007 in bottle, some of the 2008s, and the 2009 younger varietals are going to be itching to get out of barrel soon. In total, we'll guess that there's a vintage and a half's worth of wine in bottle. Again, using broad numbers, this means that these poor suckers are sitting on over 8 million bottles of wine their distributors don't want. That's just Napa - which is just 4% of all wine in California. And that's just today - a new harvest is only a few months away. Eight. Million. Bottles.

On a busy day Woot will make 300 sales and they typically offer lots in 2-4 bottles. Let's double that and say that every day they sell 2400 bottles. Napa's current excess inventory would keep Woot busy for 9 years. Sustainable? I'd say so. Wine buyers rejoice!

(Sorry for the long comment.)

John wrote:
07.09.10 at 8:26 AM

lastcallwines.com (thought I learned about it from you)

Roger wrote:
07.09.10 at 8:53 AM

Wine Squeeze (http://winesqueeze.wordpress.com/) does a nice job consolidating most of the sites - and they'll also email you a daily summary. Super nice to have it all on one screen.

Jeff wrote:
07.09.10 at 11:25 AM

Glad to have beat you to the punch because between you and Wark, I've been pre-empted many a time with a post from you guys that said all that needed to be said about a subject.

Thanks for the pointer.

Jeff

Martin Cody wrote:
07.09.10 at 1:18 PM

Add this one to the list, launching in August: www.cellarangels.com
Winethropology is 100% accurate and a great post. Thank you Jeff also! 90% of the near 400 wineries in Napa alone produce under 10,000 cases and they're the fabric of this amazing industry we/I love. There's 30+ wineries under bankruptcy filings right now. Cellar Angels is a bit different in that we work exclusively with wineries, not distributors, and donate 10% of all proceeds to a charity the purchaser selects. Full disclosure: I work at the company.

BaroloDude wrote:
07.09.10 at 1:31 PM

wired for wine is another site.... there are sadly so many. my inbox overfloweth.

Rob McMillan wrote:
07.09.10 at 3:46 PM

I see the inventory positions first hand since SVB is one of the largest lenders to wineries on the West Coast. I can tell you from survey information of 465 wineries, from first hand information from distributors, relationships we have with wine brokers, and from the aggregated CPA financinal information from family run wineries - the message about a 'massive' over-supply is flat out bogus. I know its hard to believe for many but its fact.

Selling luxury wine to discounters happens whenever there is a supply/demand shock. But producers won't produce or sell uneconomically for ever. They adjust and have been doing so since 2008. Discounters are the first option abandoned as the markets balance out and we are quickly getting to that point in time. Its not to say discounters and discount sites have to vanish. Only that their business models will have to evolve because a winery that can sell wine through non-discounted measures, will do that.

Those curious for more can read our perspective in the Annual State of the Industry report released late April. The perspectives are still valid: http://bit.ly/bwEAjj

Grant wrote:
07.09.10 at 8:57 PM

It does seem that the top end has been fairly resilient up till now. Name brands are still selling. Trying to get a step on the Napa ladder now though I can only imagine is going to be hard going if you don't have brand recognition. But the differing perspectives offered by Rob and Winethropology only serve to emphasise just how confusing this market is at the moment.

Robert Hall wrote:
07.10.10 at 5:45 PM

I've been sifting through offers from three different sites over the last three months. My email box was jammed with uninteresting stuff. Finally, this week I unsubscribed to all three. I fell like I can find decent deals at my local wine shop and take advantage of their insight and expertise. Upon reading your post, perhaps I should've been more patient until the better stuff begins to spill forth.

Ian wrote:
07.10.10 at 10:35 PM

people, don't forget about the bulk market. That's the first way for wineries to adjust their inventories. Don't assume that everything a high-end winery produces ends up as bottled inventory. Very famous wineries have unloaded huge blocks of wine on the bulk market. So the Cameron Hughes, Castle Rocks, Banshees and other negociant brands (and countless private label wines) will have some pretty damned good wines over the next few years. For high-end producers, this is usually a great way to get their inventories down to a controllable level, *fast*, and in a way that doesn't touch their brand value.

The flash sites are usually a winery's *last* way to blow out already-bottled inventory.

Rob is absolutely right. It just doesn't make sense for high-end wineries to continue producing wines they make a loss on. They'll bulk out wines, then they'll cut back on fruit they buy from growers. They'll stabilize their inventory to match demand. That's the way it works.

Alder Yarrow wrote:
07.11.10 at 8:34 AM

Of course, Ian, you are absolutely correct, but the catch is that at any given time wineries have 2-3 vintages already in barrel and bottle that have been made with no visibility into the market when they release. The 2009 production of most any winery will reflect exactly the kinds of moves you're describing, if they're smart and want to stay in business, but earlier vintages that have been in bottle for some time are more difficult to "dispose of." That which is in barrel, of course can, and will be bulked out to some degree. The coming couple of years will see a remarkable improvement in the quality of Two Buck Chuck if you know what I mean.

Mart S. wrote:
07.12.10 at 12:25 AM

Thanks for the links. Good thing I've read this post. Only if I can vote this site in WBA. Cheers!

Martin Cody wrote:
07.12.10 at 8:57 AM

Mr. McMillan: I respectfully disagree with the assessment a “…massive over supply is bogus.” As both a wine shop owner and business owner connecting wineries direct to consumers, I speak with wineries, like you, virtually every day. As has been mentioned accurately within this string of comments, the higher end producers (read: Sloan, Hundred Acre, Bryant, Colgin, Harlan, etc.) are quite insulated as their waiting lists are measured in years. If someone doesn't take this year's allocation, the winery will almost assuredly find a replacement. However, the wineries producing great wine in the $50-$100 range, and fewer than 7,500 cases, are the businesses suffering all over California. Fall releases are just around the corner and many of these wineries have 700+ cases they're paying inventory holding costs on while trying to now get ready for harvest. (I know personally of countless wineries in Napa alone having over 1,000 cases). Alder is spot-on with the bulk wine assessment, as is norm for this industry. Look for all the chain or franchise locations (Costco, Trader Joe's, WineStyles, ABC, etc) to offer box or bulk wine very soon. It would shock most people to realize that $20 four bottle/box of Chardonnay is normally $70 bottle juice from xyz winery. And don't forget the high number of custom crush pads that will vaporize in the next 12 months.

There is a surplus, there is a need and these businesses will survive if they meet/exceed the need. I would expect many offers from 2006-2008; a great thing for the consumer.

Cheers,

Martin Cody

Tony wrote:
07.12.10 at 9:50 AM

I disagree with the premise that wineries lose money selling with us. Not ONE winery that we have done business with directly has lost money on the sale of their wines. After you factor in the ease of doing business with us, we are generally right around where their distributor FOB's are.

Some brokers or distributors that we do business with may sell the wine at or below their cost, but this is to move inventory that otherwise would not see the light of day.

In business school (late 90's), I wrote my thesis for my Investments class on why eBay would be out of business with a few years. I got the hightest grade in the class on the paper, and of course if I would have put my money where my mouth is, I would be broke! My point is that business models adapt and change. There always has and always will be a need to move inventory.

Having been in the business for a while, I can tell you that what is happening in the business cycle with wine has happened time and again across industries. Cosoldiation with distributors if forcing smaller wineries and even some larger ones to find alternate channels. Online wine sales will continue to grow at an outsized pace versus other channels and will become another part of the channel strategy for wineries. It is more efficient. This change has already happened at the more savvy wineries.

Heidi wrote:
07.12.10 at 2:56 PM

And then there are those of us in the 13 states that don't allow direct wine shipping. We unfortunates cannot take advantage of these great wine deals. The economy is in a mess and this is not the time for protectionist bills like HR 5034, currently in the Subcommittee on Courts and Competition Policy.

tannic wrote:
07.15.10 at 1:16 PM

I happen to know of more than one winery that uses sites like these to get an initial introduction to new consumers. The loss of opportunity cost comes with the benefit of using your product as marketing dollars. Not everything is a close out.

Matt Allen wrote:
08.04.10 at 3:57 PM

I agree with Rob that the bulk of the wineries adjusted with the 2008 harvest and that the cut rate sites will have to adjust after the 2007 vintage, as the good wines will dry up.
I think the wineries are going to shake out in the next year. I am really worried about the growers, because they cannot adjust in the same manner.

Alder Yarrow wrote:
08.04.10 at 9:00 PM

Add another to the list. The recently launched: http://www.preferdine.com/

Jack Williams wrote:
08.25.10 at 8:20 AM

There is now an official "flash sale" website at http://www.flashsale.com/ They are still in beta but should be launching in October.

Emily Muilenburg wrote:
08.29.11 at 9:36 AM

A quick note - Winery Insider isn't actually a sale site anymore; the site is now invino.com. It's my personal favorite. I don't think the flash sales are all bad, especially not when it's a private site, like invino.

Thomas wrote:
10.03.11 at 2:31 AM

Does anyone know of a German wine flash site?

Thanks Thomas

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