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That's on the surface. Dig a little deeper, and you'll see a maze of laws regulating liquor sales in each state. Enacted at the end of Prohibition, the laws effectively decentralize alcohol sales, making them the responsibility of individual states -- and a nightmare for any online business. In each state, wholesalers that import wine from around the world are the only entities allowed to sell to retailers, while retailers can only sell to individuals. Retailers can't ship across state lines. In about 20 states it's even illegal to ship wine to an individual's home. Only seven states allow licensed merchants to ship directly to citizens from other states, and only a dozen more states have reciprocity laws -- allowing merchants in one state to do business with them. As a result, there are no national wholesalers. The largest wine wholesaler operates in just eight states. NO STANDARD. Enter WineShopper.com. The online wine merchant, backed by $46 million from Kleiner Perkins Caufield & Byers and Amazon.com, thought an automated distribution system linked into wine wholesalers and retailers across the country could solve that problem. But the company already is running six months behind schedule, and the service, started in April, is dramatically less ambitious. Instead of launching in a handful of states, as it had planned to last December, the service is only available in California. WineShopper plans to roll out its service in 15 states by yearend, starting with New York next month. Still, that's a far cry from the close to 50 states it had once planned to be in. The biggest problem has been WineShopper's main innovation: a nationwide distribution system that it's developing on its own. The system, called the Naxon Network, is designed to link and track the inventory of about 250 major wholesalers in the U.S. But WineShopper's first attempt at creating a database to house all that information failed. The problem was the lack of a standard inventory method for tracking wine. Books, for instance, have one coding system based on so-called ISBN numbers, or unique I.D. numbers assigned to each book. The ISBN numbers make it easy to track a book in any library, store, or warehouse. But with wine, each wholesaler has its own system for collecting inventory data and coding wine in stock. Connecting more than 200 wholesalers has been a bear. So far, the company is getting data feeds from only 14 of them. "This is the hardest thing to do, because it has never been done before," says Peter Sisson, CEO of WineShopper. And it's absolutely essential. By being an aggregator of orders, WineShopper gets around the maze of state liquor regulations. Instead of being a licensed wine merchant itself, the company is what's called an "agent of the customer." That means it essentially collects customer orders and contacts the appropriate wholesaler and retailer to have the order delivered by mail or made available for pickup at a store. The system also is supposed to give WineShopper instant access to what inventory is available in the pipeline. As a side benefit, it is intended to help wholesalers automate their inventory management. That way, wholesalers have an incentive to sign up with WineShopper. "WHOEVER CRACKS THE NUT." WineShopper is starting small. Under the scaled-back plans, the Naxon Network won't be operational right away in all the states where the company plans to do business. WineShopper plans to start in each state by offering boutique wines that aren't distributed by wholesalers. Then in some states, the company plans four to six weeks later to turn on the network. While WineShopper is aiming to offer wine in 70% of the market within a year, the network is expected to be operational only in 50%. In the remaining states, WineShopper will offer boutique wines. Still, Sisson says the scaled-back approach is the way to go. "Amazon told us to take our time and be sure we deliver on the Amazonian promise of customer service," Sisson says. He had better. WineShopper's two other main competitors have tried different approaches. Wine.com, formerly known as Virtual Vineyards, began by selling boutique wines from tiny vineyards not aligned with distributors. It now works with producers, wholesalers, and retailers. Another contender, Portland (Ore.)'s eVineyard, is a licensed merchant that buys from wholesalers and either ships wine directly where permitted or delivers wine out of its own distribution centers sprinkled in states that include Florida, New York, and Ohio. So far, none of the companies has locked up the market, analysts say. "The market is high-margin and a dream for whoever cracks the nut," says Evie Black Dykema, an analyst at Forrester Research. "It's a logistical nightmare, though, and you have to earn the market." But until WineShopper's database is up and running in several states, the company will remain in something more like...a dream state. Heather Green covers the Internet for Business Week. |
