The financial services world is going through fundamental changes in its supply chain . Aivars Lode avantce
No end in sight to wirehouse waning: Cerulli
Asset share of big four forecast to drop to 34.2% by 2014
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By Andrew Osterland
October 1, 2012 3:31 pm ET
The decline in wirehouses' market share of assets in the advisory industry has been dramatic since the financial crisis, and Cerulli Associates expects the trend to accelerate over the next three years.
From the end of 2007 to the end of last year, the asset share of the four wirehouses — Bank of America Merrill Lynch, Morgan Stanley Wealth Management, UBS Wealth Management and Wells Fargo Advisors — fell to a combined 41.1%, from 47.8%, according to Cerulli data. And the research firm is expecting those firms to lose another 6.9 points of share by the end of 2014, leaving them with an estimated 34.2% of the market.
“The wirehouses are looking for smaller, more productive adviser forces,” said Tyler Cloherty, a senior analyst with Cerulli. “They want to get to 20% profitability, so they've been changing compensation and moving away from midtier advisers and mass-market clientele. We're seeing a lot of advisers at the bottom end leave the wirehouses.”
Far more alarming for the big Wall Street firms, however, is the competition emerging on the high end from the registered investment adviser channel. Mr. Cloherty noted that platforms at the custodians have improved enormously over the last several years and wealth management service platforms being offered by firms such as Dynasty Financial Partners LLC and HighTower Advisors LLC are encouraging more large wirehouse advisers to go independent.
“They won't lose their advisers en masse. It's going to be death by paper cuts,” Mr. Cloherty said. “We expect the wirehouses to lose assets on both the low and high ends.”
The biggest beneficiaries of the decline will be regional brokerages, dually registered advisers and RIAs. Cerulli estimates that they will pick up 3.5, 2.4 and 2.2 points of market share, respectively, over the next three years.
The Cerulli Intermediary Distribution 2012 report is targeted at asset managers looking to improve their distribution across advisory channels. The wirehouses remain the heavyweights in the industry, and Mr. Cloherty suggested that asset managers feel compelled to pay the increasing fees being demanded by wirehouses to access their platforms.
“It's hard to be a successful asset manager and not have success with the wirehouses,” Mr. Cloherty said. “You have to pay to play there, but we're suggesting clients allocate more resources to other channels, as well.”
When times get tough people work out innovative ways to save money. New business are formed adding value to the community. Aivars Lode avantce
The "mega trend" that swallowed Silicon Valley
October 3, 2012: 12:30 PM ET
So-called collaborative consumption epitomized by the likes of Airbnb has been trendy for a while. But the extent to which it has become popular is impressive.
By Jennifer Alsever, contributor
Tcheou is not Lagod's friend, and she is not a professional taxi driver. She's an unemployed 25-year-old who happens to have time on her hands and a car filled with gas. So she signed up to give strangers a ride in her car using a new mobile ridesharing service called Lyft.
It's one of a flood of new startups that aim to create online and mobile social networks that let people share in the real world. There are apps that find and borrow power tools from your neighbors, that let you rent a nearby stranger's car or hire someone close by to pick up dog food. You can go online to rent your parking spot when you're not using it or you can find a home for your dog when you travel.
SLIDESHOW: 11 sites for sharing stuff
Call it the new share economy or as its known in the industry: the collaborative consumption movement. Airbnb led the way. The site, which lets people rent their homes to travelers, has booked more than 10 million nights in 192 countries since its start in 1998, and last year it generated an estimated $58 million.
Now people are taking a look at any under-used assets they may have, whether it's an empty seat in their car and time on their hands, or a bike sitting in the garage, a vacant parking space in their driveway, an empty cubicle at their office or a power saw seldom used. And they're sharing, borrowing or renting them. "People are looking around and saying, 'Hey, I can rent out my car. I can share my skills. I don't need to own a designer dress, I can rent one,'" says Rachel Botsman, author of What's Mine is Yours: The Rise of Collaborative Consumption. "There is a big shift underway from the 'me' of hyper-consumption to the 'we' culture of collaborative consumption."
The Internet and mobile technology are driving that shift. Some 78% of people say they're far more inclined to share with strangers in the offline world because of social networking. Smart phones add a new layer, giving you instant access and location data about who is nearby. Add in people's environmental consciousness and thriftiness in the economic recession, and demand grows even more.
MORE: When the insurance policy includes a firefighter
Security remains a big issue for many of these peer-to-peer startups following disaster stories of people whose homes got trashed after using Airbnb. At Lyft, drivers must be 23 or older, have a driver's license for more than three years and pass background check and DMV record checks, says Lyft's co-founder John Zimmer. People's cars must be clean, newer and checked for safety, and both drivers and passengers must have credit cards, Facebook (FB) accounts and GPS capabilities on their phone for security. Ratings are key too. If your average rating is low, then your account is closed.
Zimmer says he worked for more than three months to develop an insurance policy that gives drivers $1 million in extra liability while they're driving. "It is this real peace of mind for our users," he says. The strategy is working: Zimmer's other startup, ZimRide, has facilitated more than 50,000 rideshares and carpools since 2008. Just three months after its start, the spinoff Lyft has 150 drivers who have given tens of thousands of rides in San Francisco.
Collaborative consumption has been dubbed a "mega trend" by prominent Silicon Valley investors who have poured $500 million into such startups. A number of big brands also jumped into the game. BMW invested in ParkAtMyHouse.com, a UK startup that lets people rent their driveway, garage or parking space to a stranger for about $10 a day. Ford aligned with carsharing veteran Zipcar, and Microsoft (MSFT) is making a bet on LiquidSpace, which lets mobile workers find workspace and meeting rooms on demand and rent it by the hour or day. The Redmond, Wash., giant recently incorporated the online service into its Office 2013 software, allowing users to find available meeting space on the fly.
MORE: An ATM unlike any other
Google Ventures (GOOG) invested more than $2 million in RelayRides.com, a national peer-to-peer carsharing service. The startup also inked a deal this summer with General Motors (GM) that allows 15 million GM car owners to easily make their vehicles available to renters on the site. Using the carmaker's OnStar system, renters can instantly unlock the car through RelayRides' mobile app or text messaging.
Even Wal-Mart (WMT) vice president Andy Ruben left his job last spring to create a new sharing startup called yerdle—which sets out to be the antithesis of what his former employer is about. The iPhone app will integrate with Facebook to let you borrow or loan everything from kids' clothes to unused pasta makers from friends before buying those items new. The idea hit Ruben after watching so many parents buy new shin guards every soccer season despite the fact that many of their friends probably already had them sitting unused. He teamed up with former Sierra Club president Adam Werbach to start the company, which will launch in time for Black Friday in November.
"It's amazing how many things we have in our closets and our garages that our friends are about to buy," Ruben says. "Why shop when you can share?"
Without having a ecosystem sharing capacity and locking in relationship contractually Apple now has an inability to deliver when there is abundant capacity to produce electronics. Aivars Lode avantce
Apple Can't Innovate or Manage Supply Chain
Apple CEO Tim Cook (Image credit: Getty Images via @daylife)
Stock in media-worship-object, Apple (AAPL), is trading about 14% below its all-time high. When Steve Jobs passed, Apple lost its source of innovation. And when supply chain expert, Tim Cook, took the CEO slot, I thought he would at least be able to make sure the trains ran on time.
But Apple’s quarterly results demonstrate that Cook can’t do that. How so? According to the Wall Street Journal, Apple fell eight cents short of earnings expectations of $8.75 a share for the quarter ending September 29. To be fair, it beat by about $100 million analysts’ revenue forecast of $35.8 billion.
A big culprit for Apple’s disappointing results and slashed stock price is simple — it can’t make enough products to meet consumer demand. According to the Journal, “Analysts say the company could sell 10 million or so iPad Minis by the end of the year, if they can make enough. Analysts have blamed supply-chain problems for lower-than-expected initial iPhone 5 sales of five million in the opening weekend.”
This makes me wonder why Tim Cook was so widely viewed as a manufacturing and supply chain guru. For example, when it comes to the iPad Mini, Apple has left itself in a bad situation — it only has one supplier for its displays.
That does not seem like a smart idea, nor is it all that wise to depend on one of your competitors to be a reliable supplier. For example, Samsung — which leads Apple in the smart phone market and is embroiled with it in a global patent lawsuit – has traditionally been a supplier of displays to Apple.
But NPD DisplaySearch’s Richard Shim toldCNET, ”We’re now starting to see the issues that [Apple] is having with Samsung.” That’s because Samsung is not supplying displays for the iPad Mini — leaving one supplier — LGD — that has worked with Apple in the past and one untested supplier, AUO.
And given AUO’s lack of experience and inability to come up to speed, Apple is in a world of hurt when it comes to meeting demand. According to Shim, “The problem is that AUO is a new supplier, and they’re not able to get to the volumes that Apple needs. So, essentially, there’s just one supplier.”
Of course, supply chain problems are not what makes Apple worshippers hearts flutter. And some might suggest that having more demand than the ability to supply it is a sign that Apple has not lost its ability to innovate.
But that begs the question: “What is innovation?” Needless to say, there is no agreement on the answer. When it comes to Apple, though, I think the answer is pretty clear: It’s the ability to dominate a big existing market — as Apple did with MP3 players (iPod), cell phones (iPhone), and tablets (iPad) – by deploying four critical capabilities:
Product design. Under Jobs, Apple was able to design products that people loved to own and use.
Supply chain management. Apple could take that design, give it to factories in Asia, and get the product delivered to customers with gross margins of 70%.
Ecosystem creation. Apple could persuade suppliers of content – such as music, books, movies, and Apps — that they would be better off making that content available to users of its devices.
Marketing. From Steve Jobs’s black turtle-neck product demonstrations, to its snazzy TV ads, to its retail stores, Apple has been able to tickle peoples’ buying bones and turn most of the world into passionate advocates for its products.
What Apple has been doing since it introduced the iPad in January 2010 has been making incremental changes — often improvements (with exceptions like Apple Maps) — to its existing product lines.
Under Cook, Apple has yet to prove that it can innovate — in the sense of dominating a big existing market through these four capabilities. Nor is Cook proving himself to be a master of Apple’s supply chain.
For Apple shareholders, the message is clear: take your money and run.
The supply chain challenges we once thought had been solved are morphing as online sales and new markets are created. Aivars Lode avantce
From oxcart to Wal-Mart: Four keys to reaching emerging-market consumers
To get products to customers in emerging markets, global manufacturers need strategies for navigating both the traditional and the modern retail landscapes.
OCTOBER 2012 • Alejandro Diaz, Max Magni, and Felix Poh
Source: Consumer Packaged Goods Practice
In emerging markets the world over, multinationals struggling to get their products to consumers confront a bewildering kaleidoscope of strategic and operational challenges. At one extreme, they must grapple with traditional retailers: the chaotic array of shops, kiosks, street vendors, and other small proprietors who seem to offer neighborhood customers a little of everything, whether it be groceries or branded goods, such as beverages, small electronic devices, and personal-care products. At the other, multinationals must deal with modern retailers—global giants, including Carrefour, Tesco, and Wal-Mart, as well as local leaders, such as CR Vanguard, in China, or Grupo Pão de Açúcar, in Brazil—that have become a powerful force in the emerging world’s fast-growing cities.
This duality has become more pronounced since we last wrote about reaching consumers in emerging markets, five years ago; our emphasis then was largely on the ubiquitous mom-and-pop shop.1 Today, retail landscapes in emerging markets can be divided into three broad categories (see exhibit, which focuses on grocery sales):
predominantly traditional markets, such as India, Nigeria, and Indonesia, where small proprietors account for 98 percent, 97 percent, and 85 percent of the market, respectively2
predominantly modern markets, such as China, Mexico, and South Africa, where modern trade already accounts for more than half of sales
transitional markets, where small proprietors currently prevail but are being rapidly elbowed aside by modern retailers; in Turkey, for example, their share of sales has shot up to 46 percent in 2011, from 26 percent in 2005
As multinational manufacturers look beyond countries as their unit of strategic planning, they will discover stark variations within regions, cities, and neighborhoods. (For more on city-based strategy setting, see “Unlocking the potential of emerging-market cities.”) In Malad, a western suburb of Mumbai, the most important outlets for grocery sales are mom-and-pop stores, known as kirana, and the suburb’s giant fruit and vegetable mandi, or outdoor market. But as business-processing centers and new residences spring up in the district, modern retailers are muscling in. Malad now boasts ten supermarkets and three large hypermarts.
Even in predominantly modern retailing markets, such as China, where modern outlets account for nearly two-thirds of sales nationwide, traditional and modern stores live cheek by jowl. China’s ten largest grocery retailers, though growing fast, account for only 11 percent of total sales—far less than the ten largest US players, which account for 51 percent of sales in that market. China’s biggest retailer, China Resources Enterprise, commands a market share of 2.3 percent of total grocery retailing and 3.8 percent of modern grocery retailing. In a host of leading Chinese cities—among them Chengdu, Chongqing, Dailian, Shenyang, and Wuhan—modern retail outlets account for only about 50 percent of sales. By contrast, modern retailing represents more than 75 percent of sales in Beijing and Guangzhou, 80 percent in Shenzhen, and 77 percent in Shanghai, where residents can choose to buy their groceries at more than 100 hypermarkets.
Across the emerging world, in short, the retail terrain is diverse and unfamiliar. This article offers four road rules for companies to follow as they navigate it.
1. Embrace the duality of emerging markets
The starting point for any successful strategy is a recognition that manufacturers must engage effectively with traditional and modern trade outlets—and be prepared to live with that reality for the foreseeable future. In some emerging markets, notably India, regulations against big-box competitors explicitly protect small proprietors. Cultural preferences, poor infrastructure, and the geographic dispersal of emerging-market populations also assure a significant role for traditional outlets.
In our experience, companies that craft nuanced strategies embracing the traditional retailer can raise their revenues from emerging markets by 5 to 15 percent and their profits by as much as 10 to 20 percent. That’s because for all the appeal that large-format retailers hold for global manufacturers—big chains are familiar, easy to deal with, and can free manufacturers to focus on issues like strategy, product development, or recruiting—these retailers can command high listing fees and big discounts, as well as impose many conditions small proprietors cannot. They also are quick to weed out products that don’t sell briskly.
Some manufacturers have opted to focus on large retail chains to build a position of strength and then gradually developed the capacity to work with traditional outlets. Prantalay Marketing, a Thai seafood processor, increased sales of its ready-to-eat meals, launched in 2004, to more than $30 million within six years, in part by concentrating on Thailand’s large retail chains, including Siam Makro, Big C, and Tesco Lotus. The focus on modern retailing made sense because Prantalay’s prepared meals were frozen and required a reliable cold chain. Now the company is turning its attention to traditional channels and expanding its product lineup to include offerings, such as instant noodles, that do not require freezing.
Similarly, South Africa’s Tiger Brands worked through large retailers to consolidate its position in its home market. A consumer product giant whose brand portfolio includes everything from Purity baby food to Doom insecticide, Tiger accounts for close to 15 percent of sales at every major South African retailer. But as the company looks for future growth, it has begun acquiring businesses in other African markets. Given the greater importance of small proprietors in those economies, Tiger’s emergence as a regional player will force it to develop new capabilities for working through traditional retailers.
Other manufacturers have moved in the opposite direction, securing market position through traditional retail outlets, then turning to larger establishments in the quest to expand. Consider the case of Wanglaoji, a 184-year-old herbal tea transformed by JDB Group, a Hong Kong soft drink marketer, into China’s best-selling beverage. Until 1995, when JDB acquired the rights to the Wanglaoji trademark from state-owned Guangzhou Pharmaceutical,3 the drink was primarily seen as an herbal elixir for cooling “overheated” internal organs.
JDB launched a rebranding effort whose masterstroke was a decision to market the drink through restaurants specializing in spicy Sichuanese cuisine. JDB pitched Wanglaoji as a healthy and refreshing antidote to Sichuan’s famously fiery hot-pot dishes, forged partnerships with select restaurants, and gave “Wanglaoji-trusted outlets” lavish incentives, including product discounts, free promotional materials, and generous contributions to holiday marketing campaigns. The results of the repositioning were dramatic: between 2002 and 2008, sales soared from less than $30 million to more than $1.5 billion.4 With consumers clamoring for the drink in shops as well as restaurants, JDB found modern retailers eager to carry its red cans. Today, the brand boasts sales of roughly $3 billion in China, topping sales of that other popular red-can beverage, Coke.5 It is widely available in a variety of hypermarkets, minimarts, and convenience stores, as well as in hot-pot restaurants.
2. Segment and conquer
Because multinationals can’t be everywhere at once, it is essential for manufacturers to pick their shots by segmenting and prioritizing sales outlets carefully. Sophisticated segmentation strategies are especially crucial in targeting traditional trade channels, for a single country may have millions of outlets. (China, for example, has anywhere from 3 million to 8 million sales outlets, depending on what kind are counted, while India has 8 million to 15 million.) In mapping routes to market in emerging economies, we urge manufacturers to focus on a geographic region or cluster of cities and to achieve complete coverage at outlets with significant potential before going on to the next market. (For more on the advantages of creating a stronghold in one area before moving to the next, see “Building brands in emerging markets.”)
To navigate these markets effectively, manufacturers should look beyond the current sales of priority outlets. Sales data for traditional stores in emerging markets are notoriously unreliable; even when accurate, they often reflect little more than how much effort the manufacturer has expended to date in supporting the store in question. It’s far better to estimate potential sales by using forward-looking parameters, such as store size, proximity to workplaces or schools, traffic volumes, neighborhood wealth, or shelf space.
One leading global food company used census and publicly available transportation data to classify sales outlets in the Middle East according to outlet size (six segments, ranging from more than 130 square meters to 30 square meters or less) and a mix between traffic volumes (high, medium, and low) and incomes of surrounding households (high, medium, and low). The result was a grid with 36 cells, which were then aggregated into six distinct segments, enabling managers to make strategic choices about which outlets merited greater investment and which should get only basic maintenance.
The next step is to specify precisely the combination of service, support, and incentives each outlet segment merits. Coca-Cola refers to this process as defining the “picture of success.” What should a store look like? How should Coca-Cola products be displayed, stored, priced, and promoted? Big stores in rich, high-traffic areas will get more attention than small shops in poor, low-traffic areas—but there are numerous variations in between. For each segment, managers tailor a specific set of value propositions. Should the company supply coolers and, if so, how many? What kind of signage and other promotional materials should it provide? Which Coca-Cola products should be supplied and in how many variations of packaging? How frequently should sales staff visit? (See Exhibit 2a and Exhibit 2b.)
In emerging markets, manufacturers must go to great lengths to craft a combination of retailer incentives ensuring that the picture of success comes out right. Big chains, of course, care most about discounts and fatter profit margins, together with better merchandising, more expensive displays, more frequent deliveries, and more frequent visits by salespeople. Some traditional retailers may value these things too. Smaller retailers, however, may prefer free equipment, brand promotions, flashier displays, and outside signage to help them stand out from the crowd. In many cases, manufacturers can win the loyalty of small proprietors by paying electricity bills or providing health insurance for the owner, employees, and members of their families. In some cities in Mexico and India, where shopkeepers take special pride in their establishments’ appearance, offering to pay for a new paint job every six months may be the lowest-cost way to secure a partnership.
Manufacturers must calibrate their concessions carefully. All “gives” to retailers should be compensated by “gets”—for example, requirements that retailers guarantee certain sales volumes or provide superior shelf space. One leading multicategory food company in Mexico offers to install high-end shelves and displays in smaller stores in exchange for a retailer’s commitment to display its products prominently. The degree to which retailers actually deliver these “gets” provides valuable information to manufacturers as they periodically reevaluate the potential of outlets.
3. Balance cost and control in your route to market
Even the most sophisticated segmentation strategy can be undone by flawed models for transporting goods and serving retailers. Direct delivery with a manufacturer’s own trucks and trained employees is the preferred option for modern trade. But such costly support must be confined to outlets that really matter. Often, “basic availability”—with products delivered, say, by wholesalers—will suffice.
In Indonesia, Unilever, for example, services supermarkets and hypermarkets with its own vehicle fleet. But because the archipelago has thousands of islands, Unilever reaches minimarts through a network of distributors who work solely for the company in the categories it carries and serves independent small retailers and chains through another network. For ice cream vendors, who sell from freezer-equipped tricycles, Unilever relies on ice cream concessionaires. In India, Unilever has used a similar multiple-channel approach to gain access to more than half of the country’s population—all urban centers and 85,000 villages, which in some cases it serves with bullock carts and tractors.
Coca-Cola prefers direct delivery wherever possible. But in Kenya, where rural and urban roads alike are often too rough for Coca-Cola delivery trucks, the company delivers on bicycles and pushcarts to microdistributors, which in turn can reach retail outlets covering 90 percent of the country’s population. This vast network of small vendors has not only generated enormous goodwill for Coca-Cola but has also been cited by the International Finance Corporation as a model of how global companies can foster local entrepreneurs.
In many of these markets, companies must deal with thousands of distributors and wholesalers, which often struggle to realize the manufacturer’s brand goals or strategies for influencing the behavior of retailers. Executives at many leading global consumer companies argue that segmenting and prioritizing distributors is as important as segmenting and prioritizing sales outlets. The goal is to build the skills of reliable, high-priority distributors so they can help manufacturers achieve their strategic goals for different kinds of outlets—which sometimes means consolidating distribution networks.
In India, for example, Hindustan Unilever consolidated its distributors for the Mumbai market from 21 firms to just four megadistributors.6 Similarly, more than a decade ago Procter & Gamble shrank the number of its distributors in China. Acquisitions can be an excellent opportunity to reevaluate distributors; over three years, a leading fast-moving consumer goods company in Russia did exactly that, transforming a tangle of 300 overlapping players of widely varying capabilities into a core of 100 focused, high-performance stars.
4. Arm the front line with skills and technology
The many moving pieces in these sales and distribution networks demand a relentless focus on frontline execution. Xian-Janssen OTC, Johnson & Johnson’s consumer health care arm in China, requires its sales personnel to undergo five formal training modules over five years to master professional skills, such as salesmanship and team management. The company also coaches employees informally (with sales visit “shadowing”) and conducts weekly “education meetings” where difficult sales situations encountered during the week are reenacted and analyzed. What’s more, high-performing companies recognize that “what gets measured gets done,” so they set targets and offer incentives aimed not just at raising sales volumes but also at promoting proper retail execution, such as the quality of in-store product displays.
At the same time, companies are well advised to recognize the varying capabilities of their emerging-market sales forces and to find simple ways of standardizing the quality of sales visits as far as possible. For instance, Kang Shi Fu, a successful Chinese manufacturer of beverages and noodles, provides its salespeople with checklists that are tailored for each outlet segment and must be completed during every visit. Guidelines for Pepsi salespeople cover a host of specific duties, from greeting the retailer to checking inventory levels. Checklists and standardized approaches are useful both when manufacturers hire and manage their own sales forces and when they rely on (and closely supervise) those of distributors. “Shadow management” of this sort has proved effective for several leading global companies in China. Often, sales managers are “embedded” with distributors to train staff and offer advice on how to execute different strategies for different store types. Embedded managers also join visits with distributors’ sales teams to monitor performance and provide on-site coaching.
Technology is an increasingly important tool, with handheld devices for salespeople proving especially useful. A snack company in the Middle East uses satellite-linked devices, so their geo-coordinates can be tracked. If outlets aren’t visited in the right order, the devices are disabled, preventing the salespeople from completing their tasks. A central team can also periodically monitor the location of individual salespeople, to ensure that they truly are on sales visits and not engaged in side jobs. These handhelds come preloaded with detailed instructions on each outlet the salespeople are about to visit— for instance, its outlet segment, historical sales information, specific products to sell, and key action steps to complete from the last sales visit. Not long ago, such functions involved a specialized mobile device and high hardware costs. Today, an app on a low-cost smartphone can perform many of these tasks.
Eventually, mom-and-pop stores may go the way of buggy whips, and the descendants of today’s village children in countries such as China and India may scoff at the idea of buying products and services anywhere but in climate-controlled malls or online sites. For now, though, manufacturers staking their futures on these booming economies must forge lasting relationships with a diverse set of retailers—before competitors do.
There are always barriers to starting a business and eventually demand and technology help overcome those barriers. I could not believe the archaic laws relative to alcohol sales when I first started doing business in the States. Aivars Lode avantce Wine: the Web's Final Frontier
Online sales are expected to grab an increasing share of holiday shopping this season. But one product category remains stubbornly resistant to the trend: wine.
While bigger online audiences and efficient shipping operations have enabled categories like pet food and diapers to become viable Web businesses, selling wine over the Internet remains thorny. Chief among the hurdles is a patchwork of U.S. and state regulations governing alcohol sales that makes shipping bottles directly to consumers' doorsteps a mind-boggling proposition.
Rich Bergsund, chief executive of Wine.com Inc., has experienced those vagaries firsthand. The San Francisco-based online wine merchant has been fined by New York state for shipping wine in gift baskets stuffed with food; state law mandates food and alcohol be shipped separately. It has had to build seven separate warehouses to satisfy differing sets of state regulations.
The business, formed in 1998, is on pace to reach $80 million in revenue this year, up from $67 million last year. But it took more than 10 years to turn cash positive, and it took a detour through bankruptcy. At one point, Wine.com was down to a week's worth of cash and had to lay off a third of its workforce.
"Buying wine online makes a lot of sense; there's potentially unlimited inventory," said Mr. Bergsund. "But there are many factors that make it hard to sell wine that way: state regulations, shipping costs, even weather—making sure the wine you ship doesn't spoil in the summer months."
Wine.com pays about $2 million annually for its regulatory compliance, including licenses, legal costs and warehouse management.
Some states, including California and Washington, don't have any annual limits on how much wine can be shipped directly to consumers, but shipping wine directly to customers in Utah and Kentucky is a felony and could land a winery in jail. In certain states, such as Florida, some counties are dry and don't permit wine to be shipped in.
"Each state acts like its own country," says Dini Rao, vice president of products for New York-based Lot18, a flash-sales wine site.
Texas prohibits delivery by mail of beverages with over 16% alcohol, effectively eliminating port and other dessert wines. There are also laws that require a signature from someone at least 21 years old for wine deliveries.
All of this makes online wine sales an outlier in the flourishing e-commerce world. Wine sales shipped directly to consumers in the U.S. totaled roughly $1.35 billion in the 12 months through July, or 4.8% of the $28 billion wine market, according to ShipCompliant, a Boulder, Colo., company that helps wineries comply with shipping rules. Excepting wine clubs and orders made by phone, the market for direct-to-consumer wine-bottle shipments online is typically about a tenth of that, suggesting such deliveries represent less than 1% of total wine sales, the company said.
Meanwhile, online retail sales are forecast to be as much as 12% of total retail sales this year, up from about 3% in 2007, according to the National Retail Federation. Online holiday sales are forecast to jump 12% to as much as $96 billion this year, much faster than the 4.1% rise projected for overall holiday sales.
Many companies have tried—and failed—to crack the online wine market. Wine.com itself had to be relaunched by new owners after going bust in 2001 under the weight of operational costs. It was revived with funding from private-equity firm Baker Capital in 2004.
Even e-commerce giant Amazon.com Inc. AMZN+1.28% has repeatedly stumbled with wine sales. The company lost about $30 million on a 1999 investment in start-up WineShopper, which flopped partly due to the intricacies of interstate wine shipping. A second Amazon effort sputtered in 2009 after its partner, New Vine Logistics, suspended operations amid financial troubles.
Amazon isn't giving up. In September the company met with about 100 California wineries to gauge their interest in listing and selling bottles through a special section on the Amazon.com site later this year.
Amazon plans to shield itself from some of the complexities of online wine sales by passing the shipping burden to the wineries. The program will initially allow consumers in only 13 states to receive wine at their front door, according to winery executives who attended the September workshop. An Amazon spokesman declined to comment.
Violating wine-shipping rules and limits can lead to fines, suspension or, ultimately, termination of a winery's license. Because of laws favoring local distributors, the wineries themselves can't ship directly to consumers in 11 states, including Massachusetts, Pennsylvania and Oklahoma, according to advocacy group Free the Grapes.
Peter Sisson, who founded Wineshopper.com—now operated by Wine.com—said there are still too many obstacles for online wine sales to explode. "Wine is mostly an impulse item, something that you buy on your way to the dinner party," he said. "Since you have to be 21 to receive it, that means you're shipping it to your office and then lugging bottles home, which defeats the purpose."
"We can have customers come to Napa, love our wine, and we have to tell them we're sorry, we can't ship it to your state—we have to turn away a lot of business," said Scott Meadows, general manager of Silenus Vintners in Napa, Calif.
Chang-rae Lee, a novelist and creative writing professor at Princeton University in Princeton, N.J., said he buys seven to eight cases of wine a year online, partly because of the expansive selection compared with the local spirits shop. When he finds a website that won't ship directly to him, he has his wine sent to a friend in New York where he can pick it up later.
"It does seem there's a lot of red tape to get through to buy wine online," said Mr. Lee. "It would be so much nicer if it was just an open country."
With no growth and demand down where do you turn to? Driving efficiency by optimizing the over capacity that is already available. Aivars Lode avantce
US companies are seeing a frightening decline in demand
By Simone Foxman — 21 days ago
The US third-quarter corporate earnings season isn’t even over, and analysts are already downbeat about how companies have performed. Oddly enough, 71% of the 245 companies that had released their quarterly earnings reports by the end of last week reported better-than-expected earnings per share, according to data compiled by Factset. That’s more or less in line with how they generally perform—in the last four quarters an average of 70% of companies have reported earnings higher than expectations.
Yet despite these companies’ profitability, they aren’t seeing the kind of demand that investors were hoping for. Only 36% of those firms are beating sales estimates, down from an average of 56%. “If 36% is the final percentage, it will tie the Q1 2009 quarter (36%) as the quarter with the lowest percentage of companies reporting sales above estimates in the past four years,” Factset analysts wrote in their latest report.
Just 36% of companies have beat analysts’ sales expectations. Far more have disappointed this quarter.Factset
These earnings reports suggests that analysts may need to reevaluate the strength in the US economy. Comments from investment banks and economic indicators have pointed to renewed strength in the housing market. But consumers and businesses may be starting to cut back on spending.
That influences how companies operate; while they may be profitable, they could be forced to cut production if they aren’t able to sell their goods. Looking forward, companies have scaled back predictions for the rest of the 2012 year, adjusting behavior to respond to increasingly sluggish results. In conference calls following quarterly earnings reports, numerous corporate executives have said that businesses have been unwilling to make decisions that could be influenced by the US election next week or the slew of spending cuts and tax increases that could hit early next year as part of the “fiscal cliff.” Others mentioned that declining demand in Europe and the slowdown in China could be contributing to poor results.
Whatever their motives, these are worrying signs that the growth we’ve seen in the US economy remains fragile.
