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28 WINES&VINES September 2018 Here's What Works S cenario 1. You spend a long week in New York, Wash- ington, D.C., and Boston to sell wine with your in-state distributors. You call on a number of retail accounts, of which two out of three say they will carry your wine. Later you learn that your distributors ended up selling your wines to just one location, the one owned by a friend of your college roommate. The process is expensive, inefficient, exhausting and ultimately demoralizing. Scenario 2. You get some nice press from a reviewer in Chicago. A day later, a wine shop in Evanston, Ill., calls, asking, "How can I get your wine?" But you don't have a distributor in Illinois, so you thank the owner and politely decline the order. The problem is well-known to any vintner with experience navigating the three-tier system. The system can work reason- ably well if you have a distributor, but if you don't, then it doesn't work at all. Consolidation has reduced the number of distributors, who are focused on their largest wine suppliers. The few good small distributors that remain are booked up, and the not-so-good ones may be slow to pay their bills. On top of that, you have to do all the selling yourself anyway. You can sell direct to consumers in most states, but that still keeps you off of restaurant wine lists and retail shelves. Just recently, online portals for direct-to-trade (DTT) became a real option for wineries to market their products in states where they do not have representation. Virtual DTT solu- tions have been tried in the past. Searching Wines & Vines' archives, I found a June 2006 story titled "Direct-To-Trade Sales Options Could Open New Doors." I understand that the businesses featured in that article have folded their virtual tents. This column is a one-year follow-up to the September 2017 report "New Digital Platforms Connect the Tiers." I interviewed two DTT pro- viders and four of their clients to learn what's working. The DTT providers use different business models to help alcoholic beverage suppliers sell across state lines to retailers. Two things they have in common: for both the supplier and retailer, they look like an online whole- sale store, with 24/7 automated sales and restocking; and they provide additional sales and marketing services beyond what is found on their websites. Merchant23 was launched two years ago by founder and CEO Jacob Moynihan. The company facilitates wholesale sales in every state that allows a three-tier system. Even some state agencies in control states have become clients of the company. Merchant23 carries 360 SKUs on its website and claims to sell many more privately listed wines through its system. Merchant23 uses its network of distribution partners in every state for clearing and compliance. When a purchase order is created from a retailer on the site, Merchant23 handles all logistics, clearing and compliance. Suppliers do not sign agree- ments with distributors, who clear the supplier's products on an invoice-by-invoice basis. Moynihan explained that it takes just a few minutes to get set up on the Merchant23 site, where you upload your products, including images, wholesale case prices, inventories and suggested retail prices. Sellers own and warehouse their own inventory, removing the issue of wholesal- ers holding stock of old vintages. I asked Moynihan about pushback from in-state wholesalers to a potentially competing system. He said he hasn't experienced opposition and added, "Distributors like to work with Mer- chant23. They have no inventory to carry, no marketing, sales or other expenses, while getting paid on transactions going through their state. They are happy to be part of it." Moynihan pointed to the doors that open when a winery knows it can ship anywhere. "You can do marketing in states where you don't have a distributor. You can attend an out- of-state trade event." If you have a buyer calling up, you no longer have to say no. Merchant23 also has significant data-crunching capabilities, which are used to assist a supplier for best market fit, as it may be a market with your ideal retail- ers, but where wines like yours are underrepresented. "It might be OKC and not NYC," Moynihan said. He added that the company can evaluate the profitability of some wines versus others to help a winery pitch a retailer that it will make more money carrying your wines. On occasion, the company has advised clients on how to upgrade their own websites. Moynihan said the highest added value comes from Mer- chant23's personal sales efforts. n ANDY STARR How some wineries are exploring another tier in the wholesale market