MAIL ORDER: Going the distance

Mail order wine businesses are becoming multi-channel “distance sellers” with a clear online focus, finds Lucy Shaw.

Investigating the mail order wine market is like panning for gold. Hours of calls, emails and research on the internet will eventually reward you with a nugget of truth. The biggest problem, it seems, is that there is neither a solid definition, nor concrete statistics through which to get to grips with the sector.

An enquiry to Nielsen regarding the size of the market bears little fruit: “I have estimated the volume at around 15m cases for mail order and online companies combined. It’s an area that I’d be very keen to add to our tracking – just a confirmed total would be a great start,” says Stewart Blunt, wine & spirits analyst at Nielsen.

Perhaps Justin Howard-Sneyd MW, global buying director of Direct Wines – the largest direct-to-consumer wine retailer in the world – would have a better idea of the size of the market? “It is impossible to say whether the mail order market is growing or not because the market is not well monitored. Almost no-one operates exclusively by sending printed material through the post, which is classic mail order. Nowadays, almost all players have a website and a call centre, and take sales through many channels”, he says.

Talking to a number of the key players in the mail order market, it is clear that the term “mail order” is outmoded and needs a new definition, as the sector has inevitably expanded to incorporate the rise of the internet.

Oliver Johnson, chief executive of The Wine Society, believes the term “distance selling” is more accurate, while Howard-Sneyd refers to it as “direct-to-consumer retail”. Johnson adds: “We don’t see ourselves as mail order – we use different communication channels. People can order from us in lots of ways: via printed wine list, over the phone, on the internet; we’re multi-channel.”

This idea of multi-channel sales is vital to understanding the current mail order, or direct-to-consumer, market. Gone are the days when companies could rely solely on their mail order catalogues to sell wine. Almost all mail order companies now operate through multiple channels, using a combination of classic mail order, call centres and the internet to generate sales.

A blurring of boundaries is occurring, and exactly where the final sales originate from, be it through the post, over the phone or online, is becoming less and less important. Companies are beginning to streamline their channels of communication to bounce off one another, so a customer may browse a wine list sent through the post, then order the wine online, or equally use the internet to browse, then order over the phone. In order to succeed, companies need to be multi-channel, or “channel neutral”, as Direct Wines chief executive Simon McMurtrie calls it.

“Exactly where the sale is taken will become increasingly irrelevant, as the different communication channels merge together,” predicts Howard-Sneyd. “We already have a ‘click to call’ and a ‘click to chat’ function on our website, which our customers love using.”

So how big is the mail order wine market? As mentioned, it’s a very hard market to quantify, as there is so much overlap with online wine sales. According to trade estimates, 12.7 million nine-litre cases of wine were sold through mail order and online in 2010. The UK mail order market is four times the size of the online market, with 10.2m cases sold through mail order in 2010, but compared to the 70m cases shifted by the supermarkets, it’s still a small share of the market.

By far the biggest player in the mail order market is Direct Wines, who, with sales of 4.6m cases last year, and almost £350m worth of sales, is five times the size of The Wine Society, its biggest competitor, which turned over £70m last year.

Direct Wines dominates the mail order sector, with a portfolio that includes Laithwaites, Virgin Wines, Averys of Bristol, The Sunday Times Wine Club, the Nat West Wine Club, Barclaycard Wine Services, the British Airways Executive Wine Club, and the Wall Street Journal Wine Club among others.

With over 1m active customers worldwide, Direct Wines turned over £344m last year, making £11m profit. What started in 1969 as Bordeaux Direct, headed by Tony Laithwaite from the back of a white van, has grown to be the largest independent wine merchant in the world.

Not keen to rest on its laurels, the company is set for rapid international expansion – over 25% of Direct Wines’ sales now come from outside the UK, with the US turning over more than $100m last year. The company currently operates in the US, Australia, Switzerland, Germany and Hong Kong, and launched in Poland at the end of last year.

So how important are online sales to the mail order goliath? By the looks of it, very. Web sales now account for around 30% of the company’s total sales. “Online is certainly driving sales, and it’s a cost-efficient channel to operate,” says Howard-Sneyd, while McMurtrie concedes that the Laithwaites website is still “warming up”. Nevertheless, the importance of online sales within the larger umbrella of direct-to-consumer retail cannot be ignored. By 2014, Direct Wines forecasts that 50% of its sales will be generated through the web.

“The future of selling wine directly to customers has to be online and it has to be about providing fantastic customer service and delivery,” says McMurtrie. So Direct Wines is putting a lot of time and energy into revamping its website and making it more user-friendly. “We have moved all of our online sites onto a single platform and are simplifying the way we work, so that our online activities are efficient,” says Howard-Sneyd.

Online alcoholic drinks sales grew 20% in 2010, according to IMRG Cap Gemini, making £200m from 2.5m cases sold. One online wine company that could be looked to as a model for a successful web-based businesses is From Vineyards Direct (FVD). According to founder Esme Johnstone, who set up Majestic in 1980 with Giles Clarke, the secret to FVD’s success, turning over £2.5m in 2010 (91% up on 2009), is a short, carefully selected wine list, and an attractive, efficient, easy-to-use website. “The future of wine retail is online. It’s a 24-hour shop – we take orders all through the night,” he reports.

Interestingly, though, 20% of FVD’s sales are generated through mail order. Having bought small mail order company The Vintry last year, Johnstone is busy trying to migrate his new mail order customers online, but concedes that it is not entirely possible: “You can’t convert everyone – it depends on the age group. Not everyone will go online.”

And herein lies the success of mail order. With an ageing population, it seems traditional mail order catalogues are not going to go the way of the fax machine just yet. Simon Taylor, of Stone, Vine & Sun, explains: “Lots of people like a printed list in their hands, even if they then choose to order via the web. With people in their 40s, 50s and 60s from the generation which is drinking better wine, I can’t see it [mail order] going out of fashion.”

The success of mail order, backed up by a strong telesales team, boils down to the simple fact that a lot of people would rather speak to a human being than order wine through a machine. As Oliver Johnson of The Wine Society puts it: “Some people just like to talk!” And this simple fact cannot be underestimated, for it is crucial to mail order’s continuing success.

“The phone will still be used as far forward as I can see. People prefer human contact for advice and enquiries. Our telesales team know the wines inside out and give recommendations in a pleasant, accessible way. I find it hard to see the day when this will fade entirely,” says Johnson.

It’s an opinion echoed by Howard-Sneyd: “There is no substitute for person-to-person interactions, and our call centre will always be incredibly important to us. A great deal more people than you might think just want a friendly voice to talk to, who will solve their wine “problem”. Our customers feel that the people they talk to love wine, love selling wine, and know how to look after them,” he says.  

So how vital is the actual mailing side of the business? Is this set to become less and less important as the internet continues to drives sales? “We get a lot of phone and web sales off the back of our mailouts,” says Johnson. “Older people will still use mail order and the post for a while yet. People like reading about wines in catalogues. The days of people sending cheques in the post to pay for their wine are dying out, but we need the exposure a catalogue brings.”

Howard-Sneyd adds: “We’ve recently improved our mailings to focus on a monthly single-piece catalogue, rather than having an envelope full of flyers. Our customers have responded really well, and the sales figures back this up. There is plenty of life left in classic mailing pieces, as other non-wine mail order companies like fashion retailer Boden are proving. And if more people choose to order via the web, that doesn’t mean they’re not reading the catalogue, and using it as a stimulus to order.”

But what of the environment? With the majority of Laithwaites’ deliveries being small drops, it doesn’t seem a very green way to do business. “Our deliveries are greener than you might think,” says Howard-Sneyd. “We use a carrier that makes many drops in the same area. Obviously some orders are more clustered together than others, and we’re planning to have a good look at the whole area of sustainability in the second half of this year.”

Part of the appeal of mail order is that it’s a low-cost business model with low overheads. Laithwaites, however, operates wine stores in addition to its mail order, telephone and online services. But the company seems keen not to expand the retail chain arm of the business too far: “We will never exceed 20 outlets – we’re not looking to build a huge sales engine. Our shops are a way for our customers to experience the Laithwaites brand and to see our range in one place – somewhere we can bring the wine alive,” says Howard-Sneyd.

The future looks hopeful for mail order, so long as its key players can get to grips with multi-channel communication and sales.

“I see growth for the mail order sector, if mail order is combined with strong customer service and a decent online presence,” concludes Taylor, an opinion echoed by Johnson: “The distance selling market is generally growing. More and more people are buying their goods online or over the phone, and having them delivered. Mail order is far from dead.”

Lucy Shaw, February 2011