Building e-commerce capability vital for future of wine industry – sector report
With COVID-19 slowing wine consumption in most major markets around the world and the on-premise channel expected to face a prolonged recovery, global wineries – including those in Australia – have been urged to look at developing stronger digital capabilities.
In a new report, COVID-19 and the US premium wine market, part II: building an e-commerce team 101, agribusiness banking specialist Rabobank says the crisis has forced wineries, where able, to lean heavily on the e-commerce channel for sales and this has highlighted just how unprepared some were to manage their e-commerce activity as digital sales quickly became greater than one or two per cent of their revenues.
“Before COVID-19, many decision makers in the industry had not proactively invested in their digital capabilities and we’ve come across many large suppliers who did not even have one dedicated e-commerce employee, let alone a whole team,” senior wine analyst and report co-author Hayden Higgins said.
“Executives have given innovation and e-commerce plenty of air time, but that talk has rarely translated into additional personnel or bold acquisitions. And the onset of COVID-19 has served as a deeply unfortunate wake-up call for many players in the industry.”
With no more excuses for delaying e-commerce investment, Mr Higgins said wine industry executives would now have to decide “what they should be looking to invest in and what they should be looking to achieve with the investment”.
“An investment in digital capabilities should go far beyond the current value of a company’s e-commerce revenue. The e-commerce team should be viewed as more than a sales force; they are an agent of change, driving a company’s digital transformation,” he said.
Building e-commerce capability
With many wine companies finally deciding to invest in e-commerce, the report identifies four critical steps wineries around the globe should consider as they seek to build a great e-commerce team.
Mr Higgins said the first of these steps – ‘mapping the market’ – involved wine companies identifying which channels are most likely to be successful for their brands, both during the pandemic, and once it has ended.
“It’s a period in which the e-commerce team has to build relationships with key individuals within each e-commerce platform and identify how to support their brands within this environment,” he said.
“In this step, it’s also essential businesses identify data sources for measuring sales within each platform and, if possible, data on how and why consumers shop on the platform. This is essential for measuring progress, setting KPIs and monitoring changes in where and how consumers shop online.”
Mr Higgins said the second step for companies was on-boarding the tech and building the necessary infrastructure.
“The e-commerce team has to decide which technologies are needed to realise their digital ambitions. That could include anything from building a platform for ingesting
e-commerce sales data to identifying the best platform for their direct-to-customer business,” he said.
“It can take months to on-board these kinds of technologies and months to learn how best to deploy them in your business. And this all needs to be undertaken over and above the rest of the e-commerce team’s responsibilities, so the more support they get, the more able they are to transform and perform simultaneously.”
The next key step, the report says, is educating people internally and externally.
“It’s crucial the e-commerce team raises awareness of the e-commerce channel with marketing teams, sales teams, senior management, distributors and retailers so they understand how it can best be supported.” Mr Higgins said.
Mr Higgins said the fourth and final key step for developing e-commerce capabilities was delegating most day-to-day digital operations.
“Many of the day-to-day responsibilities of managing a winery’s e-commerce business should eventually be taken over by existing structures within the organisation and this is why internal education is so important,” he said.
“This transition can take a couple of years, but it is necessary to give scale to your e-commerce operations. Some people refer to this process as building out your organisation’s ‘digital muscles’ or making digital part of your ‘DNA’. Without support from the broader organisation, your e-commerce operation will not be able to unlock its true potential.”
The report says wineries should initially focus on building a robust digital infrastructure before they look to identify and execute innovative ideas.
“We find many industry leaders are easily distracted by shinier, sexier topics like social commerce, however, we feel most companies will get the most benefit from investing their energy and resources into ‘boring’ tasks’, like mapping out the industry and educating their account managers about how to support e-commerce,” Mr Higgins said.
“Once the four steps outlined in the report are completed, the e-commerce team can start to have some fun and can focus on more than just growing e-commerce sales. The digital environment enables companies to access data, intelligence and brand building opportunities not previously available. And, armed with this information, the e-commerce team should explore how the digital world can enhance sales through more traditional channels and vice-versa.”
Wine industry M&A trends
Mr Higgins says the desire by industry participants to quickly build e-commerce capability has seen e-commerce investments accelerate.
“The disruption created by the global pandemic has led to fairly subdued M&A activity in the first half of 2020, however, among the deals getting done, investment in e-commerce is emerging as a key trend,” he said.
“For example, Constellation Brands recently announced their acquisition of Empathy Wines, the e-commerce-centric wine company co-founded by entrepreneur Gary Vaynerchuk. Following the purchase, Constellation CEO Bill Newlands noted that the acquisition would “expedite their ability to more deeply connect with their consumers, and build the strongest direct-to-consumer and digital commerce business in the category,” Mr Higgins said.
While e-commerce is changing some aspects of how wineries do business, Mr Higgins said it should not distract companies from their true focus – the customer.
“A laser focus on the consumer – what they need, why they need it, how they want to get it – is both the purpose for creating an e-commerce team and the guiding principal at the centre of a robust e-commerce strategy,” he said.