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Wine merchants hit Net
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August 1, 2000: 11:22 a.m. ET
Web site enlists retailers into online network to beat 'three-tier' system
By Staff Writer Steve Bills
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NEW YORK (CNNfn) - Michael Babin despaired of finding a way to give his Virginia wine shop a storefront on the Internet.
"I had been looking at the online wine space for quite a while," said the entrepreneur, who runs Daily Planet Wines in Alexandria, just outside Washington, D.C. "I looked at this from a lot of different angles."
He talked to several Web site developers, who gave him prices from $60,000 to $500,000 -- and they warned him, at both ends of that range, that this would be a "starter" site that would offer a limited selection of wines and that would need to be developed further.
"I pretty much decided that was a non-starter," he said. Then he heard of a dot.com that was going to specialize in putting local wine merchants online. "I called WineAccess. They didn't have to call me."
 The online wine phenomenon may be one of the first shots fired as Main Street starts to mount a counterattack on Internet mega-merchants.
Elsewhere on the Web, the American Booksellers Association is testing an e-commerce site called Booksense, arming local book shops to do battle against leviathans such as Amazon.com.
And a variety of old-line industries are organizing so-called B2B networks, taking advantage of online technologies to cut their costs.
The time might be right as well for such an offensive, as the market reconsiders the business strategies of companies that lose money in order to gain scale.
The 'three-tier' battlefield
In some ways, though, the retail alcohol market is an ideal battlefield for the little guy to fight back. Like the Balkans, the terrain is forbidding, the logistical issues complex and the combatants entrenched.
From a legal standpoint, the sale of alcohol in the United States is governed by the 21st Amendment to the Constitution, which ended Prohibition in 1933. The amendment authorized severe limits on the interstate transportation of alcohol.
In addition, most states adopted a "three-tier" system of alcohol control, setting rules that allowed producers to sell only to wholesalers and wholesalers to sell only to retailers, who are the only ones allowed to sell to consumers. Each state's laws are different.
This system is now under assault from legal challenges that seek to open the market to direct sales. In one current case, the state of New York is trying to defend its laws against a suit filed by wine enthusiasts who seek the right to place orders directly with out-of-state vineyards.
On the other side of the issue, Sen. Orrin Hatch, R-Utah, is pushing a law called the "21st Amendment Enforcement Act" that would give states recourse in federal courts to violations of their interstate shipping rules. The proposal has cleared the Senate Judiciary Committee, which Hatch chairs, but has not gotten any traction elsewhere in Congress.
The net result of this is that any large-scale Web site must contend with 50 different sets of state laws -- or else limit itself to doing business only in certain parts of the United States.
'Partnership with Main Street'
WineAccess.com is attempting to get around the legal issues by positioning itself as a gateway for local retailers to reach their customers over the Internet -- in the words of company founder Jim Weinrott, "a partnership with the Main Street merchant."
WineAccess has signed up more than 70 merchants providing coverage to 24 states -- some states, such as wine leader California, do allow interstate sales from other states that have reciprocal arrangements. As of the end of last week, 24 merchant sites were up and running, most going live on the Internet within the last six weeks.
"We really want the store to succeed," Weinrott added. "The store is the gateway to the customer."
That still leaves the company with a tremendous logistical problem in keeping up with the inventories of its individual member stores: Wine bottles have no bar codes. And wine itself is a tremendously variable product. The 1998 vintage of a given winery's merlot may be nothing like the 1997 vintage.
To manage this glut of information, the company has built a database representing 6,950 producers and containing 200,000 individual products, and it requires its retail partners to install computerized checkout systems that it can use to track their local inventories.
Connecting with wineries
In the future, WineAccess wants to develop a service to match the retailers with the nation's small wineries, giving customers access to exclusive vintages that may lack the marketing clout of the major wine brands.
 Weinrott describes the evolving business as a B2B2C service -- business to business to consumer: "It's a very, very ambitious play, not only the empowerment of the store but the supply-chain play."
It also could prove to be the more lucrative aspect of the business for WineAccess. Retailers pay the site a modest fee of $5 per registered user per quarter, not a percentage of sales, which Weinrott said could put the site in the undesirable legal position of selling alcohol without a license.
But it is accepted practice for intermediaries to take a broker fee for putting the producer together with a wholesaler, and that is where the company thinks the real money is.
In the meantime, the site is busy adding more merchants to its hub. At this point, a lot of the content looks much alike. Babin's Daily Planet site in Virginia looks a great deal like the Moore Brothers site in New Jersey, and both bear a strong resemblance to the WineAccess home page.
Company executives plan to offer more customization features in the future, but due to the distributed nature of the network, they say it is unlikely that a customer in one state would be confused by stumbling across a merchant site in a different state. Each merchant has the ability to personalize the store's entry pages, with their own wine recommendations, while having access to the common database and e-commerce capabilities.
Focusing on the customer
For his part, Babin said he is delighted by the power of the service. With WineAccess handling the back end and the technology, "what we are left with is the part we wouldn't want to give away to begin with -- the interaction with the customer," he said.
Employees of Daily Planet Wines go to the site twice a day to answer questions and to fill customers' orders.
"We're getting good business," Babin said, though he acknowledged, "It's still a relatively small percentage of our total sales."
The Web site also extends the store's reach. As a specialty retailer, "we have a fair amount of customers who do not live in the immediate vicinity of our shop and who drive out of their way to come to our shop," he said -- pointing out the risk that a more convenient merchant might lure such customers away.
"The Web site makes our relationship stronger with them," he said. "And when they see the clerk whom they may not have seen in three or four months, it doesn't mean they haven't been in touch." 
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