The story of an Oregon-based winemaker who adopted an atypical strategy to market and sell one of his wine labels came to my attention recently. Mark Tarlov sells his Alit label directly to the consumer – completely circumventing traditional distribution in the process. Direct-to-consumer sales in itself isn’t groundbreaking, but this winemaker has taken a more unusual step in bringing complete transparency into the process.
Tarlov is the founder of Chapter 24 Vineyards. They typically producer $50-$100 wines but the separately branded and marketed Alit label sells for $27.45. It’s a small-batch Pinot Noir (36,000 bottles in the first vintage) and is made exclusively available to the customer. By design, it will never spend a day on a retail shelf. The real attention grabber is the transparency about the cost per bottle. On the website, they provide a full breakdown of every aspect that contributes to the price of the bottle – including gross profit at 45%.
Initially, I wrote it off as a gimmicky move – something to cause a few ripples and drum up some buzz around the brand. Surely there would ultimately be no disrupting the traditional model of wine distribution? Yes, there are plenty of middlemen (especially in the USA, with the three-tier system). Yes, this drives up the cost. But it is simply the way of things.
And then I started thinking about disruption – and why it’s so difficult to achieve in the wine industry.
If you are not entirely clued up on tech startup lingo (or if you’ve never seen an episode of Silicon Valley), “disruption” in this context means disruptive innovation. It refers to some kind of innovation that ultimately changes or replaces the old way of doing things. We tend to think of it in terms of advanced technology and apps (think Uber or Airbnb) but each wave of invention or innovation that replaces something is disruptive: digital photography replaced film, CDs and DVDs replaced vinyl and were then themselves replaced by digital media etc.
Disruptive innovation is most effective when it exploits a cumbersome, archaic, inefficient and/or costly aspect of any market or value chain.
And which industry do you think is absolutely jam-packed with archaic, costly inefficiencies?
A full analysis of areas in the wine industry that are ripe for disruption is really a post on its own. I think it’s safe to say the traditional distributor model is protected from disruption on a large scale, simply because of the sheer established nature of the whole process. It’s not impossible to turn it on its head, but it would have to start small (like Tarlov’s Alit).
The point to note here is that if South Africa wants to continue the slow, steady march to be a major player in the international wine world (to clarify: I think at present we are a significant player, but by no means major), we will have to grab a first class ticket on the innovation train. We have already done this on the wine side, leading to accolade after accolade.
The nuts and bolts of the industry need a drastic overhaul though. Systems are often both archaic and chaotic, especially on the sales and CRM sides. State-of-the-art solutions like Vin65 ( ecommerce and POS softyware) are not currently available to South Africa, but even if it was, how many wineries would embrace it?
Disruptive innovation (when executed well) leads to progress and improvement. But it is still a disruption. The question is: Are we willing to endure the likely discomfort of disturbance to improve our prospects in the long run?