CEO Zac Brandenberg explains how the online wine marketplace took on an entrenched category, realizing the opportunity to apply the convenience of ecommerce and popularity of DTC brands to the wine space

Certain categories, like apparel, home and other consumer packaged goods have proven ripe for disruption, as direct-to-consumer players challenge legacy brands using new channels and customer touchpoints. Others, such as financial services, automotive, and alcohol and spirits have proven difficult to move online, limited by industry regulations and deeply entrenched legacy players.

DRINKS is one such startup trying to bring the wine category into the age of ecommerce, powering DTC labels as well as providing a platform for retailers to sell wine online, with the added benefits of direct ecommerce. PSFK spoke to Zac Brandenberg, co-founder and CEO of DRINKS, about how the company is taking advantage of data and digital merchandising in order to disrupt a category that's been particularly resistant to change.

PSFK: Could you explain what DRINKS is and how it works?

Zac: DRINKS is a marketing technology company focused on the online wine space. We have two major divisions of DRINKS. One is our DTC unit; the other is our platform, or what we refer to as “Wine as a Service.”

On our DTC side, we operate Wine Insiders and some celebrity capsule collections. The Martha Stewart Wine Company is an example of that. Wine Insiders is one of the leading online destinations for consumers to find premium, super‑premium wine at a great price. With that property, we've conducted millions of transactions online, delivering wine to 1.5 million households.

Photo from Jacob Mercuri (DRINKS Holdings)

Then our “WaaS” platform side is an engine that powers retailers, be it those with beverage alcohol licenses already in physical locations, or those without beverage alcohol licenses who may just be operating a virtual store to have the ability to feature wine as a product offering.

What led to the creation of DRINKS, and what gaps were you seeing in the marketplace that you wanted to fill?

We started DRINKS in late 2013. My background is in online technology and marketing. Among other things, I founded an online ad platform called Hydra in 2003 that I sold in 2010 to Adknowledge, which at the time was the largest privately‑owned advertising network in the United States.

Hydra essentially was a performance‑based ad network. We worked for hundreds of advertisers like Netflix and Blockbuster, which was again back in the mid‑2000s, companies like DirecTV, Proactiv, Gunthy Renker, AT&T, GrabFood, etc., to help them find customers online.

In some cases, that involved working with them to develop online programs as they began to conduct ecommerce efforts. We distributed their advertising and marketing communications to our network of thousands of Internet publishers, meaning website like CNN and Yahoo, to search engine marketers, social media marketers and the like.

When we started DRINKS, we were looking at other markets to see where we could apply technology in a disruptive manner. There was a tremendous opportunity to enable wine, which is a segment of the larger adult beverage industry, for online sales. It's one of the last remaining market categories that's really been untouched by the Internet and online sales.

There's about $50 to $70 billion a year of wines sold in the United States off premise, so non‑restaurant, non‑bar sales. The Internet sales segment of that is very small.

Is that because of regulation?

It certainly has been a component. Regulation is one element. Then the fulfillment and logistical challenges, the product having such heft, is the other. You also have an environment where the players in the industry are entrenched and resistant to change.

We draw comparisons all the time to some of the disruption that was created by Uber and Lyft against the TLCs in local communities where there was little reason to change by the taxi companies because they felt protected—not just by regulation but also by the consumer behavior that had been in place for so long until companies came around and decided that consumer choice was going to win out. Convenience and all the other components have contributed to why more products are sold online today than ever before.

Over the last number of years, wine itself has become regulated in a different fashion that's opened the door to more DTC sales.

Photo from Jacob Mercuri (DRINKS Holdings)

How did you tackle that challenge of disrupting such an entrenched space?

Challenges are fun, right? The juice is worth the squeeze.

The landscape for adult beverages in the United States has been the same, for the most part, since the 1930s at the end of Prohibition. If you were to look outside the United States and look at Europe, wine has been sold the same way there for hundreds of years. It's ripe for change.

This is very cliche to say, but one of the great things about the internet and the environment in which we live is that it enables change. It enables consumer choice. It enables convenience. Beverage alcohol is a category where those things are not available to many consumers.

One of the reasons that wine, from a distribution perspective, has evolved is through a push by consumers and a push by wineries. Wine is, in many cases, able to be shipped into other states. These independent wineries were able to market their product outside of their local area.

It's just terribly unlikely for a small producer in Long Island to be able to get a national wholesaler like a Southern Glazers to carry their product. They're focused on Gallo. They're focused on Constellation. They're focused on the big brands that carry a suite of products. In some cases, they may carry wine, distilled spirits and other products all together.

That makes the relationship worth the time. Again, there was a real opportunity here. We focused specifically on wine instead of distilled spirits or beer because the regulatory framework opens it up to more distribution. The laws and regulations around distilled spirits being shipped across state lines and beer are much more restrictive.

On top of that, we noticed that across the wine category, consumers are always looking to discover. They're always looking to find something new. That presents a tremendous opportunity to incorporate technology to help them do so.

Are there any specific strategies that you've employed around the shipping and logistics element of wine?

We've created and developed a nation‑wide DRINKS Partner Network that enables us to service 41 states plus Washington DC. That covers the large majority of the wine‑consuming population in the United States.

We have a technology infrastructure architected from the ground up that enables us to conduct all the compliance, manage the product curation, do the segmentation that allows us to make specific inventory available in specific states and identify customers who are legally allowed to purchase that inventory.

Some states regulate on a county level, others statewide level. There are dry counties. There are volume limits where consumers can only buy X amount. Then there are different taxes and sales tax, all of which are incorporated into our platform. That fundamental technology layer powers both our DTC business unit as well as our platform partnerships through our WaaS offering.

How does DRINKS use the data that it collects?

We have a lot of consumer data. It enables us to optimize marketing messages for consumers. It enables us to put more relevant products in front of them. It enables us to inform our platform partners as to how they should think about inventory—whether rosé is going to index high in certain states versus others, or with certain demographics than others.

On our DTC side, we have created what we refer to as our PAIR engine. It's essentially an optimized store shelf for consumers based on the wine products themselves.

Research has indicated that roughly 82% of the purchase decision by consumers in the category we operate in (that being premium and super premium wine with suggested retail prices of $8 to $20) is driven by the visual that the consumer sees. This means the art on the label, the name of the wine and the shape of the bottle. Above $20, the visual aesthetic may influence the purchase but not to the same degree as 82%. It's going to decline in a precipitous manner as the product goes up in price.

In many cases, it's an emotional response. We've created a solution that enables us to categorize consumers into individual cohorts based on their psycho‑demographic segmentation and match them with appropriate wine labels, and therefore wines that are going to appeal to them more.

This informs our virtual stores, Wine Insiders. Consumers may go to the website and see a different selection of product than someone else based on who they are and what we feel is going to be most relevant for them to streamline their search process.

How do you see the future of the wine and spirits industry evolving now that it is being disrupted with ecommerce finally?

From an industry perspective, we see ecommerce as an ever‑growing piece of the pie. Consumers want what they want. They want the products. They want to shop from their couch or their phone. They've gotten that degree of accessibility and convenience with many other products.

They're going to get that with wine, as well. From a macro industry perspective, we see this convergence through on the channel strategies. Take Amazon, starting as a digital first brand and then recognizing the need for physical assets.

Then in the opposite direction, take Walmart, who acquired Jet, began to double down on digital investments and rush towards a point where they have coverage from physical assets to build it through on the channel strategy for consumers.

There are three components. One is leveraging physical assets and a click‑to‑collect relationship with consumers. The second is providing an on‑demand or very quick delivery service. The third is a Ship‑to‑Home or Amazon Prime style solution for larger volume items and for a consumer who doesn't need something right this second and doesn't want to pay a service fee.

Every major retailer is rushing towards that point. All digital natives are realizing they need to go physical, too. Look at Warby Parker, or Casper with its Target and American Airlines partnerships. Harry's was in Target, as well. It's a convergence in order to serve customers where they want to be. For DRINKS, we're very excited about the growth of our platform and our ability to power retailers and help them evolve.

At DRINKS, we talk to a lot of traditional retailers. Adult beverage sales have long been the principal domain of these large retailers: Costco sells a tremendous amount of wine. Trader Joe's, Whole Foods, Kroger—they sell a lot of wine and adult beverage products. They have the ability to leverage this consumer loyalty and their knowledge and expertise in a space to service consumers online.

Pictured: Zac Brandenberg. Photo from Jacob Mercuri (DRINKS Holdings).

Amazon is going to come for the category. They come for every category. Adult beverage is enormous. The faster retailers evolve, the better off they're going to be.

DRINKS

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Lead image: from Jacob Mercuri (DRINKS Holdings)

Certain categories, like apparel, home and other consumer packaged goods have proven ripe for disruption, as direct-to-consumer players challenge legacy brands using new channels and customer touchpoints. Others, such as financial services, automotive, and alcohol and spirits have proven difficult to move online, limited by industry regulations and deeply entrenched legacy players.

DRINKS is one such startup trying to bring the wine category into the age of ecommerce, powering DTC labels as well as providing a platform for retailers to sell wine online, with the added benefits of direct ecommerce. PSFK spoke to Zac Brandenberg, co-founder and CEO of DRINKS, about how the company is taking advantage of data and digital merchandising in order to disrupt a category that's been particularly resistant to change.