Inertia Beverage Group -- sounds like great news.

Catching up from a couple of weeks being offline, I noticed this recent development which is very positive for New York, and perhaps soon, winelovers in other states. What do folks think?

The Goldberg article is particularly informative.

The State Liquor Authority’s counsel, Thomas J Donohue, has pronounced legal the use
of a new technological method under which stores and restaurants can make Web
purchases while preserving intact middlemen’s game of protectionism in the sacrosanct
three-tier system. (Donohue cautioned that his opinion was not binding on Authority
members, but dark storms do not seem to lurk on the horizon.)
Under technology, developed and marketed by the oddly named Inertia Beverage Group of
Napa, California, the traditional role of middlemen (wholesalers, distributors) could be
significantly enhanced, even if the basis of some of their margins change. Paul Mabray,
Inertia’s chief executive officer, is correct in calling this development ‘ground-breaking.’
Traditionally, wholesalers buy, warehouse, sell and deliver wines bought from wineries,
taking sizeable markups. But Mabray’s technology enables them instead to become simply
order-takers without laying a finger on a bottle.
Under Inertia’s system, a licensed merchant or restaurateur interested in buying, for
example, only a boutique winery’s specialty would visit Inertia’s rethinkwinetrade.com
website, find a list of participating boutiques, click directly into one and make the
purchase.
The following transaction would take place almost simultaneously: The order would zip to
a pre-selected wholesaler, whom the winery would bill for the purchase; the wholesaler’s
computer would pay taxes on the purchase, bill the retailer or restaurateur and, deducting
its margin, pay the winery. Afterward, the producer would ship the wine to the buyer.
Mabray said he was talking with five New York wholesalers, two of which have expressed
interest. He expects to have his system, called RethinkWineTrade, debut in New York. He
wants to move next into California, Arizona, Washington State, Texas and Florida early in
2007.
In Inertia’s view, retailers and restaurateurs (and, of course, consumers) would benefit

Regards, Bob

Is there some discussion about how shipping is accomplished, Bob? As it stand now, the distributor pays for shipping, and, of course, pays less because they pick up consolidated orders, i.e., by the truckload. And what about the in-state excise taxes? If these concerns haven't been figured out, this will not be such a "rethinking, " after all.

I'm not sure about shipping, Steve -- obviously shipping costs costs would be higher on smaller orders. At the moment, Rare Wine bills me about $72 a case for shipments between California and New Jersey.

According to the press release, all taxes are paid by the distributor as follows:

Key to the new system is the establishment of “virtual inventory”. When a restaurant or retailer places an order directly on a winery website, the order is immediately routed through a wholesaler who accesses the wine from the “virtual inventory” of the winery and is billed by the winery. The wholesaler pays all taxes on the transaction, bills the restaurant or retailer, and then sends payment to winery. The entire transaction occurs instantly over the Internet. The winery then ships the wine to the retailer or restaurant consistent with three tier system delivery requirements.

This link to the home page might be more informative.

My guess is that the winery would pay for shipping, and would bill the distributor for the cost of the wine plus the shipping costs, but it's not clear from what I read here.

Regards, Bob

Regarding costs, it sounds like the distributor trades increased cross-country shipping costs for lower warehousing and local delivery costs. I'm guessing that this system would work best for wines with such small demand that it wouldn't make sense to keep significant quanties in stock anyway.

I agree, Andrew. That's certainly the way Goldberg reads it:

Now New York is extending the same direct-purchasing privilege via the Internet to merchants and restaurateurs. This amounts to an open sesame for gifted minor producers to win new fans.

***

And Inertia indicates smaller wineries are their targets:

Distributors’ special arrangements with meritorious wineries that cannot otherwise find representation in New York are likely to prove fruitful at little extra cost. A brand incubated online ‘might develop into a brand that justifies greater attention and generates more profits for the wholesaler,’ Inertia said.

Smaller producers have been concerned that they aren't able to get national distribution -- this change would seem to give them an opportunity. Distributors wouldn't have to pay carrying charges or take the risk that they can't sell the wines of minor producers. This might make such wines more available.

Or at least so a wine lover would hope.

Regards, Bob

Cynic that I am, this bill once again seems to protect distributors--this time, by building a profit into a transaction with which they have little or nothing to do yet they receive the same mark up for what amounts to a non-service or a clearing house/delivery service at best.

It might turn out to be a way to get smaller wines into stores in NY. I doubt, however, that it is likely to lower the cost of that transaction, and it is equally likely to come with a variety of delivery snags.

Incidentally, all prices from producer to distributor are F.O.B. which means the cost of shipping to the distributor is included. The cost of getting wine from distributor to retailer is built into the distributor's price to the retailer. On small or split case orders, there is often a minimum fee on the former and a per-bottle fee on the latter.

Hi Steve,

My name is Jeff Lefevere and I work with a couple of colleagues on the aforementioned Direct-to-Trade initiative at Inertia Beverage Group. We appreciate the questions you have posed and all have been accounted for.

Specific to your question related to shipping and taxes, the shipping takes place via common carrier and occurs directly between the trade account i.e. a restaurant or high-end retailer and the winery. Likewise, the transaction itself takes place between the trade account and the winery.

Inertia facilitates the actual e-commerce transaction and we partner with distributors in states where it is necessary to ensure that all legal aspects of taxes and the mechanics of the business is done correctly and accurately.

The overall benefit of this system is access. We're advocates for the small guy and this allows small wineries that wouldn't otherwise have access to the market via traditional distribution to build their brand. Distributors are excited to participate with us because they see this as a means to be involved in a program that develops brands--many of whom may eventually go into traditional distribution.

There are other aspects of this that will smooth out over time with shipping and scale, but for our pilot program we're ecstatic with the progress we're making.

The reception and positivity we have received from all layers of the industry indicate that others are rallying around us to ensure this success. And, frankly, again, it's not our success, because we're enablers, it's the success of the wineries that everybody is cheering.

All the best,

Jeff Lefevere
Director of Trade Development
Inertia Beverage Group

Folks on this forum,

Some clarification on a couple of other items, as well.

Thomas notes that he doubts this will lower the cost of the transaction.

Ah, not true. In fact, it does significantly lower the cost of the transaction.

As Inertia tested the business model, we were encouraged to take a significant revenue slice for managing the transaction and we declined, instead taking a very small piece that can be likened to a transaction fee. Similarly, distributors that we are partnering with are doing the same. Our rationale for doing so is to foster growth for the entire industry, not to act in our own short-term self-interest.

We are creating a new channel of distribution for small, boutique wineries and the only way to do that correctly is to ensure that margin is retained and kept with the winery. This aids their profitibility and their cash flow and allows them to grow by reinvesting in their business via marketing, production or whatever other means a healthy bottom line entails.

Bob hits the nail on the head because this program does afford distribution participation in an operational way (seamlessly and behind the scenes with Inertia) without carrying costs or a potential difficult hand-sell.

Thanks again,

Jeff Lefevere
Director of Trade Development
Inertia Beverage Group

[Robin Garr]

At the risk of being a bit of a cynic, Bob, I'm going to take a position similar to Thomas's: I'd rather support efforts (like CostCo's action) to bring down the three-tier monopoly than create Rube Goldberg machines that seek to work around it by giving the wholesalers their <i>mordida</i>.

I've seen the Inertia press releases but generally discarded them because - if it's the organization I'm thinking of - they've been distributed by a source I consider profoundly unreliable.

At the risk of being a bit of a cynic, Bob, I'm going to take a position similar to Thomas's: I'd rather support efforts (like CostCo's action) to bring down the three-tier monopoly than create Rube Goldberg machines that seek to work around it by giving the wholesalers their <i>mordida</i>.

I've seen the Inertia press releases but generally discarded them because - if it's the organization I'm thinking of - they've been distributed by a source I consider profoundly unreliable.

My sense is that Inertia has found a market niche under the current market conditions and is exploiting it. That's what smart businesses do. You can't blame the folks at Inertia for being creative! But it is indeed a case of the ends justifying the means, i.e. the consumer gets a broader choice, but the wholesalers and distributors still get their cut.

I find it abhorrent that this market niche exists to be exploited. It's a windfall for the wholesalers and distributors who have used their monetary muscle to prolong a system which is detrimental to the consumer and smaller wineries. I'd probably vote against it by not participating in the process.

OK, the one I'm standing on says "Ivory" and I'll get off it now.

[Robin Garr]

At the risk of being a bit of a cynic, Bob, I'm going to take a position similar to Thomas's: I'd rather support efforts (like CostCo's action) to bring down the three-tier monopoly than create Rube Goldberg machines that seek to work around it by giving the wholesalers their <i>mordida</i>.

I've seen the Inertia press releases but generally discarded them because - if it's the organization I'm thinking of - they've been distributed by a source I consider profoundly unreliable.

My sense is that Inertia has found a market niche under the current market conditions and is exploiting it. That's what smart businesses do. You can't blame the folks at Inertia for being creative! But it is indeed a case of the ends justifying the means, i.e. the consumer gets a broader choice, but the wholesalers and distributors still get their cut.

I find it abhorrent that this market niche exists to be exploited. It's a windfall for the wholesalers and distributors who have used their monetary muscle to prolong a system which is detrimental to the consumer and smaller wineries. I'd probably vote against it by not participating in the process.

OK, the one I'm standing on says "Ivory" and I'll get off it now.

Well said, Gary. I'd rather fight (the wholesalers) than switch <i>in the long run</i>, but you are correct, I can't fault Inertia for finding a way to work within the system to get wine to people in places that WSWA's lobbyists currently hold hostage.

I've also talked privately with Jeff, and while I can't honestly retract my opinion about their PR firm, I've agreed to take a closer look at his Inertia material and will give it a fair and honest read.

Thanks for having an open mind, Robin. My view is that anything that makes it easier for small wineries to sell their wine is a good thing.

My impression is that that Costco deals with larger wineries -- at least in our area there are no small wineries on offer.

I'll gladly pay a little mordida to support the little guys.

I don't know anything about Inertia, but the model looks good, and Jeff reads like a stand up guy. Time will tell.

Regards, Bob

[James Roscoe]

Thanks for having an open mind, Robin. My view is that anything that makes it easier for small wineries to sell their wine is a good thing.

My impression is that that Costco deals with larger wineries -- at least in our area there are no small wineries on offer.

I'll gladly pay a little mordida to support the little guys.

I don't know anything about Inertia, but the model looks good, and Jeff reads like a stand up guy. Time will tell.

Regards, Bob

Wasn't Jeff active on the old WLDG? His name sounds familiar. Anyway if he is willing to come in here and trade punches, then he has my respect.

Guys and Gals,

As a first timer here, thank you for the welcome and the passionate discourse.

In regards to our program, I have to say that the good news is nobody has done what we're doing. I have to say the bad news is that nobody has done what we're doing.

Without getting bogged down in cliche or too much metaphorical baloney, it can be said that this is a revolution for the small winery.

But, many people want to make this about the large distributors and how we're not actually solving the problem of how the big guys blow through large allotments of national wine SKU's that sell on end-caps while small, unique artisan brands are shut out of the market. Well, the short answer is, we're not trying to. We certainly don't have the resources to fight a Costco-esque fight in every state.

But, what we can do is work creatively within the system that is in place, partner with the right people and outflank the other guys to give the small winery a chance in the market place. At the end of the day, if a small winery can sell into New York, or Florida, or Texas when they otherwise would have never been able to secure representation then we think that's a win for the industry.

The small distributors that we're working with all understand the program as being a benefit in their own hedge against their much larger and better resourced competitors in the market.

I promised Robin I wouldn't be a shill, so unless violent disagreement breaks out, I'll likewise remove myself from the soapbox. I think, ultimately, our program is going to be a benefit to wine lovers of all stripes. Thanks for the vehicle to share information and I look forward to engaging in other enthusiast-based conversations around our shared topic of enjoyment.

Thanks again, guys and gals, for the dialogue.

My best regards,

Jeff Lefevere
Director of Trade Development
Inertia Beverage Group

Thanks for having an open mind, Robin. My view is that anything that makes it easier for small wineries to sell their wine is a good thing.

My impression is that that Costco deals with larger wineries -- at least in our area there are no small wineries on offer.

I'll gladly pay a little mordida to support the little guys.

I don't know anything about Inertia, but the model looks good, and Jeff reads like a stand up guy. Time will tell.

Regards, Bob

Bob,

I've worked at every level of the wine business since 1984. I've heard every "this will help the small guy," scenario you can think of and then some. I've also heard a zillion times that the "cost will come down."

Forgive me, Jeff, but I simply don't believe either of the above. In my view, until the three tier system is dismantled--shattered--small wineries and consumers are at the hands of so-called tender mercies.

Let me add that if I am proved wrong, I will be the first to smile about the results.

INCIDENTLY, JEFF, I've always wondered at the choice of name: Inertia Beverage Group. Can you enlighten me as to why "Inertia?"

As for the Costco/Walmart, et al, stuff. Small wineries and smart wine retailers can find ways to sell products that the big guys won't do much with, especially when selling in a relatively "open" state (wine in grocery stores--the way I see it, that also means groceries in wine stores, gourmet of course.)

As a professional cynic, Thomas, I can't disagree with anything you write.

But ... hope springs eternal -- one thing I have learned is that optimism has always been rewarded in my personal life. Maybe it will be here as well.

Regards, Bob

As I said, Bob, I will smile if proved wrong, out of contentment that the wine world is changing, or at least the distribution channel.

Which one of us is the professional critic? Should I ask the paper for a raise???

"Professional cynic" here, not a critic. But sure, I'd support a raise for you -- where should I send the note?

"Professional cynic" here, not a critic. But sure, I'd support a raise for you -- where should I send the note?

Oops--I meant cynic.

Still dizzy from a whirlwind drive to NYCity, then to Lakewood NJ, back to NYCity and then back to the Finger Lakes. I was on the road 16 out of 53 hours and got 11 hours sleep--getting too old for that stuff.

Guys and Gals,

I'm going to love this board. Cynics where hope springs eternal! Absolute violent disagreement hasn't broken out as I suggested in my previous post as a reason for re-entry to this topic, but a couple of items remain that I want to clarify.

A couple of points of clarification and I'll humbly move on to other topics. Thanks to Robin for his latitude in this regard.

And, in a blatant attempt to curry favor, I must tell Thomas that I have a copy of his book in my queue to read ... in fact, we see ourselves as something akin to ambassadors in a new millenium wine trade, but I digress.

First, in terms of progress, our program is absolute material progress because regulators now see that business to business ecommerce is a valid transaction path--this is based almost solely on our hard work.

Second, while shipping costs for larger orders are something of a factor in accelerating growth, we also have plans to establish regional fulfillment. I might as well just draw a map of the business plan, you guys are soliciting all of the details out ...

And, finally, and perhaps most importantly, the name Inertia was chosen based on our desire to help overcome the antiquated, inert laws of the wine industry. We'd like to break the wine industry out of the inertia perpetuated by antiquated systems and laws.

Thats the story. Thanks for the dialogue and the pragmatism. '07 is going to be a big year.

Best,

Jeff Lefevere
Inertia Beverage Group

Guys and Gals,

I'm going to love this board. Cynics where hope springs eternal! Absolute violent disagreement hasn't broken out as I suggested in my previous post as a reason for re-entry to this topic, but a couple of items remain that I want to clarify.

A couple of points of clarification and I'll humbly move on to other topics. Thanks to Robin for his latitude in this regard.

And, in a blatant attempt to curry favor, I must tell Thomas that I have a copy of his book in my queue to read ... in fact, we see ourselves as something akin to ambassadors in a new millenium wine trade, but I digress.

First, in terms of progress, our program is absolute material progress because regulators now see that business to business ecommerce is a valid transaction path--this is based almost solely on our hard work.

Second, while shipping costs for larger orders are something of a factor in accelerating growth, we also have plans to establish regional fulfillment. I might as well just draw a map of the business plan, you guys are soliciting all of the details out ...

And, finally, and perhaps most importantly, the name Inertia was chosen based on our desire to help overcome the antiquated, inert laws of the wine industry. We'd like to break the wine industry out of the inertia perpetuated by antiquated systems and laws.

Thats the story. Thanks for the dialogue and the pragmatism. '07 is going to be a big year.

Best,

Jeff Lefevere
Inertia Beverage Group

Thanks Jeff,

You will, and already have found that we can disagree on this bb without resorting to vitriol--almost always!!! And, you will note that my latest book is dedicated to the wine retailer; such a tough business that it is.

I would love to know more about what you are doing--perhaps for future reference to include in my next book, which traces the rise and fall of a major wine industry name. Perhaps an offline email???

Last, I think the "Inertia" in the context that you describe is fine, but putting the three words together, Inertia Beverage Group, sounds like a comment on your organization rather than the situation it was established to combat and destroy. But don't listen to me, my publishers never think my titles are better--of course, there is the matter that they are usually wrong...