Have you attended a virtual happy hour yet? Or have you tried a "quarantini" at the end of the day? Maybe you're just ready to grab a cold one. Whatever the case, the adage "it’s five o'clock somewhere" is very much alive and true in our current COVID 19 reality. According to Nielsen’s industry report on US alcohol sales, ecommerce alcohol sales were six times higher in April than one year ago. For third-party logistics (3PL) warehouses considering high growth markets, wine and spirits could represent an incredible revenue growth opportunity.
What is driving this rapid growth in consumer spending on alcohol? With bars and restaurants across the country closing and fears of risking COVID-19 infection by shopping in-store rising, regular alcohol consumers are now buying alcohol online more than ever before. In fact, according to the same Nielson industry report, online sales of alcohol are up 500% since late April. This is in addition to the 54% rise in sales in stores. This presents a strategic opportunity to 3PLs who diversify their business and enter the wine & spirits warehousing and distribution market. With new opportunities in this evolving landscape, warehouses looking to leverage cutting edge warehouse automation to thrive in the wine and spirits market have ample growth opportunities.
Top Wine and Spirits Warehouse Trends
1. Larger Wineries Relying More on Third-Party Logistics
Larger wine and spirits producers such as Treasury Wine Estates, Molson Coors Brewing, and other top producers increasingly rely on 3PLs for storage and distribution. The reason for this trend is simple: wineries and spirits producers are experts at production, not at logistics or warehousing. 3PLs who specialize in providing such services to producers have a strategic opportunity to fulfill this market need for wine and spirits logistics. In the process, these warehouses can grow exponentially by riding the double-digit revenue growth curve.
2. The rise of Direct-to-Consumer (D2C): Cutting Out the Middleman
As the growth in wine and spirits sales continue to rise, there has been a transformation from traditional 3-tier distribution to direct-to-consumer (D2C) distribution. The traditional channel mix for wineries and distilleries includes a 3-tier system: a producer, a distributor, and a retailer. While the advantage of this channel mix is more wine & spirits access and availability to consumers, the disadvantage is that each level of the supply chain requires some margin.
With several layers of middlemen taking a percentage of profits, margins can erode quickly for wine and spirits producers. To keep more of their profit margins, producers have started shifting from traditional 3-tier distribution networks to direct-to-consumer fulfillment. Successful D2C fulfillment operations rely on third-party warehouses experienced with ecommerce fulfillment and who have the capability to process high volumes of online orders efficiently.
3. Rising Shipping Costs Due to Alcohol Regulations
Besides streamlining supply chains by cutting out the middlemen, wine and spirits distributors also face rising labeling and shipping costs resulting from federal regulations. Government agencies like the Alcohol and Tobacco Tax and Trade Bureau (TTB) require warehouses who handle and ship alcoholic beverages to label every beverage with alcohol percentage content for consumer safety purposes. In addition, when a product is shipped to a consumer’s home, an adult must sign and approve the delivery in-person. Often carriers must attempt delivery multiple times to ensure an adult is home in order to complete the delivery. This in turn causes carrier shipping expenses to balloon and makes it difficult to predict shipping costs accurately. Those warehouses that can help lower shipping costs have a competitive advantage at winning a wine or spirits supplier’s business.
The Solution: Warehouse Automation
While these wine and spirits logistical challenges seem daunting, applying warehouse automation best practices with a warehouse management system (WMS) platform can enable 3PLs to efficiently manage D2C online orders and lower shipping costs in the process. Three core capabilities you should consider when looking for a WMS to handle wine and spirits warehousing needs are rate shopping, TTB regulatory compliance, and high-volume order processing
1. Lower Carrier Costs with Rate Shopping
We discussed earlier that carrier costs can quickly rise for wine and spirits warehouses. Rate shopping or having WMS software automatically choose the lowest carrier rate and print these cost-effective labels can save your warehouse thousands of dollars per month in carrier fees. Surprisingly, a survey of 3PLs at a recent webinar revealed that 58% of warehouses don’t use rate shopping today. Imagine the significant cost savings that these warehouses are missing out on every year. The bottom line: every wine and spirits 3PL should have a WMS with rate-shopping capabilities.
2. TTB Regulatory Compliance by Recording Item Attributes
Federal agencies like the TTB require 3PLs handling alcoholic beverages to keep track of alcohol percentages. Meanwhile, suppliers need to track attributes such as producer, vintage, and lot number. These item attributes are necessary because they give producers complete visibility into the status, value, and location of their inventory.
Thus, a WMS that can record multiple attributes per SKU or part number is essential to operate a wine or spirits warehouse effectively and give customers the inventory visibility they need. To provide customers with an extra layer of visibility, 3PLs should consider a WMS or inventory management software with a self-service portal where customers can run inventory status reports 24/7.
3. Scale D2C Fulfillment with High Volume Processing
We’ve all heard of wine clubs that ship a predetermined set of wine to consumers monthly. Often those orders all process at the same time and require a high volume of shipments. Wine and spirits 3PLs who want to handle high volumes of D2C orders need to build the technological infrastructure to scale their operation without any bottlenecks. One widespread bottleneck to a warehouse’s growth is label generation for high order volumes. How many labels can your warehouse print at a time? Your max label generation limit will help determine how many orders your warehouse can handle at a time. From a recent survey of 3PLs, about 75% of warehouses need to print hundreds of labels at a time. Consider WMS software that can handle printing hundreds of labels at a time like 3PL Warehouse Manager’s SmartParcel so that you can expand your operations without any bottlenecks.
Why Your 3PL Should Invest in Wine & Spirits Logistics
There is no better time for a 3PL to diversify their business and enter wine and spirits logistics to take advantage of the significant growth opportunities. Warehouse automation software can enable a 3PL to succeed in this market by lowering carrier costs with rate shopping, enabling federal regulatory compliance by recording multiple item attributes, and scaling operations with high volume processing. Our WMS software 3PL Warehouse Manager has these specific capabilities and can help position your 3PL for rapid growth. To request a demo, click here.