October 21, 2008 / 10:04 AM / 9 years ago

Online wine sales to offer bargain for consumers

NEW YORK (Reuters Life!) - Consumers in just over half of the United States could soon be getting a better selection of wine at a cheaper price -- online.

Amazon, the online retailer better known for books than beverages, is set to enter the U.S. wine market in a move that could alter how wine is distributed and priced in the United States.

"Amazon is a game changer," said Tyler Colman, author of the book "Wine Politics. How Governments, Environmentalists, Mobsters and Critics Influence the Wines We Drink."

"Wineries will have a much wider reach," he added, estimating that consumers could see a 20 percent drop in prices because Amazon "would eliminate a whole tier of the distribution system."

Mike Veseth, an economist at the University of Puget Sound in Tacoma, Washington, thinks the savings could be even higher.

"Distribution is the biggest single bottleneck in the wine market," he said, adding that it adds about 50 percent to the cost of a bottle of wine."

Amazon has kept mum on its plans. The head of its wine program, Michael Gelvin, a certified wine educator and wine consultant, declined to answer any questions.

But Wine Spectator, the monthly magazine whose motto is "Learn More, Drink Better," has reported that the Seattle-based Amazon's marketing proposal and contract to wineries offered vintners the opportunity to not only set their own price, but recoup 47 percent of the sale.

Under current U.S. conditions, the wine maker usually receives about a third of the price that the consumer pays.

"If a distributor sells a wine to the retailer for $10, then he paid about $5 for it. Then the retailer marks it up to the consumer, say another $5," Veseth explained.

Most wineries had been barred from shipping their product across state lines since Prohibition ended in 1933. But a 2005 U.S. Supreme Court ruling loosened the regulations. Although there are other challenges making their way through the court system, most states allow consumers to order wine online.

The U.S. wine market is worth about $25 billion annually, according to Rich Bergsund, chief executive at Wine.com, currently the largest online wine seller.

He welcomed Amazon's entry into the market saying, "Actually, I think it will be a good thing. Online wine sales represent only one or two percent of the market."

Bergsund explained that online vendors such as Wine.com give consumers access to a vast selection, great prices and delivery to their door, and information that gives them confidence in what they're buying.

So one day soon, U.S. consumers should be able to order not only wine glasses, corkscrews, coolers and books, but wine itself -- and for less than they pay now.

Editing by Patricia Reaney

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