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The Worlds of Corporate Strategy and PR Collide

Wine.com turns ten this year, but the celebration has been muted thus far. Wine-lovers are whining about the company’s actions, which have caused a public relations problem and could cost the nation’s number-one online wine retailer business.

At issue are laws in certain states that prohibit the retail shipment of alcohol over state lines. Wine.com, for example, cannot ship wine to 25 states, including Alabama, Kansas, Michigan, Pennsylvania and Utah. Napa Valley vineyards are not allowed to ship to New Jersey, which is one reason a friend of mine has wine shipped to my New York home a few times each year.

One way Wine.com has been able to work around state laws is by purchasing and working with wholesalers and retailers in certain states. The company recently entered the Connecticut market by acquiring a local wholesaler, and it operates warehouses in a number of states in order to serve local populations. Some of the company’s competitors, however, simply ignore state laws and illegally ship wine and other alcoholic beverages. They typically do this by listing the contents of packages as non-alcoholic products. This hurts Wine.com, which obeys the laws and expends capital in order to enter certain markets.

Wine.com and other retailers have, for a number of years, tried to get states to change their laws. In the meantime, Wine.com wants its competitors to play fairly by not breaking these laws. To help ensure that its competitors are obeying the law, Wine.com recently embarked on what critics are calling a “sting operation.”

As first reported by Richard Cartiere’s Wine Market Report in late December, Wine.com representatives have been ordering from competitors to see if they will illegally ship wine across certain state lines. If a company violates the law, Wine.com provides the evidence to local regulators. According to the Wine Market Report, regulators in Washington and New York have issued fines to those caught in Wine.com’s net.

Wine.com CEO Rich Bergsund defends his company’s actions.

“We’ve had to ask ourselves whether we are wasting our time and energy having all these warehouses all over the country or not while others apparently do not,” Bergsund told Wine Market Report.

Trade organization Wine and Spirits Wholesalers of America (WSWA) is also backing Wine.com.

“We have been saying for some time now that the enforcement of interstate shipping regulations is alarmingly lax. The fact that a reputable retailer is now saying the same thing is telling – as is the fact that he is now under attack from other retailers for saying it,” WSWA CEO Craig Wolf told Drinks International.

On the opposite end of the spectrum, another trade organization, the Specialty Wine Retailers’ Association (SWRA), has said that Wine.com is really trying to muscle competitors out of the business. Michael Aaron, chairman of New York wine retailer Sherry-Lehmann, agrees with that sentiment.

“It is absolutely terrible what they’re doing. They’re trying to bring the wine industry back 50 years to execute a bad idea that will only cost the consumer much more money,” Aaron told Wine Spectator. “They have set up a method that is so impractical and so costly for the consumer. Have you made a comparison on their prices and what they charge? It’s unbelievable. They’re gouging the public.”

Regardless of what trade organizations and Wine.com’s competitors say, it’s clear that the wine-drinking public is not happy with Wine.com’s decision to act as an industry watchdog.

Alder Yarrow, who pens the popular Vinography blog, blasted Wine.com, and many of his readers agreed with his sentiment.

“The wine industry, while competitive, is generally marked by a real collegiality, and it’s despicable to see such shallow, backstabbing behavior on the part of Wine.com. Shame on them. It’s mean spirited from a competitive standpoint, and it has the indirect effect of screwing ordinary consumers,” Yarrow wrote.

While commenters on Vinography took Wine.com to task, Bergsund did not run and hide. Instead, he began posting on the blog.

“We’re just as frustrated with state laws as you are. Try to resist judging us on this too soon – we know consumers need the best possible access to the best wine can offer, and we’ve already seen a couple states head in the direction of opening up!” Wine.com’s CEO wrote.

Yarrow responded, ending his comment by telling Bergsund, “I think you will find that this effort is going to do you a LOT of harm from a PR perspective.”

Bergsund, meanwhile, understands that his company is going to take some publicity hits.

“We are willing to take risks to challenge the status quo, including negative PR,” he wrote on Vinography.

Right or wrong, Wine.com’s actions have resulted in negative attention. I believe, however, that the company understood this was a distinct possibility when it embarked on its crusade. While wine aficionados who traffic wine-related websites may choose no longer to buy from Wine.com, I think that the vast majority of the company’s commerce comes from less involved customers. In other words, to serve the many, Wine.com has chosen to alienate the few.

At the moment, the Wine.com story has not reached the mainstream media, and it may never pique the interests of anyone outside of the spirits industry. Regardless, the company needs to be conscious of the possibility that the story could do further damage to its image. It also must weigh the risks and rewards of continuing its sting strategy versus the negative impact it could have on its target consumers.

Strategic moves such as the one Wine.com has made are geared towards improving a business, and these maneuvers are often forward-looking and not meant to bring about immediate results. In the near-term, these strategies may bring negative public relations, but if a company can weather the initial storm and play the strategy out, it will often be rewarded. The balancing act can be delicate, but if you prepare properly and are proactive in your response to the bad PR, the strategy can play itself out to fulfillment.

This article, written by Ben Silverman, originally appeared in PR Fuel (http://www.ereleases.com/prfuel), a free weekly newsletter from eReleases (http://www.ereleases.com), the online leader in affordable press release distribution. To subscribe to PR Fuel, visit: http://www.ereleases.com/prfuel/subscribe/.

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