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Talkin Tech: Third-Party Wild Cards

Posted on  | September 26, 2013   Bookmark and Share
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Should unlicensed marketers profit from the sale of wine?

Advertising online is an important part of any serious online retailer’s marketing mix. The options for a store start with the major search engines, but search marketing can be an expensive choice as the competition for keywords is intense. Increasingly niche websites are opening up where entrepreneurs have developed an audience and will happily help a store sell them wine. So far so good, and clearly marketers can help find new audiences that traditional retailers haven’t been able to uncover online. The issue being debated in New York right now is whether those marketers can share in the profits from a sale without holding a license.

Last month the NY SLA held its second public meeting to discuss Internet Sales of Alcoholic Beverages. An issue central to this discussion has been whether Marketing Agents also called Third Party Providers (TPP) can collect a fee that is based on a percentage of the sale. Retailers have traditionally paid a PPC or flat listing fee, but transferring risk to the advertiser and only paying for confirmed sales is attractive for a retailer searching for a guaranteed return.

A recent change in policy by the California ABC signaled to TPPs that commissions on a sale were now permissible in that state. Back in 2009 the CA ABC indicated that, “…if non-licensees share in the profits from the sale of alcoholic beverages, violations… may occur”. However in 2011 they signaled a change in policy by dropping this concern. In an updated advisory for wineries and TTPs they indicated a broader review of the relationship would be warranted to determine whether “any compensation structure utilized may not result in any actual or de facto control over the licensed business”.

The 2 years since the CA advisory have seen a flurry of activity as marketing agents have come up with new ways to sell wine online. We now have the Real Housewives selling wine, apps that sell wine, Lot 18 and now Amazon selling wine through their websites as unlicensed entities. Indeed some marketers in California now believe that allowing marketers profit from the sale of wine is essential to the future of the industry. This is a future that includes more direct to consumer sales for wineries; sales which can bypass the control of state liquor authorities.

Meanwhile in NY, the board of the SLA has been reviewing the business models of Lot18 and Amazon in an effort to better understand how to advise the industry on TTPs and internet sales. Some of these models have clearly gone too far and the role of the licensed retailer (store or winery) as a passive beneficiary with no business risk is of concern to the SLA. On the other hand the SLA has permitted certain landlords to collect up to 10% of the sales from a store without being listed on the license. Amazon now collects 15% of the sales by wineries on its website, and argues that marketing agent commissions are only one channel in a licensee’s overall marketing mix.

The SLA is clearly concerned about the scale Amazon could bring to this business model. Commissioner Rosen asked “at what point does the unlicensed tail start wagging the licensed dog”? The SLA has no jurisdiction over unlicensed businesses and if Amazon is able to transform the market for wine as it did for books, the SLA could be limited in its ability to regulate the market in this state.

An advisory from the SLA is expected in the coming months that will define a number of issues concerning the sale of wine by marketing agents. The challenge they face is in balancing the opportunity for growth in this industry and broader selections for consumers, while not disrupting the livelihood of local licensees.

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