Published on WSJ.com by Lara Kolodny
Club W Inc. has raised $9.5 million to grow its e-commerce wine business in the U.S.
Bessemer Venture Partners led the investment. Earlier the Los Angeles startup raised $3.1 million in a seed round led by Crosscut Ventures.
The deal comes after efforts to sell wine by some traditional retailers and startups didn’t bear fruit as hoped.
Lot18, a New York-based online seller of fine wines, raised about $47 million in 2010 and 2011, but in the next two years, it laid off a significant portion of its staff, made a failed attempt to enter the European market, and has since been retooling its business.
It ditched the “flash sales” approach it was known for earlier, in which it sold bottles that were very highly prized and priced elsewhere at a discount to its members. It now sells wine and housewares as gifts or on a subscription basis.
Gilt Groupe Inc., a members-only shopping site, tried offering gourmet foods and wines online via its Gilt Taste division, which it shuttered after about two years.
In order to start selling online, noteworthy wine shops such as Zachys Wine & Liquor in Scarsdale, N.Y., or Plumpjack Wine & Spirits in San Francisco have had to navigate a maze of sales tax districts, rules and technology to sell their bottles across the U.S.
Although wine purchases and consumption are generally on the rise domestically, only 2% to 4% of sales happen online here, according to GuestMetrics, a hospitality-industry business intelligence firm.
Club W’s approach to selling online borrows, in a sense, from rising stars in other product categories, such as direct-to-consumer fashion brands Warby Parker, Bonobos and Everlane, and subscription-commerce brands including Birchbox, Harry’s and Julep in the bath and beauty category.
Club W co-founder and Chief Executive Xander Oxman said that at any given time Club W makes 30 to 50 different wines available to subscribers, who get three or more bottles shipped directly to their doorstep each month.
The curated selection means wine consumers won’t feel overwhelmed, as they might browsing for a bottle on traditional e-commerce sites. The sales of wine on a subscription basis give Club W some predictable, recurring revenue, which in turn helps the startup offer lower prices.
Subscribers to Club W can make a selection from Club W’s recommendation engine, a kind of digital sommelier, or pick the wines that intrigue them a la carte.
The company’s inventory is created by noteworthy winemakers who develop their “juice” for Club W exclusively.
They are paid a fee by Club W to make these exclusive wines, while the startup procures fruit for them, and manages everything from packaging design to bottling and shipping.
Brian Smith, chief wine officer at Club W, a sommelier by trade, said this approach helps winemakers who have great talent but may lack access to capital enough to get their wines made and into the market otherwise.
“They say it’s really easy to make wine, and hard to sell it. In one sense that’s true with the cost of freight on the rise, and brokers who normally take a 25% to 30% cut,” he said.
Bottles on Club W are typically priced between $13 and $20, making them appealing to wine enthusiasts who may not be wealthy, or so-called “wine snobs,” but who like to imbibe, entertain with wine or give wine as gifts anyway.
A Club W investor with Bessemer Venture Partners, Kent Bennett, said his firm expects the startup to use the new equity capital on “fixed costs” associated with making wines, and acquiring customers through word of mouth, social media and great branding.
He views Club W as having the “ability to collapse the supply chain” and bring consumers a simpler and more affordable way to access great wines.
The company resembles another food-and-beverage business backed by Bessemer, Mr. Bennett said: Blue Apron Inc., which delivers meal kits to subscribers and is on a rapid growth tear, he said.
Club W competes with massive e-commerce wine sellers like Amazon and Wine.com, which sell wines by the bottle primarily, and more directly with another funded startup,Naked Wines, which also sells exclusive wines to subscribers.