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The Spoon

Daily news and analysis about the food tech revolution

CB Insights

LOTR Wine

Small Wineries See Big Business in Direct-to-Consumer Delivery Services

Earlier this month, the folks at CB Insights published a report profiling over 50 wine-tech startups making everything from apps to grapeless wine to AI-powered pairing suggestions. Of all the categories covered, e-commerce was dubbed the “most well-funded.”

That’s especially true when it comes to direct-to-consumer wine shipments, and it’s not just CB Insights who thinks so. Silicon Valley Bank’s 2017 SVB Wine Report, which surveyed over 1,200 wineries, found that 61 percent of wine revenue was direct to consumer, compared to 49 percent in 2012. Direct-to-consumer wine shipments reached $2.33 billion (almost 4 percent of all wine sales) in 2016; in November 2017, shipments rose 26 percent, to $417 million.

For smaller wineries, this growth is a much-needed business boost that’s happening for a few different reasons. Laws around shipping wine across state borders are changing (see below), allowing smaller wineries the chance to sell to previously unreachable consumers. There’s also the fact that most consumers are simply willing to pay more for the convenience of having something delivered, whether it’s pizza, Christmas presents, or one’s monthly wine supply. And while SVB expects zero growth for the rest of the wine sector in 2018, direct-to-consumer shipments aren’t included in that prediction.

In other words, it’s a good time to get into the direct-to-consumer wine business, and there’s a growing number of companies out there as evidence:

One interesting concept is Last Bottle Wine. Focused on fine wine, the Napa Valley-based company offers one wine each day, carefully picked from one of the area’s wineries. Customers get free shipping credits for referrals, and if you happen to purchase the literal last bottle of a particular wine, you get a $25 credit.

Garagiste dubs itself “the original email offer wine company.” Daily offers are sent out via a mailing list, and customers can order bottles that get shipped out on one of the site’s two annual shipping dates. That particular model has been copied by many retailers over time, and will probably continue to be.

Vinomofo works directly with wine producers all over the world and offers deals on them through its members-only service. The Aussie company also offer “secret deals,” where the identity of the wine and producer are kept hush hush. It keeps what it calls a “no bowties no BS” approach to wine culture, and will include that flavor in its U.S. launch, slated to happen very soon.

GetWineOnline is the TJ Maxx of wine, meaning that it has an insanely large selection of decently priced wines—so long as you’re willing to sift through a lot of stuff you don’t want to find your perfect deal. Along those lines, Total Wine, which is an extensive brick-and-mortar chain, has built out its e-commerce site in recent years and ships wine in select states, and any bar accessory you ever needed to all 50 states.

Finally, Lot 18 is an online marketplace for wine that carries all manner of brands and prices, and you don’t need a subscription to order. While the site claims to cater to more discerning tastes, the folks behind it clearly like a bit of fun, hence the Lord of the Rings-themed wine currently on offer. (For non-Gandalf fans, there are similar offerings with SNL and The Walking Dead themes.)

The biggest potential hindrance in this space is the insanely complex world of shipping across state lines, also known as “interstate wine shipping.” While I’d like to spend another 500 words detailing the history of this practice, as well as its many different players, I’ll leave all that to the words of this expert. Suffice to say, laws around where wineries can ship have been steadily, if somewhat slowly, changing, though a few lingering states are still trying to crack down on internet wine shopping.

Regulatory and licensing issues won’t go away overnight, or even next year. That’s unlikely, however, to slow growth in the direct-to-consumer wine delivery market. If this past year’s interest from both consumer and investors is anything to go by, 2018 could prove itself a very big year for small wine businesses.

 

Reheated: Q1 2017 Shows Food & Beverage Investment Is Hot Once Again

Food and beverage are hot again.

After a sluggish 2016, a strong first quarter of 2017 suggests investment in the food and beverage sector could be set for a comeback on an annualized basis according to CB Insights.  This would be a reversal from the past couple years, which has seen food and beverage sector investment decelerate since hitting a peak of $787 million in the final quarter of 2014.

Food and beverage investment. Source: CB Insights

Not only did last quarter reverse the trend in total annual investment, but also saw an increase in the average funding amount, which has also been on the decline for the past several years, falling from an average of $7.6 million per deal in 2014 to $2.7 million in 2016.  The average deal value in Q1 2017 was $6.7 million, more than double the 2016 average.

But Q1 2017 was an extraordinary quarter. A single private equity deal by Food Union, a Latvia-based conglomerate of food and beverage brands, accounted for nearly half ($225 million) of the total investment for the quarter.  Backing this deal out of the quarter’s total results in a figure much more on par with past quarters ($289M Q1 2017, $265M Q4 2016, $322M Q3 2016). It’s tough to say whether we’re seeing a true reversal in the decline in investment or just an anomaly resulting from a single high value deal.

Who’s backing food and beverage deals?

While deal value has been on the decline the last few years, the volume of deals has risen steadily since 2012.  With the growing activity in food and beverage, several new investment firms have emerged, like CAVU Ventures, New Crop Capital, PowerPlant Ventures and S2G Ventures, that focus solely on this space.

And these funds are growing fast.  AccelFoods, one of the early leaders focused on the food and beverage sector, nearly doubled the value of its fund recently, growing from a $20 million fund to a $35 million fund.

Large corporations in this space are also getting the fray, creating incubator and funding branches to foster growth in innovative start-ups.  Company-affiliated funds include Kelloggs’ 1894 Capital, General Mill’s 301 Inc., and Campbell’s Soup’s Acre Venture Partners.

What are they investing in?

Since 2013 spices and condiments as a product category have attracted the most funding and acquisition deals.  Notable in this sector was the acquisition of Justin’s by Hormel Foods in 2016 for $286 million after raising $48 million.

From a funding perspective, beverages account for half of the top ten most well-funded start-ups since 2013. Cold-pressed juice start-up Suja takes the top spot with $196 million disclosed funding from investors including Coca-Cola, Boulder Brands Investment Group, and Leonardo DiCaprio.

Looking forward, venture capital is seeking out market disruptors for investment.  One of the leading categories currently attracting deals is plant-based protein, which has the potential to significantly alter the beef and dairy industry.  CB Insights has earmarked plant-based protein as a significant investment category based on the high level of activity in this space amongst what they term “smart money” investors, those with a strong past performance and exit history.  Examples of alternative protein are varied and include molecularly engineered meatless hamburgers from Impossible Foods ($183 million raise from Google Ventures, Khosla Ventures, and Bill Gates), dairy-free milk made from peas from Ripple ($43 million raise), and cricket-based snack bars from Exo ($5.3 million raise).

While it’s unlikely that bug based protein is going to overtake the livestock industry anytime soon, the fact that these types of companies are getting funding demonstrates the broad thinking and growth in deal activity in food and beverage.  As early indicators show, 2017 is shaping up to be a very interesting year in the investment community, particularly for food and beverage companies.