Thursday, June 21, 2012

Lot 18 wine sales site cuts itself down to less than half

Lot 18, the wine sales site that made a splash by raising about $50 million in venture capital, is severely scaling back. The site laid off its entire editorial staff half of its editorial staff last week, dropped from nine to four procurement specialists, and dumped the food and travel businesses to concentrate on wine.

Lot 18 grabbed the attention of the tech world more than the wine world at its launch two years ago because of co-founder Kevin Fortuna, a founder of some companies (Gramercy Labs) and president of others (Quigo Technologies) that frankly I've never heard of, because I'm a drinks guy, not a tech guy. The venture capital firms were also a big deal if you care about that sort of thing.*

* (I once worked for a website that raised and spent $25 million in less than 2 years. Our founders and VCs were also a big deal.)

The sheer size of the Lot 18 venture was audacious. Lot 18 was originally intended to be a luxury-wine site, showcasing small-production wines with exclusivity whenever possible. The idea was that people would buy, say, a Howell Mountain single vineyard wine from Lot 18 that couldn't be found elsewhere.

The timing for its launch wasn't great: early 2010, with the US in the throes of a recession. And Lot 18 wines aren't cheap.

Lot 18 expanded into Europe and added food and travel deals as part of its struggle to keep up with the aggressive sales growth promised to investors. The food and travel is done; I don't know what's going to happen with the Lot 18 Europe.

One of the site's biggest hurdles has been shipping costs. Lot 18 offers few true bargains because shipping costs of $10 a bottle make it nearly impossible to compete with retail stores for known brands or value wines. A wine that sells for $15 in a retail store might have a wholesale cost of $10; a wine that costs a customer $15 from Lot 18 might have a wholesale cost of $5. That's not going to be the same quality.

Many wine lovers know Lot 18 mostly by its frequent emails offering coupons and proclaiming deals that cannot be missed. It's hard to say how the volume of those will be affected; the company is still continuing and needs to make sales, but who exactly will write those emails with no editorial staff remaining is unclear.

NOTE: Please see Lot 18 layoffs: The Corrections for updated information about this post.

Follow me on Twitter: @wblakegray and like The Gray Report on Facebook.

8 comments:

Josh McFadden said...

This is unfortunate, yet predictable news.
All of these discount sites are stuck with wines that can't sell in the normal market-- they don't sell in the normal market because something is wrong with them (bad QPR, terrible labels, unpronounceable names, uninteresting story, poor quality). They have become the dark place where wine brands go to die. The consumers on these sites are fickle; while the VC backers and best-practice executive team don't seem to understand that the wine industry and web development are polar opposites. Wine DOES NOT scale, once it is gone-- it's gone. And great wine, the wine consumers and sommeliers actually want, doesn't need a discount site to sell it. So everyday they are stuck featuring another mediocre product on their site, hoping that somehow people will start caring.

Christina said...
This comment has been removed by the author.
Christina said...
This comment has been removed by the author.
Dan McGrew said...

I've followed Lot18 for some time but have never ordered from them. The problem for me is that every wine I would like to order is "not available for shipping to Ohio." I order from a number of other sites and not one of them has any problem shipping to Ohio, nor do regular out of state retail stores. Only Lot 18 has a problem and my only response from them in e-mails is that they were the only ones following the letter of the law. Everyone else was violating the law. I'll stick with the law breakers in this case.

Amanda Egan said...

It is a shame because there is always a lot of hard work in setting up, but when will people learn that just because you raise a huge amount of Venture Capitial (i.e) other people's money you can run a successful company. And I am always dubious about websites - like many of the daily deal sites do - that force you to subscribe before you can even enter the site and then claim they have thousands of subscribers.

Daniel Posner said...

Dan M

Unfortunately, legally it is difficult for retailers to ship to most states (about 13 are LEGAL at the moment). This is a huge problem that most folks simply do not realize, at any level. Except wholesalers, they spend millions of dollars annually to keep shipping laws so prohibitonary like. Do not fault Lot 18 for following the law. If more retailers did, then you might take up more of a fight with your local/state government that has made it illegal for wine retailers to ship into your state.

Justin McInerny said...

They just did a Living Social Deal in DC today "$50 to Spend on Wine (Pay $25) or Half-Case of Assorted Wine (Pay $39)". 3158 deals sold so far with 14 days left. How can they make any money?

W. Blake Gray said...

One of two possibilities: 1) They're making money on this deal, which means they were making even more profit before this deal.
2) They have more inventory than they can deal with and need the cashflow.

That said, a lot of companies do loss leader deals on these coupon things to introduce themselves to the public.

I would not buy a Half Case of Assorted Wine on sale. You get what they want to give you, not what you actually want.