19 September 2022 How an evolution in buying and selling wine was stalled. The image above, of a wine city of the future, was created by the artificial intelligence software MidJourney.
American wine isn’t keeping up with the digital technology revolution, and it hasn’t been for a long while. I’m not talking about the surprising resistance of some wineries to invest the time and energy required to engage customers on social media. I’m talking about a lack of the deep-seated digital transformations that have occupied most other industries for the last decade.
The wine industry has a long history of eschewing what it calls ‘ecosphere’ investments (investments that contribute to the overall industry ecosystem) in favour of either proprietary systems or products. Put simply, the largest wine companies are more than happy to spend a bunch of money on software to help themselves operate more efficiently, or to spend a couple of million acquiring a new brand for their portfolio, but seem quite reluctant to invest in companies that benefit the broader industry.
Roughly two years ago, wine-technology evangelist and thought leader Paul Mabray launched a start-up named Pix, aimed at providing consumers easier ways of buying wine while giving the wine industry better tools for selling it. On 16 August, Pix laid off most of its staff and began searching for buyers, after some of the largest players in the wine industry opted not to participate in the company’s latest round of fundraising. Even though many of these companies were already enthusiastically paying for the services that Pix offered.
Explaining Pix
For the last 18 months or so, I served on Pix’s Board of Advisors. As some readers know, in addition to writing about wine, I have also had a long career as a consultant in technology marketing, design and digital strategy. As an advisor, I was given stock options in exchange for providing advice and perspective to Mabray and the rest of the executive leadership team.
My involvement since the early days of the company gave me an intimate understanding of what Pix was getting right, and what challenges it faced. For all of those challenges, the business Pix was building proved not only financially sound, but also potentially game-changing for the wine industry.
Pix was born out of a frustration at the inadequate online solutions that exist for connecting the people who want to buy wine with those who want to sell it. The marketplace for wine is fragmented and inefficient, and doubly so online.
It remains much more difficult than it should be for digital consumers to easily get their hands on a bottle of wine that they will love, even if they know the specific bottle they’re looking for, but especially when they do not.
Existing online solutions are inadequate for consumers and even more for the industry as a whole.
The challenge of an evolving marketplace
Online retailers, even the biggest ones, are limited in their selections, leaving them only able to offer recommendations to their customers of what they carry, which is a tiny slice of what the wine world has to offer. No matter how many wines any retailer would like to offer, and no matter how many wine producers would love for their products to be stocked by that retailer, economics will always limit inventory.
Part of this problem gets solved by the market itself, through the proliferation of lots of different wine retailers, each carrying different inventories and (theoretically) catering to different segments of the wine-buying public.
Those familiar with the wine industry know, however, that despite the efforts of tens of thousands of wine retailers around the world (not to mention restaurants) most wine producers cannot sell all the bottles they want to or have to sell. Which is why so many have turned to selling direct-to-consumer (DTC) online.
The proliferation of online retail outlets combined with thousands of DTC offerings has created an impossible landscape for the digital consumer to navigate. It’s tricky when the consumer knows exactly what they want and doesn’t find it the first place they look online, and all but impossible when the consumer needs a recommendation or simply wants to go on a journey of discovery.
This fact has given rise to many start-up companies over the years but only two have really succeeded.
Two incomplete solutions
Wine-Searcher has spent more than 20 years building the largest database of online retailer offers in the world, with the goal of helping its customers answer the simple question ‘who sells this specific wine I’m looking for online?’
Vivino has built a very successful app that provides information about the wines that consumers scan or search for, while offering opportunities to purchase those wines, and/or making recommendations of other wines the consumer might like.
As successful as these two companies have been, both of these offerings suffer from shortcomings that ultimately prevent them from truly solving the problem of how to easily connect consumers with bottles of wine they will love and the people who want to sell wines to those customers.
Wine-Searcher’s database has been built with a focus on online retailers, but with seemingly little thought for the thousands of direct-to-consumer stores operated by individual wine producers. Their database of retail offers is also not freely available to consumers, as users are required to pay a monthly or annual fee in order to see every result that matches their search for a particular wine. Retailers also must pay a fee to guarantee their listings show up in every consumer search result. This provides revenue to Wine-Searcher, but means the vast majority of the site’s users (who don’t pay) aren’t getting complete information, and a good portion of wine sellers (who also don’t pay) are missing the chance at a sale.
What’s more, regular users of the site (myself included) know that many retailers game the system, listing wines they don’t have, or at prices that are not accurate in order to attract consumer click-throughs.
Perhaps most importantly, Wine-Searcher does nothing to support users who don’t know exactly what they want. Searching on ‘Chardonnay’, ‘wine that goes with pizza’, ‘female winemaker’, or any of the other infinitely variable queries that exploratory consumers may have doesn’t yield helpful results.
In short, Wine-Searcher doesn’t support discovery, and it mostly ignores the massively important domain of direct-to-consumer sales by wineries, all the while further limiting its consumer usefulness through a pay-to-get-results business model.
Vivino on the other hand, began with the idea of harnessing the power of community to fuel discovery, collecting millions of wine ratings and scan information from individual users in order to be able to tell them other wines enjoyed by people who drank the same wine they did.
It was a natural evolutionary step for Vivino to give people the opportunity to buy wines – either additional bottles of wines they rated using the app, or bottles that the app recommended to them. Not only was this natural, it became a core part of Vivino’s business model – which is to say, its primary source of revenue.
With this source of revenue, however, came a new set of incentives for Vivino, incentives that ultimately limit the app’s usefulness for consumers. Vivino is now a wine retailer, focused on selling bottles to its app users – either bottles that it owns (operating as a proper retailer), or bottles from a number of other retailers (from whom it takes a cut of the sale).
As a result, discovery either takes a back seat to retail sales, or is unduly influenced by Vivino’s role as a retailer, favouring wines that make Vivino more money. There’s nothing wrong with this, of course, as it’s what every online wine retailer does on a smaller scale, but it means that Vivino is not really objectively helping consumers solve their problems, nor is it really helping the industry with theirs (as evidenced partially by the scarcity of DTC offers on its platform).
Wine-Searcher and Vivino are literally the only two technology companies attempting to address a wide swathe of the wine marketplace. Both are well-established, the former a bootstrapped company that I believe has largely self-funded its growth, the latter a venture-capital-backed start-up that has received close to $250 million in funding thus far.
Yet neither is fully serving consumers interests, nor are they helping the broader wine industry become more effective and efficient.
How was Pix different?
Pix, then, was founded to do a better job for all concerned parties. Specifically, Pix aimed to build a larger database of wines for sale online than either Wine-Searcher or Vivino. It hadn’t gotten there yet, but was making excellent progress, with the intent of being inclusive of both retailer and DTC offerings, while offering an unbiased, much more consumer-friendly destination that was supportive of true discovery.
Pix included many more little innovations and better user experiences, including an online wine magazine that was launched early in the company’s evolution. But at its heart, Pix aimed to offer the world’s largest, easiest to use, and most helpful place to find a bottle of wine to buy online. Importantly, consumers would never need to pay to see all the search results, nor would retailers or wineries need to pay in order to have their wine offers included in the database.
So if consumers didn’t pay to search, and retailers didn’t pay to list, what was the business model? Simply put, Pix offered any party with an interest in driving online wine sales (retailers, wineries and winery associations) the opportunity to do three things that have never been possible in the history of the wine industry.
The first was the opportunity to control how a wine brand, or a whole category of wines, showed up on the internet’s digital shelf. Because of the aforementioned complexities of how wine gets sold online, a winery can no longer control how its products appear in the thousands of online stores that sell a given wine.
The photography of the bottle, the spelling of the wine’s name, and any details about the wine shown online are subject to the skills, attentiveness and care of each individual online retail outlet, and the results are predictably variable (and generally awful).
In the real world, companies large and small spend millions hiring people to literally go into physical stores and make sure their products are properly merchandised. Pix offered the wine world the opportunity to do the same thing online: ongoing digital merchandising services to ensure that their products (or the products of their members in the case of regional associations) consistently looked their best every time they showed up in Pix search results and, later, Google search results.
The second new thing Pix offered the world of wine was a universal destination to which anyone could send consumers that would allow them to buy a specific product or products. Right now, when a wine brand or wine association puts an ad in a magazine, or runs a social-media campaign, or even lists wines on its website, there is no place to send consumers that allows those customers to easily buy the wine or wines in question, regardless of where the consumer is located, and in tune with how the customer wants to shop.
Of course, a winery could put a link to their own DTC site in an ad, but there would be no guarantee that the consumer lived in a state or country to which they could legally ship. An association such as Wines of New Zealand could offer a link to their own site, but their site doesn’t sell wines, nor do they have specific information about where specific wines from their members can be purchased.
Pix offered any wine producer or association a free place to send customers that would show them exactly where to buy wines in ways that were convenient for them. And for a fee, Pix offered more customisable destinations, along with reporting that would show wineries and associations how many potential sales their marketing efforts yielded. Such insights have never existed before in the marketplace.
Pix had built, tested and rolled out both of these offerings, and had already generated $600,000 in annual recurring revenue (customers who signed up for yearly or multi-year auto-renewing contracts) in just a few months of offering these services. Demand for these services was expected to be high, and these would have made up a sizeable component of Pix’s revenues.
The third and most powerful source of revenue Pix planned to build, however, was going to allow any interested party the ability to influence the consumer at the point of sale. Trade customers could pay to promote their wine, their brand, or their region to a consumer looking for wine in the same way that Google lets every company in the world do so with its general internet search.
Keyword bidding for wine search terms (resulting in clearly marked ‘sponsored’ search results) would give any paying trade customer the chance to (gently, in a consumer-friendly way) step into the moment when a wine consumer is considering a purchase and offer an alternative, just as Google search ads do today.
Since typing a wine name into Google doesn’t necessarily mean you want to buy that wine, only a very few wineries currently bid on Google keywords, and with mixed results. When someone types a wine name into Pix, however, it more than likely means someone wants to buy that wine, so the value of showing up as an alternative in that moment becomes much higher.
Since trade customers pay only if a consumer clicks on their sponsored wine alternative, the return on investment (ROI) of such advertising becomes much clearer, and much higher than other forms of marketing (which is why pay-per-click advertising remains the primary source of Google’s billions).
It’s worth underlining the fact that throughout the history of selling wine to consumers, either online or offline, there has never been a legal opportunity that allowed anyone to ‘show up’ in the moment of sale, suggest an alternative, and only pay if that suggestion is followed. Quite a few laws exist, in fact, to prevent the relationships between alcohol producers and distributors from becoming corrupted by bribery.
But wine companies large and small spend millions of dollars annually trying their best to legally influence sales in their favour, mainly in the form of materials, events and communications aimed at educating their distributors and retailers in the (often vain) hope that this education ‘sticks’ and translates into positive recommendations of their products at the point of sale.
Game-changing, but not enough
When it laid off most of its staff three weeks ago, Pix was offering the wine world two entirely new opportunities to drive wine sales, and the sales of these services seemed to suggest a real interest, and even demand, from the wine industry, validating the underlying business plan. You’ll have to take my word for it, of course, but I am of the opinion that the numbers and assumptions behind Pix’s plan for growth were more plausible than many start-ups I’ve been involved with.
Nonetheless, both the venture capital community and the wine industry failed to step up and contribute to the funding of the company.
That statement is not just a vague and generic condemnation on my part. As of several weeks ago, Pix had arranged a private lead investor for this upcoming round of funding who was willing to contribute a sizeable amount of the investment needed to see the company through its next stage of growth. This individual was offering to invest on one condition, however: that a major player in the wine industry join them in co-leading the investment round.
Ultimately, despite countless pitches to a who’s who of the American wine industry, no one volunteered. The lead investor was unwavering on their condition, and so Pix simply ran out of money.
‘We built something that was so clearly valuable, yet the very industry that was telling us Pix was so great failed to step up to the plate and help us see it through’, said Mabray. ‘And in the absence of those big investors, the board didn’t feel comfortable adding more of their own funds.’
Not seductive enough
This naturally raises the questions of why didn’t the industry come through, and was there anything that Pix could have or should have done differently?
Like any start-up, Pix was constantly refining its story. At the end of the day, fundraising, like sales, is a storytelling exercise. The world of investor-funded technology start-ups requires many things of company founders and executive teams, but most of all it requires the ability to communicate the idea behind the company and why it will be valuable in the world. Pix’s narrative was clearly not compelling enough to convince the people it needed to convince – not the broader venture capital community, who had a hard time understanding why Pix didn’t need to take a slice of every sale in order to succeed, nor the biggest companies in the wine industry, even though several were already paying customers of Pix services.
Timing may have also played a part. Pix wasn’t the only wine-related start-up that failed to fund recently.
But in my mind, neither timing nor weakness of narrative fully explain Pix’s failure, nor does the possibility that the numbers just didn’t look right (after all, a major investor said yes to the final round). Could Pix have painted a more compelling vision for where it was headed? Absolutely. However unlike the broader venture capital community, the most important players in the US wine industry seemed to perfectly understand what Pix was trying to build.
Understanding, at the end of the day, is not the same as motivation. I’m left with the feeling that the wine industry seems somewhat incapable of imagining (or investing in) a future where it operates in a substantially different way from a technological standpoint. The industry’s largest players may simply not yet believe that they and everyone else in the business need to address the market differently.
Data continue to suggest that younger generations aren’t turning to wine as they age. Some of this is undoubtedly due to the fact that spirits companies, hard seltzers and beer are all doing a better job of connecting with this audience.
Even perfectly pitched and packaged, it may well be that Pix was the wrong thing at the wrong time. But if not Pix, the industry needs some solution that makes sales more efficient while giving consumers better means to discover the next wine they’ll love. The answer is most certainly not to imagine that young people will end up finding and buying wine the same way their parents did.
Should the industry continue in its unwillingness to explore the possibilities of digital transformation, I fear this may keep wine from connecting with an increasingly digital-native wine-drinking public – a public it desperately needs as customers in order to survive.
