Even though direct sales of wine are still a relatively small part of total wine sales, selling directly to consumers is the fastest-growing segment of the market.

A speaker at a recent seminar said direct sales of wine increased by 31 percent in the first quarter of 2007, compared to the same period last year.

Paul Mabray, a Napa native who is CEO of Inertia Beverage Group, is doing his best to increase those numbers.

Napa-based Inertia doesn’t sell the wine for vintners, but helps them sell directly to consumers through a software program Mabray and a team of programmers developed four years ago.

He calls it the Re-Think Engine, because it helps a vintner re-think the way the message to consumers is managed, how the online store is operated and how wine club sales are processed. It helps wineries automate orders and integrate fulfillment, handles credit card processing and provides automatic e-mailing.

“Consumer direct (selling) is still new,” he said. “There are two types of direct selling —– hospitality, through the tasting room, and off-premise, which is e-commerce, phone sales, clubs. This is the emerging market.”

Inertia partners with several other companies that help wineries sell their wine, including Wine Tasting Network, a wine fulfillment firm. “Wineries (using Re-Think) input directly to WTN, and the wine is shipped,” he said. The company works with RadCru, which offers a different wine on its Web site each day, but the sale actually goes through the winery.

Direct sales to trade

A growing part of the business is selling directly to the trade, in which a retailer or restaurant contacts a winery and places an order, the winery ships the wine to the customer, sends the paperwork to a wholesaler who bills the customer.

“This is doing a service for all three tiers (of the three-tier system),” Mabray said. “For wholesalers, it’s inoculating new brands and introducing them (the brands) to the market. I think this will change the dynamics for wholesalers — they will become more service-oriented.”

Everyone benefits, he said. Wineries benefit with access to trade accounts in states where they don’t have distribution, and wholesalers don’t have to invest in inventory. Restaurants and wine shops can have access to wines that may not be readily available in their markets.

Inertia currently works with trade accounts in 10 states, but Mabray said he expects to offer the service in 20 states by the first of next year.

When they decided to launch the direct-to-retailer program, they started in New York. Regulators there questioned it, Mabray said, primarily because they didn’t quite understand it, so he spent 11 months talking with them and explaining the system to them. He pointed out they were working with laws from the 1930s, that times have changed and now there’s e-commerce, and in November 2006, “we got their blessing.” Direct shipping to the trade started in February 2007.

Re-Think System

Since the Granholm v. Heald Supreme Court decision that involved direct shipping, myriad laws have sprung up in various states, and no two are alike. Inertia had addressed them by designing the Re-Think system to accommodate all variations of laws in all states, Mabray said.

The company is about to release the compliance part of the system and will make it available to anyone without cost or fees. A user can input direct sales orders, and the software will sort through them to determine which orders will be in compliance and which ones won’t, then enables the user to print a report.

For example, if a state allows shipping only 12 bottles per month to one consumer and the order calls for 10, but a previous order for more than two bottles had been placed earlier in the same month, the software will flag it and report that the shipper would be out of compliance.

Mabray is offering the service at no charge to anyone who wants to use it because he believes that by making compliance easier, it will encourage more wineries to get into direct shipping.

Inertia provides a number of support services to its clients, including hosting their Web sites on Inertia’s servers. Obvious support involves responding to questions and problems with the software, but Inertia also has an account development group, with a representative assigned to every client. They call each client monthly and are responsible for helping clients use the software and provide assistance in any way possible.

One of his earliest clients, George Grodahl, of Chanticleer Wine in Yountville, who benefited from the account development staff, said, “They helped me set up my Web site — they organized it and set up the store, and (the program) handles all the processing of credit cards.” He added that he took advantage of the arrangement with RadCru and through that sold a number of cases.

   

Vintage High grad

Mabray, 35, graduated from Vintage High School and went on to San Francisco State where he majored in film and English. “I wanted to be a director and writer,” he said. He went to work for John Wright at Napa Ale Works — “at age 23 I was a vice president,” he said. He then went to work for Niebaum-Coppola, but left to — in his words — “become a dot-Communist.” He didn’t leave the wine industry, though — he joined wineshopper.com, which became wine.com.

“A lot of what this company (Inertia) is about is from all of my jobs,” he said. “I saw that wineries didn’t have a way to reach out and touch their customers, so I decided I would build a software tool.”

He went to New York in 2003 and met Eric Hsu. They started the company and “with four guys created the software in two months,” he said. It was designed originally for e-commerce, and provided phone tools and club tools, and all went into a single program. Until then, wineries using computerized methods had to have separate programs for each.

The first clients were Luna Vineyards and Carmenet.

When the company started to run out of money, Mabray said the team agreed to work for free, for a while, at least. “We ate at each other’s homes,” he said. “We call those the ‘ramen years,’ because we ate a lot of that.”

Brought in investors

The team continued to work for four or five months or so, he said, and he called Mike Moone at Luna to talk about the future. “We thought that the Granholm case would open up direct-to-retailer,” he said. Moone and George Vare came in as investors.

That gave the company inertia — no pun intended — and it grew from 20 representing brands to 150 in just one year.

After three years, Mabray returned to California and most of the original crew left to take other jobs, but Hsu, who co-founded the firm with Mabray, remained and is now listed as chief style officer.

Inertia has an opportunity to expand. Earlier this year two venture capital firms, Allegis Capital of San Francisco and Sid R. Bass Associates of Texas, provided $8 million, “probably the most money a wine tech company has raised since the dot-com days,” Mabray said.

The firm now has 350 brands on its roster, ranging from producers as small as 500 cases to all of Fosters Group brands.

Inertia charges a setup fee of $3,500, a monthly fee of $150 and a 5 percent fee on all sales made through the system.