Shane Pettiona, one-time chief operating officer of Carsales.com.au, says he’s never been involved in a dotcom that has had such growth and been so warmly received.
He’s talking about Cracka Wines, Australia’s largest retail wine site, which has nabbed 500 wineries and 100,000 customer 15 months after it was officially launched.
He says it’s on track for between $20 and $30 million in annual sales, putting the company on track to reach a target of $100 million over five years despite goliath competitors in Woolworths and Wesfarmers.
Pettiona says Cracka is well placed to capture the explosion in online wine sales, tipping it will soar from 4% nowadays to more than 30% by 2016.
But the outlook is not so good for wine producers, with Pettiona saying he doesn’t see an end in sight to the wine glut. And he reckons the optimal level for the Australian dollar for local winemakers is in the 70s, well below current levels of trade for the Australian dollar and continuing to plague our export-dominated industry.
Still, Pettiona says online presents an export opportunity for wineries, particularly to Asia. And he argues that the problem with many sites is they aren’t designed with the customer in mind. Putting reviews and giving customers a couple of auction opens keeps them coming back, he says.
Hello, thanks for your time. You’re now more than a year old at Cracka Wines.
Yes, we actually launched in September last year but we did a soft launch. We really have only started ramping it up significantly in probably the last four or five months, going out there and advertising and building the brand because we are very comfortable with the technology and the support from the industry underneath it.
We’ve got close to 500 wineries signed on the system now.
And how many customers?
We do about 100,000 that we communicate with. But I sort of look at it that we have two customers really: we have the trade and the wineries that we have got to satisfy with the performance, and the retail customer that we have to deliver a quality product to and give them value in many ways, shapes and forms.
How many did you expect to have at this stage?
We’re a little bit ahead, actually, so we’re tracking well. And we are in this for the long haul; we believe we have got the right model.
Wine is the market that we chose to launch into for many reasons: one, the strength that Coles and Woolworths, the two big retailers, have over the wine industry has put a lot of pressure on the wine industry.
There’s also the glut, and the third and probably most important thing is wine is very much in its infancy as far as sales online. Only about 4% of wine is actually sold online which is quite surprising – it’s a relatively adaptable vertical for online sales but retail as a whole has been quite slow.
It’s similar to when we had carsales.com.au where we worked with the industry to build a system and satisfy consumers. When we did that there was only a couple of percent of consumers when online searching for cars online and inquiring on cars that ultimately led to sales.
So even though it is 10 or 12 years on, the wine industry from an online perspective is similar to where it was back then.
You mentioned earlier the dominant behaviour of the large supermarkets and the effect on the wine industry, there has been quite a lot of talk recently about supermarkets and their private labels. Is that disaffection heating up in light of Woolworths’ stated pledge to dramatically increase their home brands products?
The supermarket chains are not having to do the research and development investment in producing wine and really are just taking advantage of the glut that is in the market, getting a quality wine at a low price and then labelling it themselves.
The problem with that is that it reduces the strength of brands. And a lot of brands have put in a lot of time and effort over the years to build a brand and they can be sort of ruined very quickly because people don’t become dependent on brands anymore, and secondly the price that they can only receive for their wine makes it very tough for them to survive.
What Cracka Wines does it that it gives them an alternative in this industry where they can have another sales channel.
I look at it that we are a bit like a sales and marketing arm for a lot of the wine industry who don’t have both the manpower and funds to get going and move their wine from a local market to a national market and ultimately international.
We also know that the internet is forever growing and our lives are becoming seemingly more dependent on it. Most wineries don’t have the resources to create a channel.
What happens if we continue to do what we are doing and we hit our numbers, we also give them that opportunity at having an alternative and leveraging us as a bargaining chip so they can hopefully get a better commercial deal from the big retailers.
You talked before about online accounting for 4% of overall wine sales, but Woolworths and Coles are also online. How do you compete?
Yes, they have strong heritage brands that dominate the market so that is a challenge and one that we’d like to take on.
It is no different to when we were at Carsales and there was Drive and Cars Guide and Trading Post – they were owned by big strong brands with a lot of media reach and Carsales was an independent player.
The benefit of what all the pure dotcom companies have is they don’t have a traditional business, a bricks and mortar business.
So yes, even though you have Coles and Woolworths making more of a play online, their assets are tied up in bricks and mortar businesses so their job is still to get you in store.
When we first launched Cracka, Dan Murphy’s [owned by Woolworths] was the biggest traffic wine site in Australia and they never even sold a product online. It was all just about a store locator, they had some type of catalogue type representation but you couldn’t purchase.
They’ve evolved that over the last few months significantly; they’ve launched a new site to sell wine online but still their objective is to get you in store. They are very good at that once they get you in store.
What happens is that it is harder for them to push home brands online; it is easier in-store because of how they can organise shelf space and tastings, etc.
Online their strength is still leveraging traditional heritage brands that have been established in the market space for some time.
But because we are pure players that we can be more fluid and innovative, and we can take more risks because we haven’t got billions dollars that we are already trying to protect.