September 3, 2004 9:27 AM PDT

Wine.com to decant $20 million in funding

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Online retailer Wine.com is expected to announce a new round of venture funding on Wednesday, to be used to bolster its redesign efforts and move into personalized features for customers.

Wine.com, which buys wine from wholesalers to sell to consumers, received a $20 million sixth round of funding, led by Baker Capital. The company, previously known as eVineyard, has undergone several management changes and restructurings over the past few years but is now set to build on its current structure.

"It's a lot of blocking and tackling. We plan to use some of the capital in October to upgrade the look and feel of the site, so its color and organization are more homogenous," said George Garrick, Wine.com's chief executive. "And then in the first quarter, we'll do personalization on the site, which is an important feature for the wine category."

A customer who prefers merlot, for example, could receive information on merlot ratings and tailored recommendations as part of the personalization.

Wine.com also plans to use some of its venture funding to retire debt, upgrade some of its systems and launch marketing campaigns. The San Francisco-based company has raised a total of $50 million to date.

The company's focus is to increase the number of wine wholesalers it works with and the number of states where it is licensed to operate as a retailer.

"It's taken time to build up the number of states where we're licensed to ship to consumers. But now, we can ship to a total of 26 states--that represents 75 percent of the wine-drinking industry," Garrick said. In addition, the company has logistics centers in 11 states, he added.

But Wine.com, like other online wine retailers, has faced controversy over inadvertently selling alcohol to minors. Although the company clearly labels on its boxes that adults must take receipt of the wine, third-party delivery drivers are not always vigilant in verifying the age of the recipient, said John Fitzpatrick, a spokesman for the Wine & Spirits Wholesalers of America, a trade association.

Last June, the Massachusetts Attorney General cited Wine.com and other alcohol-related Internet sites and delivery companies for illegal sales to minors. Wine.com has an in-state license for Massachusetts.

Other challenges Wine.com has faced include a change in management. Garrick, who joined the company in May, replaced former chief executive Peter Eckman, who left in April, after two years with the company.

Wine.com has also changed its business strategy over the years to buying from wholesalers, as opposed to trying to cut out the middleman by buying directly from the wineries.

"When you order from us, we turn around and order from the wholesaler, so we have no inventory costs," Garrick said. "And although we order our wine a bottle at a time from the wholesalers, we're not at a price disadvantage. Our wholesale pricing is based on how much volume we do over a year."

The company, which last year generated $25 million in revenue, expects to generate between $35 million to $40 million in the next year, based on its recent record. Wine.com also expects to achieve profitability by the end of next year, Garrick said.

 

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