Historically, the wine industry, one built on a bedrock of traditions, has not been keen on adapting to new trends and technology. But, the recent pandemic with its disruptive effects on the entire alcohol marketplace has forced many winemakers to reassess their business models. Ones that relied heavily on in-person tastings and on-premise dollars, both of which suffered greatly during lockdowns as many consumers flocked to online shopping for their wine. According to International Wine & Spirit Research, in 2020, alcohol e-commerce grew worldwide more than 42% to $24 billion and is projected to grow to $40 billion by 2024. That has led to a flurry of investment in the segment. Drizzly sold for $1.1 billion to Uber
But, the shift to online shopping for many wineries brought heartache as sites offered discounted prices to move cases. Something many felt cheapened their brand and could have a long-term detrimental effect on their products’ reputations. By directly addressing that fear while offering wineries much-needed revenue, Underground Cellar is positioned to help usher many wineries into the twenty-first-century marketplace. The gamified e-commerce platform very well might disrupt the entire wine industry and offer a blueprint for other consumer goods industries to follow.
Founded in 2015, the company uses its innovative technology and data engines to create a unique experience every time a consumer purchases wine on their site. The company was born from memories Jeffrey Shaw, the founder, and CEO had from his youth. “When I was a kid, I used to collect NBA basketball cards, and I remembered quite well the joy I had when I opened a pack and got a rare card,” he says. “It drove me to keep buying more packs and keep building out my collection. That’s the basic DNA of our company.”
Unlike other online shops for alcohol, Underground Cellar never discounts their wines and offers them to consumers at a wineries standard retail price. When someone visits their site, they are greeted by a landing page that provides a batch of daily collections of bottles (all visible online) built around varietals, regions, or experiences. The price point for each bottle is a set amount, regardless of how many are purchased. Each collection has a certain number of bottles offered. The more someone purchases, the higher the percentage rises to receive upgraded bottles worth more than the base price. The upgrade level starts at 50% and only increases the more bottles are purchased. Only when they have completed a transaction do they know which bottles they own.
They can offer bottles to consumers without lowering the list price by blending their margins on the back end. The company’s wine managers work with wineries to gain access to first lots of wine, to help them move priority products, and expand their reach in the insular world of wine.
Their commitment to maintaining brand prestige and the opportunity to introduce consumers to new products has led many wineries to work with them, especially the last few years. “They are always reaching out and discovering new wines to introduce to their consumers,” says Glen C. Salva, the Wine Estate Manager for Antica Napa Valley. “As a smaller local winery located in the heart of Napa Valley, they have allowed us to expand our exposure.”
The company’s unconventional approach to selling wine is rooted in the fact that it was born from the tech world that thrives just up the road in nearby Silicon Valley. CEO Jeff Shaw founded an internet technology company that was acquired in 2010. CMO Dre Madden and COO Jeff Hardy both came up in the industry and lead a team of tech vets populating their headquarters in San Francisco. It is a building that resembles a mashup of a tech startup and wine store.
From day one, the company attracted attention. They have attracted attention from day one, with Barbara Corcoran becoming an early investor. However, they did not appear on Shark Tank; instead, Shaw pitched his company directly to her. That helped lead to them being invited to be part of Y Combinator, the influential American technology startup accelerator. They found their footing in 2018 when they vertically integrated all of their operations, including wine sourcing, shipping, and storage. Their sales have grown over 1000% over the last two years. They recently announced their millionth bottle of wine being sold in concurrence, raising $12.5 million in Series A funding. The round was led by prominent tech investor Accomplice, with participation from Golden Ventures and Bling Capital.
“Consumers have finally gotten used to buying wine online. Now the challenge is figuring out how to connect them to different brands besides the ones they are comfortable with every day,” says Shaw. “We see that the industry is ripe for tech to make a meaningful impact for wineries, farmers, and their other partners.”
A substantial portion of their recent funding round has was used to expand their operations with upgrades to their website. By offering free storage of customers’ purchases in their Cloud Cellar, they leverage their 107,000 Square foot facility in Napa to enhance the collecting experience. Customers can view their cellars online and order their wine shipped to them at their leisure. The company plans on rolling out online bottle trading early next year, something that should only take the gamification to a higher level as people swap bottles with the click of a button.
The ease that they are offering consumers access to different and exotic wines is working. According to Shaw, in their first month on the site, consumers make three visits buying on average eighteen bottles at the cost of nearly $600. In the first year, they spend close to $2,000. All of that is on purchases that are not finalized until after they pay. It takes the mystery case purchase to a new level, precisely as Shaw envisioned when he dreamed up the company years ago.
Where the future takes the wine industry and Underground Cellar, no one knows. Still, it seems that they have managed to introduce a new way of selling wine to a sector that is usually slow to adapt to change. Their success will surely make them an attractive target for acquisition or possibly something bigger, and others very well may follow their path.