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A Venture Capitalist Walks Into A Winery...

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NEW YORK -- Jay Levy and Greg Scheinfeld didn’t have a famous winemaker. They didn’t have a winery. They didn’t even have a vineyard.

But Levy is co-founder and partner of Zelkova Ventures, a New York-based venture capital firm. And Scheinfeld is a financial industry refugee who built a new life in Napa working for the likes of Joseph Phelps Vineyards, Cakebread Cellars, and Vineyard 29.

Together, they saw an opportunity to build a lifestyle brand for the next generation of wine consumers, one that’s focused on the customer experience and modeled after the loyalty-building strategies of major market players like Zappos, Amazon, and Warby Parker.

Less than two years ago they launched Uproot Wines as a hybrid company that blends wine and ecommerce.

And it’s working, despite the notoriously low success rate of wine-based business initiatives.

What's their secret?

They're thinking about wine as a business, rather than a romantic ideal.

In practice, that means:

  • They're delivering the kind of customer experience that their demographic has come to expect.
  • They're working with marketing partners who don’t have preconceived ideas or biases of what a wine brand should be. That's led to collateral like bottle labels that don't even mention the name of the brand.
  • They're building an ecommerce platform that handles the stickiest issues in their industry.

Here are five hands-on insights on what happens when wine meets venture capital.

Finding the Hole in the Market

By the time Levy and Scheinfeld were in their early 30s, they had become the de facto concierges for friends who were visiting Napa. They’d recommend restaurants; their friends loved them. They’d recommend activities, like balloon rides; friends thought they were fantastic. They’d recommend wineries, but that’s where the experience fell short.

“They thought the wineries weren’t giving them the treatment they deserved, because they were buying a few bottles of wine rather than cases and cases of it,” Levy said. “But our demographic is all about the experience, even for smaller purchases. It’s about brand loyalty built around lifestyle. When it came to the wine experience, we saw it as a huge opportunity.”

Start with Personal Experience

Long-time friends Levy and Scheinfeld talked for years about going into business together, and they once came close to buying property in St. Helena in the Napa Valley. They didn’t, partly because Levy thought the land was overvalued for what it was.

The other reason, however, foreshadowed what would become a driving principle of Uproot Wines.

“We looked at buying vineyards and wineries, but we kept seeing the same story,” Levy said. “They were owned by middle-aged retirees who went into the wine business for romantic reasons for six or eight years and then got tired of it. We thought, this is not us.”

What is them, is that they’re a young generation accustomed to the exceptional customer service and customer loyalty-building strategies from companies like Zappos and Warby Parker.

“We set out to build a brand for the next generation, with top quality wine from small producers," Levy said. "And we weren’t going to do it through traditional distribution methods." For the first eight months, the company sold only through their website, then rolled out to sales on Amazon in time for last year's holiday season.

Know the Customer. Know Thyself.

With a customer demographic used to buying online and receiving their purchases through the mail, Levy and Scheinfeld faced perhaps the biggest challenge in wine sales, namely logistics.

The traditional approach to shipping wine is expensive (with shipping costs potentially exceeding the price of the wine itself), it takes a long time, and it’s seasonal, meaning some wineries don’t ship during extremes of weather in the winter or summer months.

“That doesn’t work for our market,” Levy said. “They want to order the wine and have it for the weekend, they don’t want to spend a lot on shipping, and they expect to have an awesome customer experience along the way.”

With Uproot Wine, Levy says a customer can order it on Monday and have the wine by Wednesday. This is possible because the company has set up two shipping facilities – one in Napa and one in St Louis – meaning that the wine can land anywhere in the US within two days.

The conventional thinking was that the younger demographic – Levy and his friends – could not afford great wine. “We called bullsh-- on that right away,” Levy said. “We travel a lot, we spend a lot of money going out to eat. And on our site, our average customer spends $298 per order.”

Getting Shipping Right

Levy pointed out the cart abandonment rate on DrinkUproot.com is almost zero, because there’s no sticker shock for shipping costs. Cart abandonment is when a customer clicks through the entire order placement process but at the last moment doesn’t click “Buy.”

“We don’t want shipping costs to ever deter anyone, and we’ve seen that it hasn’t," Levy said. Uproot Wines discovered that, when it comes to shipping, the economics worked for 4-pack orders or more; they do highly subsidize wines for one, two, or three bottles.

A related challenge for contemporary wine companies is shipping compliance, because building an ecommerce site means doing compliance checks in real time, such as age verification and tracking the quantity of wine shipped to particular zip codes.

Uproot is currently building out their own ecommerce site that will have the most flexible winery platform in the country. It will feature “all the things that should be standard for wine shopping but aren’t,” Levy said, such as easy redemption of gift cards and return processing right online.

Resources to Scale

Levy has the tools in place to scale the business to other categories or price points. He draws on capabilities from several technology-based companies within Zelkova Ventures' portfolio, such as:

  • Lettuce, a cloud-based, real-time order management system
  • Helpscout, for managing customer service inquiries
  • Ambassador, which automates the referral process for brand ambassadors
  • Customer.io, which segments customer data in order to send very targeted email communications
  • RJ Metrics, for analysis and reporting of key data

Despite the technological sophistication of the Uproot Wines platform, Levy still sees the value of face to face interaction.

“We have to take the online connection and make personal relationships,” he said. “Our market doesn’t care what Robert Parker thinks. We care what our friends think. It’s about getting out there in the community.”

Full Disclosure: Zelkova Ventures is one of the investors in Food52.com, where I also write a wine column.

Cathy Huyghe writes about the business and politics of wine. Follow her on Twitter @cathyhuyghe.