Company Spotlight: Lot 18

Wine male

In October of 2010, the New York based wine distributor Lot 18 embarked upon a noble mission of providing consumers with greater access to high-quality, hard-to-find wines at reduced prices. The startup, founded by Philip James, began selling wine at a discount to a free membership base primarily through flash sales. Each product was offered for a specified limited amount of time or until all of the available bottles had been purchased, with several new products being offered each day.

Just a few months following its launch, Lot 18 had succeeded in securing 500,000 users. By late 2011, it had sold 500,000 bottles of wine and attracted $30 million from investors such as Accel Partners, New Enterprise Associates, and FirstMark Capital; the company was on track to generate multi-millions in its first year.

In spite of the startup fairy tale beginning, Lot 18 soon found itself embroiled in the difficult struggle to become profitable. By the beginning of 2013, the company had announced two rounds of layoffs within a twelve month period. The first round, announced in January 2012, was directly linked to the decision to discontinue its foray into the travel and food businesses, which had begun shortly before the company had raised the $30 million in venture capital. Then, in January of this year, the company laid off 25 more employees, bringing its headcount to nearly half of what it had been the previous year. This second round of layoffs was also accompanied by the announcement that the company would undergo significant restructuring of its business model. Whereas the site’s original focus was on the promotion of flash sales, it was now looking to reposition itself as a subscription company. Founder James was to take the lead in the subscription aspect of the business, and former CMO Jay Sung was named as the company’s new CEO.

Presumably, Lot 18’s decision to focus on subscription sales was made in order to enable the company to scale back on the time and attention that the flash sales model requires. In contrast to flash sales, which involve getting members to the site and enticing them to place individual orders, subscription sales can provide a recurring revenue stream that is both predictable and requires fewer resources to maintain.

Although the shift in strategy appears promising, there will likely be more challenges ahead for Lot 18 in its bid for profitability. Even with a steady flow of subscriptions, effective marketing to new members will remain important. Moreover, a significant concern will be the competition Lot 18 will face from others in the subscription wine industry such as Global Wine Company, which runs the New York Times Wine Club, and Direct Wines, which operates a wine club for The Wall Street Journal. It will be up to the Lot18 team to find a way to distinguish itself from these more established industry players, as well as other wine retailers. Although the task is no small one, Lot 18 has already demonstrated creativity in its approach. Just a few weeks following the second layoffs, a partnership was announced between Lot18 andTastingRoom.com. Santa Rosa based TastingRoom.com, founded by Tim Bucher, is a bonded winery that employs patented technology to give consumers taste-size bottles of wine. Bucher confirmed that the winery will be closing its online retail operation to concentrate on the process of bottling of 50ml samplers and 3.4-ounce single-serve bottles. Lot 18 will, in turn, be in charge of handling the marketing of these products….

….. It will no doubt be interesting to watch events unfold as Lot 18 continues to reinvent itself.

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