Geerlings & Wading Into a Wine-on-the-Web Swamp

Like a farmer hearing thunderclaps from just over the horizon, Geerlings & Wade (GEER) is working like crazy, plowing money into its fledgling Internet business in hopes of producing a sturdy crop that can withstand the tough weather ahead. President and CEO Jay Essa said Net sales were growing well, up to nearly 10% of total sales in June.

But despite that progress, it remains to be seen whether this venerable wine direct marketer can root itself into its market niche fast enough or deeply enough to maintain its grip against the $80 million cyclone of venture-backed competition bearing down on it.

Take WineShopper.com , which Drinks & Diversions first told you about on March 14 and March 18. Back then, WineShopper.com said it had raised $35 million under the umbrella of lead venture capital powerhouse Kleiner Perkins Caufield & Byers. WineShopper.com president Peter Sisson said that sum has since been raised to $46 million. Wineshopper.com, not up yet, promises a launch by year-end.

Not to be outdone, Virtual Vineyards snagged a cool $30 million in June, in the company's fourth round of financing since its founding in 1994. The new money was led by New Millennium Partners, GE Equity and MediaOne Ventures, according to president and CEO Bill Newlands, who left the top wine job at Canandaigua Brands (CBRNA) on June 30 to take the helm of what is arguably the best-known wine e-tailer.

WineShopper.com is looking at a potential IPO next year. And while Newlands says that Virtual Vineyards isn't thinking about it right now, its venture backers certainly are.

Then, when you add in the $2.2 million raised by evineyards and another couple of million in seed funds raised by a handful of other wine e-tailer wannabees, it's clear that Geerlings & Wade will have its hands full in the coming months. That's particularly so because Geerlings & Wade's Internet bookings in the quarter ended July 28 resulted in sales of only $421,000. While that's considerably above the $248,000 registered in the same quarter 12 months ago, it's still a drop in the bucket compared with the potential demand.

Geerlings & Wade isn't talking about what it's spending to boost those numbers, but regardless of the amount, it is surely less than the big money that's being thrown at the problem by the competition. Not only that, but Geerlings is spreading its resources over multiple Web sites, including both a major renovation of its major site to incorporate more than 2,000 vintage wines from around the world and the construction of a new Web supersite. Slated for launch by the end of the year, Winebins is Geerling's supersite answer to WineShopper.com and Virtual Vineyards.

All that Web development work has not come cheap for Geerlings & Wade, which showed a loss of 2 cents a diluted share for the six months ended June 30, reversing year-ago earnings of 10 cents. Biggest hit in the operating statement? Sales, general and administrative costs, which rose to $8.4 million for this six months from $6.8 million for the same period in 1998.

And with Internet sales still registering in the bush leagues, management would have to be prepared to spend a lot more to prepare for the hailstorm of competition that is about to come its way.

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