Inertia wins auction for New Vine assets

Napa-based wine services firm Inertia Beverage Group acquired the assets of troubled wine storage and shipping company New Vine Logistics in an auction Monday.

Inertia paid $4.5 million for the assets ? but not the massive debt ? of New Vine, one of the largest and most sophisticated direct-to-consumer wine shipping firms in the nation.

The deal will create a combined company that will keep New Vine operations going and create significant growth opportunities for Inertia, said Ted Jansen, chief executive officer of Inertia.

?This outcome ensures that Inertia Beverage Group will be able to service New Vine?s former clients on an uninterrupted basis, resulting in even greater opportunities for customers, the direct sales channel, and the wine industry as a whole,? Inertia said in a statement.

Inertia helps wineries sell direct to consumers, restaurants and retailers. The company builds and operates Web sites, provides software for online transactions and offers direct shipping. It has about 300 customers.

Founded in 2001, New Vine Logistics developed technology and systems that enabled wineries and online retailers to ship directly to consumers in 44 states. New Vine served about 250 winery customers from a massive, high-tech warehouse in American Canyon.

But New Vine?s debt load was massive. The company expanded in anticipation it would handle online wine sales for Amazon.com, Jansen said. That partnership was in the testing phase when New Vine?s backers pulled the plug on funding.

?We?re hopeful and confident we?ll be able to work out a relationship with (Amazon),? Jansen said.

Inertia tapped existing and new partners for the venture capital it needed for the acquisition.

It pumped more than $1 million into New Vine Logistics in June, helping it resume operations after the company shut down and reduced its 110-employee workforce to a skeleton crew.

It replaced Silicon Valley Bank as the company?s lead creditor, buying the bank?s debt position in New Vine. Inertia was scheduled to auction New Vine?s assets on July 14 but postponed the sale for two weeks to give bidders more time to evaluate its assets.

Just five qualified bidders emerged for the assets, including Wine.com and the Winetasting Network, Jansen said. But Inertia was the only company to place a bid, he said.

Jansen thinks Inertia can succeed where New Vine failed for several reasons.

One is that less revenue will have to go to debt service. Another is that recent capital upgrades to support partners like Amazon.com have already been completed. And instead of New Vine?s 110 employees, Jansen thinks he can operate the division with 70 to 80 people, he said.

?We think we?re going to manage our labor costs a lot more effectively,? he said.

While the recession has impacted high-end wine sales, Jansen said he doesn?t think that will be a hurdle to growing the direct-shipping business because boutique wineries need new routes to market more than ever.

When times are good, wineries often find they can sell their wine just fine through traditional methods. It?s when times are tough that wineries start taking a closer look at alternative distribution models like direct shipping, Jansen said.

Just as the travel Web sites Expedia and Travelocity gained traction during periods of upheaval in the travel industry, the recession has created an opportunity for a new model in the direct-to-consumer wine shipping business, said Jansen, a former vice president at Expedia.

Inertia builds e-commerce Web sites for wineries, but the sales still need to go though other wine shippers, he said. By combining those functions, it will create an integrated system that will allow consumers, retailers and restaurateurs to shop multiple wineries from a single platform, Jansen said.

He?s even hoping to partner with some distributors, those at the heart of the so-called ?three-tiered system? of wine regulation and distribution in the U.S.

?We?re not trying to replace the three-tiered system, we don?t think that?s even a reasonable aspiration,? he said.

But small to medium-sized distributors need to spend lots of cash to buy and distribute high-end wines. Jansen said he?s hoping Inertia can partner with such distributors to broaden the number of wines they carry without increasing their costs, augmenting the wines they carry with a ?virtual book? of wines Inertia can help them quickly acquire, he said.