I met Nelly, Jeff, Brian and Malbec (how else would you name your dog if you had a wine startup?) on a Thursday afternoon in their office in SOMA. It’s a very nice loft, where they run Underground Cellar. Ben, CTO and Co-Founder, was out of town.
They were tasting an interesting sparkling Pinot Noir and if it makes the cut, you might find it in one of the next offers. As Jeff – founder and CEO of the company – told us, there is only one scientific criterion they use to decide if selecting a wine or not:
“The Wine Must Be Amazing.”
If you are familiar with social media and passionate about wine, you probably have already heard of Underground Cellar. They have a 100,000-member email list and share one offer per day with their members. The offers last 3-4 days and usually include 4 different wines with 200 to 1,200 bottles available. The offer has a price per bottle that equals the price of the lowest-priced bottle in the offer. Then the fun begins with the upgrades: worst case you get what you paid for, best case you might get a magnum, a $1,200 Grand Cru Chardonnay or a paid flight to Underground Cellar’s HQ for a Screaming Eagle wine tasting, only to list some of the recent upgrades.
Everyone’s first thought is: “how can this even be possible?”. Well, not many people know it, but it’s common for wineries to throw wine away; the unsold wine is more profitable when thrown away and written off than when sold with a huge discount that undermines the brand’s value. This was Jeff’s take away when talking to a friend working in the wine industry in Arizona.
That is why Underground Cellar is convenient for wineries. For consumers, in addition to the fun upgrades, there is the opportunity to buy only 1 or 2 bottles per offer, and have them stored in the CloudCellar, a temperature-controlled cellar in Napa, for as long as they want. This allows the customer to aggregate different offers until 6 or 12 bottles can be shipped for $5 or free of charge. Decreased shipping costs make this solution even more convenient for wineries, which would face much higher costs.
Jeff told us that after the second purchase customers exponentially increase their activities and become heavy users of the platform. The Screaming Eagle offer saw a customer placing a $400 order and a $1,200 order, one immediately after the other, within 30 minutes from the offer’s launch. This is just an example, but it shows how this company appeals to millennials and can quickly gain their trust. The average order value they get is significantly higher than the average of other online wine retailers. If you clicked on the Screaming Eagle‘s link, you saw that they have a waiting list for their wines on the website: this gives you an idea on how valuable the upgrades can be and why many users go nuts about them.
It made a lot of sense when Jeff told us that they aim to be the guy at the wine shop. The one who helps you choose the wine and you can always trust. This is why there is so much focus on the stories and the learning experience in each newsletter you receive from Underground Cellar: even if you don’t purchase anything, you learn something new everyday.
You can also have fun following their facebook page (currently 65k likes):
Since Underground Cellar recently went through the Y Combinator experience, I couldn’t leave without asking which was the best wine-related advice they got at YC. Jeff shared an advice received from one of the mentors, who suggested them to leverage the wine industry’s habit of recurring revenues. Wineries typically create wine clubs for this reason and consumers are used to allocating a recurring budget to their wine purchases. We don’t know in which form yet, but you will see something new coming soon from Underground Cellar that goes in this direction.
To end the interview – as usual – I asked them which is their favorite wine and food pairing. Jeff, who has a wine blogging background (“Toast of the Town”), raised the bar and suggested to share also the favorite crazy food and wine pairing. Here are their choices:
- Serious: Dry Merlot or Cab with pasta.
- Crazy: dark chocolate with dry red wine.
- Fried chicken with Pinot Noir.
- Serious: Charcuterie board with Cabernet Sauvignon.
- Crazy: Wine with cereals. And drinking wine with a licorice straw.
How do you buy your wine? Wine shops, supermarkets or online retailers?
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