Lot18, the membership-only daily deals website for high-end wine, is set to expand into three new product categories: food, travel, and spirits. Lot18 will start rolling out the new verticals, starting with food, within the next several weeks, CEO Philip James told me in a recent interview.
Lot18 has taken off rapidly since the site launched with wine sales in Nov. 2010. The New York City-based company hit an annual revenue run-rate of $ 12 million in April and has grown to a staff of 75 full-time employees. Last month, Lot18 closed on $ 10 million in Series B funding, bringing its total venture capital investment to $ 13 million.
According to James, Lot18 has been received so well because it taps into a hugely under-addressed market. Selling wine online is challenging, in large part because of the complex regulatory issues that come into play when selling and transporting alcoholic beverages across state wines. Lot18 has built a software backend that checks and catalogs various compliance issues in real time for each winery with which it works, James said. Lot18 is not a licensed retailer of alcohol, and it does not hold any inventory. The CEO told me that underneath the hood, the site functions as an eBay-like marketplace between wineries and individual consumers.
Now that the company has built a scalable infrastructure, it is keen to start facilitating sales of other, related products, James said. Hence the move into artisanal foods from small producers. “If you think about the conversation we have when sourcing from these small wineries, it would be similar to what we’ll have with a small cheese producer or a farmer,” James said. “There are similar problems with getting their brand out there and shipping complexities. Those are all things that we have an expertise in.”
Lot18 expects to roll out the food vertical first, followed next by epicurean travel packages. “We have insider access to the best food and wine, and we already have a team of curators that work to source our product,” James said. “We have these connections, so we’ll more easily be able to plan a trip to go to Bordeaux and help with the harvest, or to have an exclusive dinner at a wine auction house.”
Lot18 is also working to roll out a sales vertical for high-end spirits. But that particular launch will be in the longer-term, James said, due to the additional regulations around selling hard alcohol.
While all this growth is exciting, I had to ask: Why is Lot18 working so hard to expand, when it’s already doing so well as a single-focus wine business? Why not stick to that vertical and foster the company’s status as a pure-play acquisition target? After all, Amazon has displayed an obvious interest in getting into wine sales, with its short-lived Amazon Wines effort. Even smaller daily deals and e-commerce companies such as Gilt Groupe and Groupon could certainly be interested in buying their way into the space. Why didn’t Lot18 choose to just stay small?
James acknowledged that Lot18 is probably a very attractive takeover target as it is. But the company opted to take on more funding and invest in growth because he just isn’t looking for a quick flip. “We have a pretty long-term vision,” James told me.
Indeed, James stressed to me his vision of Lot18 as much more than just another trendy daily deals play. “In terms of the competitive landscape, the kinds of sites I think about all day are not Groupon and Gilt. I think of Zappos and Diapers.com.” Both Zappos and Diapers.com had relatively long histories for the e-commerce space, and were eventually acquired by Amazon for around $ 850 million and $ 540 million, respectively. Lot18 may be shooting the moon, but if it all works out, the strategy could pay off big.
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