The Tiers Produce Tears: Tear it Down

Big Box Economics

I recently returned from a marketing trip with my employer, a small Willamette Valley producer of Pinot Noir and Chardonnay. As we explored the Minnesota market, meeting with local wine shops, three separate owners asked pointedly, “Will you be in Total Wine? If so, we won’t carry you.” Early in 2014, Total Wine & More entered Minnesota, grabbed hold, and shook it like a martini. A few locally-owned shops have closed, including the beloved Four Firkins. While appreciated by many buyers for their substantial selection and low prices—a reputation buoyed by titles like “2014 Retailer of the Year” by Wine Enthusiast—we should pause and reflect on the big box economics of Total Wine.

Business Model of Big Box Total Wine

Total Wine carries an array of wines produced by medium to large producers. Their margins? Minimal—lower than any locally-owned shop can match. This clearly harms the boutique shops, but it also abuses the smaller wineries carried by Total Wine. Yes, Total Wine pays the same price to the distributors as any other shop, and so the wineries make equal money when sitting on the shelves of Total Wine. However, the low markup ultimately devalues any wine on the shelf, and consequently any brand on the shelf. Small to medium-sized boutique wineries only thrive if they create a value brand rather than a discount brand. Big box economics undercuts the value.

Total Wine makes one exception to their minimal mark up philosophy—their private labels. They amass a fleet of private label wines, which they create through contracts with wineries around the world. “You make the wine, we’ll provide the label.” This model allows the producers to move volumes of mediocre to crappy wine easily, thanks to the serious power wielded by large entities like Total Wine. It also masks the grape growing and production facts, allowing Total Wine to mark these private label wines up substantially more than the other brands on their shelves. Total Wine stocks over 2,500 private labels, and sources report 53% of their sales come from these private label wines. This ultimately means that Total Wine’s management, and subsequently store employees, have an incentive to push the private label wines.

Thankfully, unique Minnesota distribution laws allow some local stores to cleverly fight back.

Benefits of Shopping Local

This story, of course, is not unique to wine, and this fact only bolsters the message. We all benefit when we shop at locally-owned stores. Michael Pollan, food writer and journalist, first turned me on to the power of voting with my money. Every dollar spent is a vote for that product, that company, that retailer, and the business practices that support that chain of businesses. A son of a rural Minnesota business owner, I shouldn’t have needed Pollan to clarify the power of shopping locally. Yes, you may pay an extra dollar or two*, but the benefits so clearly outweigh the cost, sun to a grain of sand.

More on Big Box Retail and Distribution

• Between the Lines: “It’s ‘Best of Times’ To Be in the Industry Says WSWA Chief”
• Repackaged, Repriced: Trickster Branding in the 21st Century
• The Sandbox

Sources:

• Star Tribune “Total Wine Uncorks Booze Battles in Minnesota” June 29, 2015
• Wine Business Monthly “Private Label Wine Brings New Brands to Market” July 2015
• http://winecurmudgeon.com/private-label-wines-value-and-quality/

*Take advantage of case discounts at your local wine shop, and prices come nearer to alignment when comparing the superstores and small shops.