Category Archives: Distribution

Between the Lines: “It’s ‘Best of Times’ To Be in the Industry Says WSWA Chief”

A few months back, Leslie Gevirtz of Wine Enthusiast interviewed Craig Wolf, president of the Wine & Spirits Wholesalers of America.¹ Wolf strikes an upbeat tone, and Wine Enthusiast largely maintains that confident tenor. A closer reading, however, provides evidence that Wolf has reason to celebrate . . . at the expense of the consumer. “Let the good times roll” for the large and expanding mega distributors.

Wolf begins, “Our numbers have actually risen….People always see all these mergers at the higher level, but what they don’t see are all the small guys coming in to fill gaps….So, the number of wholesalers that are active across the country has increased.” The September 2017 edition of Wines & Vines states the following, “According to winery and distributor sources, in 1995 the United States had about 1,800 wineries and 3,000 distributors. Today, there were more than 9,200 wineries and nearly 1,200 distributors.²” A five fold increase in wineries, and a 60% reduction in distributors. At best, Wolf is intentionally focusing on a small window of time to bolster his (inaccurate) point. At worst, this is Trumpian era disinformation—smoke and mirrors.

Wolf goes on to say that, despite the recent consolidation trends, “(I)t hasn’t affected the consumer because the number of SKUs has only grown over that period of time.” If we can trust that the number of SKUs (individual wines on shelves) has increased, we must ask whether the quantity also brings us quality. As the article posits, the number of “private labels” has increased recently. Large to mid-sized retailers contract wineries to produce private labels so they can offer exclusive products with conveniently opaque pricing, which allows for dramatic markups and profit margins. The wines within the bottles? Too often mediocre at best, an unavoidable reality when asking large wineries or custom crush facilities to make a wine that tastes like plum juice concentrate or cherry jam with Hi-C for $2.40 per bottle.

Courtesy of v1ctor at www.flickr.com/photos/v1ctor/

With the number of wineries today, the demand for distribution is great. Many of these producers craft authentic and intriguing wines. As wineries boom, distributors serve as gatekeepers, deciding which wineries and wines deserve to come to your market. Somebody must certainly filter what sits on the shelves and restaurant lists. However, when consolidated mega distributors, well known for using corrupt practices to buy shelf space and restaurant lists³, serve as the gatekeepers, we have reason to be concerned.

The WSWA serves as a mouthpiece for the large distributors, while offering small benefits to mid-sized members. The association exists to solidify the dominance of the middle tier in our three tier system. I, for one, hope we can give more power to consumers. The WSWA certainly doesn’t have this interest at heart.

 

 

¹http://www.winemag.com/2017/05/10/its-best-of-times-to-be-in-the-industry-says-wswa-chief/

² https://www.winesandvines.com/features/article/189049/The-Challenge-of-Distributor-Consolidation

³ Previous article about distributor corruption: https://wagonwine.com/2016/12/05/the-sandbox/

Repackaged, Repriced: Trickster Branding in the 21st Century

In the February edition of Wine Business Monthly, Kevin O’Brien penned a noteworthy article filled with curious nooks and crannies.

Good news! Wine sales continue to grow, especially in the $10-$25 category. Sales of $6-$10 wines have meanwhile declined. This has resulted in the “premiumization” of the wine business. Even better, wine drinkers are lusting for honest wines. “. . . consumers are continuing to demand premium products across all beverage alcohol categories as they seek an authentic, high-quality experience.”

Of course, corporate wineries want in on this action, but only have a few options (beer drinkers, this should sound familiar):

  1. Increase price of existing wines
  2. Create new labels and reprice
  3. Buy premium brands*

As a consumer, beware of number two and a flip side of three. Thankfully you aren’t being duped by numero uno.

In the face of falling cheap wine sales, corporate wineries with substantial vineyard holdings have the need to put that fruit to better use. Quick, put the marketing department to work! Slap a new, shnazzy label on the identical bottle of vino (or nearly identical), get the PR machine buzzing, and out of the corporate sphincter comes a glimmering new bottle for the new and improved price of $15 (formerly $8).

Beware.

Massive producers have also used a related though sneakier tactic. “It should be noted that these large transactions, as well as several other completed during the year, were primarily focused on the brand rather than underlying vineyard or production facilities. A leading driver behind ‘asset light’ transactions is the flexibility in grape sourcing and resulting scalability of the brand.”

Decode: Corporate wineries gobble up a sexy, premium brand name, leave the vineyards and production facilities behind, and then put their less costly, already held vineyards to work under the newly acquired brand label.

Clever, clever, and harder to detect. The answer, the same tried and true answer, can be found in the following:

“The recent wave of wine industry transactions has been notable for its size and breadth. These acquisitions have been driven by suppliers’ desire not only to improve profitability through increased scale but also to remain relevant to their wholesaler and retailer partners. The past few years have seen several significant mergers between some of the country’s largest wholesalers and retailers. As the distribution funnel continues to narrow, wineries are finding access to the market increasingly difficult. . . . In general, larger retailers prefer to work with larger wholesalers in order to better integrate and simplify their supply chain and forecast demand.”

Corporate wineries need one of the big three distributors to move their product into the large retailers. It’s that simple.

Gallo     Constellation Brands    The Wine Group    Bronco Wine Company

Breakthru Beverage     Southern Glazer’s     Republic National

Safeway     Total Wine     Costco     Whole Foods*

The answer, my friends, remains the same. Shop your locally owned wine retailer, get to know your steward, and you will bring home bottles with authenticity, character, and value. You will also support three authentic tiers rather than the behemoths above.

 

  • *Premium brands = wineries producing $20+ wines
  • *Whole Foods has historically worked hard to diversify shelf space with large and small wineries. However, results at any given store vary by state, and market pressures continue to push retailers of this size to consolidate and simplify i.e. work with fewer distributors and reduce options on the shelf.

Sources:

The Sandbox

“He walked in, pulled out a roll of hundreds, and flipped me two,” gnarled the no-nonsense owner of a boutique wine shop. He had been paid by the largest distributor in the state for bringing in ten cases of wine.

This is illegal.

In his case, a customer requested the cases for a special event—he had no intention of stacking* them in his store. In fact, he thought the wine was shit. He also didn’t know he’d get the payout. From the perspective of the conglomerate distributor, his purchase had triggered the payoff. Send in the man with the wad of Benjamins. Interestingly, Mr. Heavy Pockets is a separate employee than the distributor’s sales rep who typically services the shop.

Nestled on the edge of a wealthy, Midwest suburb, this one-man wine shop prides itself on small-production and high-quality wines. The owner doesn’t cower to the Powers. He simply received an unexpected, free date night, paid for by a customers large order, and mediocre taste.

Courtesy of Wikipedia Commons

As I walked out the door with my distributor’s sales rep, he said, “Yeah, I’ve heard it before. I’ve talked to some larger shops that say, “I’d love to stack your wine, but I can’t give up the $140 a month I get for that stack.” Both the winery that employs me and our distributor here can’t play this game. Both small and family-owned with honorable values statements, we wouldn’t dare, nor can we afford to dance this dance.

The words “pay to play” get thrown around frequently in the wine world. In the age of wine distribution mergers, the game keeps getting scarier for the thousands of small to medium-sized wine producers. You want your wines on certain shelves and restaurant wine lists, get ready to pay. While not always Benjamins, money flows to these accounts circuitously. And we’ve only talked about distributors.

Over the past week, Wine Spectator released their “Top 10 Wines of 2016” through a countdown. Seeing the producers on the list from my region, and having tasted hundreds of 2014 Willamette Valley wines, I have a tough time believing these producers landed on the Top 10 by merit of the juice alone. In fact, Wine Spectator doesn’t even deny the non-blind nature of the picks. While most of the industry uses the term “X factor” to describe a thrilling bouquet or texture that carries something unique and sublime, here Wine Spectator directly states something quite different:

“Then when you take the bag off, that’s where the X Factor comes in. Is it a new domain, new producer, great value? What is it about the wine—that’s the back story that adds to the excitement.” Senior Editor James Molesworth, Wine Spectator 

And of course, how did these wines receive their high scores in the first place? Plenty furrow their brows at the correlation between advertising dollars spent and scores received. Here I do not levy my claim at Wine Spectator alone, nor do I levy it at all publications. None the less, plenty of room to wonder.

While none of this news should surprise us in the 21st century, it should still unnerve us. And if you want to settle those nerves, go find that honest suburban shop owner and ask him what he recommends. It is the path to better wine and a better world, locally and globally.

 

*Stacking = to stack multiple cases of the same wine to prominently display it, typically reserved for the $15 and under category in medium to large wine, beer, and liquor stores.

Sources