The ongoing, steady march toward consolidation within the distribution/wholesale tier of the wine industry continues.
News comes today that Southern Wine & Spirits has purchased Distinctive Wine & Spirits of Illinois from its parent company, Charmer Sunbelt.
There are folks that raise concerns that about consolidation within the producer/winery side of the industry every time we hear about a larger wine company buying another winery. But the pace and impact of winery consolidation doesn’t hold a candle to the impact of consolidation inside the wholesale/distribution tier. It’s the impact of this middle tier consolidation that should have folks very concerned.
We are moving toward a situation where no more that 2 or 3 distribution companies control large markets and in some cases distribution in entire states. This means that only 2 or three companies control which wines are made available in these markets. It also means that if any one of the dwindling number of distributors choose to forget to take a retailers order, that retailer can quickly find themselves without product. It’s a disturbing situation because it places the kind of enormous power and control in just a few wholesalers’ hands that that once existed in producers hands before the onset of Prohibition and that led to truly unsavory marketing schemes.
A very powerful, state supporter monolith is being created across the country.
What I found very interesting about this acquisition was in Illinois was the characterizations of the distribution business. Consider this quote from Charmer CEO Charles Merinoff, the seller:
“Over the past few years we have invested
considerable time working to increase our market share in Illinois. Despite
these efforts, and although we are extremely proud of the services this
team has delivered to our Suppliers and Customers who do business in
Illinois, the volume of business does not justify our continued presence."
So Charmers couldn’t make a go of it, eh? Take a look at the brands inside Charmer’s Distinctive Wine & Spirits portfolio. According to their website, they distributed over 220 brands. Many of them very impressive, very high profile, very high quality wines. Their selection of American Pinots, Bordeaux, Burgundy and CA cabs is good. But they can’t make a go of it?
I feel for those good producers who chose to go with Distinctive Wine & Spirits as their distributor in Illinois, but now find themselves with Southern Wine & Spirits. It’s well know that attempting to get the attention of the sales force of a mega distributor like Southern is like a mouse trying to get the attention of 18-Wheeler rushing headlong in its direction. Someone is going to get flattened.
I find it highly unlikely that back in 1934 when the states devised their mandatory 3 tier system that they also imagined a very small collection of wholesalers controlling the destiny of the wine market in entire states. Nor did they imagine the existence of over 5000 wine producers arising in America. The bottle neck that is the 2nd tier of the three tier system is becoming narrower and narrower.
At what point does the issue of control over a market of this magnitude become an issue for legislators and regulators. That point is reached when it becomes clear that these developments non only impact producers’ access to a market, but begin to severely impact the consumer.Are we not there?
As wholesalers are want to point out on every occasion possible, the state is granted the right to control the distribution and sale of alcohol inside their borders. It strikes me that if a state is going to create for wholesalers the kind of all powerful and favorable conditions for doing business and even allow them to consolidate that power in a way that makes them the arbiters of what products consumers are allowed to access, then there ought to be considerable thought given to to placing requirements on the wholesale tier.
More than anything else, it’s probably time to allow wineries to self distribute their product to retailers and restaurants, bypassing the wholesalers altogether.