Wine Distributors & The Death of the Family Winery
You don’t see it pointed out much, but here’s the fact the of the matter:
The wholesaler-dominated and controlled system of wine distribution in America hurts small business and hurts family businesses.
A new article in Forbes by Dirk Smillie that outlines why it’s likely that 20% of all American wineries will be sold off over the next five years makes this point in a backhanded sort of way, but it’s a point worth taking not of:
"The expected selloff is
driven by aging vineyard owners bedeviled by how drastically difficult
it is to make a buck in the new landscape of winemaking. "The wine
business today is a funnel," says Robert Nicholson, head of
International Wine Associates, a Healdsburg, Calif. corporate finance
outfit specializing in vineyard buyouts. At the top are those 5,000
wineries, which produce 7,000 brands. These labels compete with one
another, plus foreign imports, at the bottom of the funnel, where they
must fit through a bottleneck of 450 distributors who decide which
brands get shelf space. In the past decade the number of brands has
nearly doubled, while the number of distributors has been cut in half.
Result: Family-owned microbrands have seen their pricing power and
ability to demand shelf space trickle away."
Were it not for the direct shipment channel, I suspect that the 20% of wineries that are expected to be sold off would exceed 35% – 40%.
I don’t think anyone would advocate their be regulations prohibiting the severe consolidation that has occurred among wine distributors over the past 20 years. This is simply the way the market and business works. However, policymakers should take a look at the severe impact that the current wholesaler control of wine distribution has on small business and family wineries. Policymakers should ask themselves if it’s good for the economy to allow wholesalers to run family’s out of the wine industry simply so wine wholesalers can continue to control wine distribution and reap enormous state-mandated profits that have no relationship to the actual value of the services that wholesalers provide. This needs to be looked at by policymakers in light of the fact that it is the near nationwide policy of granting distributors unjustified profits at the expense of family and small business that is causing great harm.
The answer to this obscene situation is a simple one: Make wholesalers compete and work for their profits.
1. Allow wineries and retailers to ship wine direct to consumers in order to assure alternatives to the wholesaler channel are open to wineries
2. Allow wineries to bypass wholesalers in bringing their wines to market so that true entrepreneurial efforts are at the heart of the wine industry
At the very least these two changes would give small and family wineries a fighting chance against wholesalers who appear to be doing all they can to run them out of business. We’d also learn whether or not the wholesalers deserve or can actually earn the profits they are currently given by the state.