It’s Getting Worse and Not Likely To Get Better Soon

M. Shanken's  IMPACT Magazine reports today that the six distributors of wine & spirits in the United States control more than 50% of all sales of wine and spirits in this country.

By this time next year you can almost be sure that it will be five, maybe even just four, distributors that control that much of the wine and spirits sales in the United States.

Southern Wine &I Spirits controls 20% of the entire distribution market for wine & Spirits in the United States. Republic/National controls 10%. That's two company's that control 30% of all the wine and spirit sales in the United states.

Does anyone think that any of the six largest companies have any good reason to represent, say, a 3,000 case winery from New York or from Michigan or from California or from Oregon? Of course they don't. But here's the kicker, in most states a winery can't distribute their wines unless a distributor agrees to.

This is how only a very few companies that know ZERO about customer service or the sale of wine at retail, control what wines consumers have access to. The vast majority of wine sold by these Oligarchic, state-supported behemoths are HUGE national brands. I have nothing against huge national brands. But for wine lovers, the problem is perfectly clear: Distributors that control the market make more money when you don't have access to the wines you want. They make more money when you are buying the mass produced wines they want to sell.

Your only recourse is to buy direct from the wineries that you want to support. The problem with that is all to often their most coveted wines are often sold out. And since these wines are not likely distributed by wholesalers, you have to go on line and find them at an on-line retailer. The problem with that is that the wholesalers have fought tooth and nail to assure that retailers can only ship wine legally into 13 states.

36 Responses

  1. Dave Erickson - April 13, 2010

    I agree Tom, I absolutely agree. But c’mon, man, not every distributor is a monster.
    Here in North Carolina we have
    These are good guys, Tom. Centerba brings in Joe Dressner’s wines; Bordeaux Fine and Rare brings in Peter Weygandt’s.

  2. Tom Wark - April 13, 2010

    There are, as you point out, lots of distributors bringing good wines to market. But until those good distributors break with the WSWA, the National Beer Wholesalers of America and the rest of most of their brethren and endorse a system of distribution that allows well regulated direct sales from both wineries and retailers as well as self distribution by wineries that would choose to sell in this method, then they remain a part of the larger problem.

  3. Larry Chandler - April 13, 2010

    There’s no question not all distributors are monsters. But there are quite a few monsters in this business. And there’s no reason a winery should have to be dependent on “the kindness of strangers.”
    A few states may have a few distributors who are eager to bring in small production wines to their customers. But there are wine lovers in all states and they should all have the same rights to enjoy the wines they want, not just the wines they are permitted to buy.

  4. Joe - April 13, 2010

    Not to mention that the proliferation of the huge, bulk brands creates a perception on how a wine should taste and how much it should cost, thus creating more difficulties for artisan winemakers creating terroir-driven products or focusing on practices that are better for the environment and/or the quality of the wine, thus demanding higher sell prices.

  5. Ned - April 13, 2010

    The roots of this reach back over 100 years. The foundation is built from the end of prohibition. The perpetuation of it is driven by money and politics and how they have
    combined to make the public interest the least important interest. What was tolerable or relatively benign for some decades no longer is so.
    On the one hand, devise a method of excise tax collection that is as easy as what the three tier system provides with the distributor keyhole, and on the other hand break the money equals legislative access paradigm. Otherwise the threshold for overcoming those obstacles, based on the merits, has been and apparently will continue to be insurmountable.

  6. Mat Garretson - April 14, 2010

    I respectfully submit that an overwhelming percentage of states in the U.S. provide a means for any winery with the desire to distribute their wines in that state to do so. And the presence of a SWS or RNDC in that market makes no difference. Take, for example, the Nevada market. Traditionally, this market has been dominated (and I mean DOMINATED) by Southern…especially in Las Vegas. There are at least a half-dozen viable distributor options for the small vintner to work with.
    The barrier is not so much access to the marketplace, but, rather, ACCEPTANCE of that brand/wine IN the marketplace. There’s an ocean of wine out there, a proliferation of wineries – especially within California – many of which produce wines that (for one reason or another) are not compelling enough to gain traction in ANY market. A winery’s failure to gain a presence has nothing to do with large distributors…it’s much more an internal issue.

  7. Rob Hagman - April 14, 2010

    Spot on. This is no doubt a complicated issue, but this completely illustrates the barrier that stands between small to medium sized producers and the consumers that want access to their products.

  8. Mat Garretson - April 14, 2010

    Not to harp, Rob, but the REAL issue is with small producers who want access to consumers…and can’t (due to their quality, price structure, inability to market or lack of brand uniqueness) gain traction with a wholesaler.

  9. James McCann - April 14, 2010

    Most states have much more than just a few options. (over 40 wine wholesalers in the tiny state of CT alone, countless more in large markets like NY and NJ) If your wine does not offer a unique story / quality / QPR, etc… IT IS NOT THE FAULT OF THE SYSTEM. Opening up new markets via DTT or other means will just mean that another excuse will have to be invented for wineries or retailers that have a poor business plan. There is not a single winery or retailer in the US that opened up shop before these restrictions were in place. As a wine lover, I would like to see a much more open system, but it is maddening when people attempt to demonize those operating within the current system, as it has existed for over 75 years.
    Note: Using someone like ShipCompliant gains a winery access to an enormous percentage of the US market via DTC.
    BTW, the idea that large wholesalers know nothing about customer service or selling wine at retail is just another example of Tom using gross hyperbole to advocate for an issue.

  10. Charles Broming - April 14, 2010

    I think you’re exercising hyperbole to raise an issue that is important, but, not urgent, yet. With SWS controlling 20% of the national market and the next largest at 10%, consolidation hasn’t reached “cartel-quality”. A good rule of thumb is that when the top four competitors account for 70% of total industry sales, consolidation has peaked, competition will be reduced or eliminated, and informal collaboration (via signaling, informal discussions, etc., rather than direct agreements) on prices and distribution channel exclusion or inclusion agreements will become the standard practice.
    Fortunately, the spread of litigation and rulings favorable to DTC shipping will continue and, hopefully, will help to reduce or stabilize the rate of consolidation in the industry. If the three-tier system is economically viable, it doesn’t need legal protection to thrive–distributors should be able to demonstrate their value-added contribution to the market or go out of business.
    What would happen to prices if legal support for the system were withdrawn? If competition were to drive prices down significantly, say, 30%, how many small wineries could stay in business without the ability to produce a compelling, distinctive wine that would demand a premium price? How many new wineries would be started, given increased risk from competition and downward price pressure.?
    I’m not advocating that the current structure be protected (the nature of the associated political process is odious, among other reasons). I agree that legal protection for the current system doesn’t make economic sense for the vast majority of consumers, but, if they are removed, we may find that producers will consolidate horizontally and vertically) more aggressively to gain additional economies of scale in sales and marketing as well as in production. Right now, the distributors do a fair amount of the sales and marketing and the larger ones capture the cost advantages of large scale (some do a better job than others, no question!) and the smaller ones invest time and money in an effort to bring distinctive wines to market that will never achieve enough volumes to “move the needle” at the large distributors. Most retailers, now, don’t have the resources (budgets and time) to hunt for those interesting and satisfying wines. If the large producers integrate forward, how will that affect the ability of small producers to reach the market and small retailers to serve unusual yet large enough to be profitable, local market niches?
    Hopefully, demand is and will remain sufficiently diverse to support a large variety of types, styles and brands of wine so that no small group of producers and/or distributors and/or retailers will control distribution to the extent that smaller wineries will be unable to make good, interesting wines and sell them at reasonable prices profitably. But, this outcome remains in doubt. If we remove the legal protections of the current system, economic forces may drive the market in a direction that precludes the outcomes you are advocating.

  11. Morton Leslie - April 14, 2010

    In California a local winery can ship direct to anyone over 21… consumers, retailers, and restaurateurs. They can cart their wine around in their own trucks, or hire brokers, or do business with wine distributors. It is interesting that with all this freedom, wholesalers still sell most of the wine in CA. We should ask Caymus, Phelps, Groth, Bouchaine Chalk Hill, Clos du Val, Flora Springs, Emmolo, Cosentino, Opus One, Luna, Jordan, Turnbull, Coppola/Rubicon and dozens of others why they choose to sell their wine through Southern Wine and Spirits, one of “a very few companies that know ZERO about customer service or the sale of wine at retail”. Maybe these “huge national brands” just never thought about all their choice, or perhaps there are services that a big wholesaler can provide, that we just don’t know about. We should ask them.

  12. Tom Wark - April 14, 2010

    James said:
    “If your wine does not offer a unique story / quality / QPR, etc… IT IS NOT THE FAULT OF THE SYSTEM. Opening up new markets via DTT or other means will just mean that another excuse will have to be invented for wineries or retailers that have a poor business plan.”
    James, for many wineries selling merely 20 cases in a state direct to the trade is enough for them or matches their business model. Yet, in most states such an effort is illegal. Either support real free trade that is fair to everyone and stop being an apologist for mediocrity and monopolists or get out of the way.

  13. Tom Wark - April 14, 2010

    You hear the same thing I do. Unless you are a BIG national brand, the kind of service a winery gets at a wholesaler is pretty pitiful. That said, wholesalers are HUGELY necessary, particularly to big brands who simply need boxes delivered to accounts. I’d never suggest wholesalers are worthless. But let’s face it, sales reps and managers don’t work the floors. They don’t sell via the internet. They don’t take questions from real consumers. They don’t do any of this. They take orders and call the trucks.
    Let wholesalers do what they think an unfettered market will allow them to do. I have no problem with them providing any service.
    But when the state MANDATES their use in many other states, we see a problem for wineries, retailers, restaurants and consumers.

  14. James McCann - April 14, 2010

    I am not being an apologist, nor did I suggest that DTT or DTC was a cure all. The simple FACT is that no one has a monopoly. There are literally hundreds of small wholesalers around the country looking for wineries to represent and most of the country is open to DTC shipping. If a winery is rejected by all of those wholesalers and cannot gain traction with their own wine club, etc… then yes, I suppose it makes them feel better to blame the large wholesalers instead of looking at their own business model.
    (And your comment about sales reps and managers not working the floor or talking to consumers shows that you are the one who is totally out of touch with the way the wine business operates.)

  15. Morton Leslie - April 14, 2010

    I have been on both sides of it. Part of a established and “huge national brand” and heading a tiny, boutique start up with zero distribution. I couldn’t have done either without wholesalers, and while I wished they would, I never depended on them to build a brand. Sales, brand building, it is all up to the individual winery. Wholesalers have aggravated me to no end, buying everything when the score was 95, ignoring me when the score was 90, but I have to say they saved my ass when I was a startup. And, I’ll tell you, you can learn a lot from them if you ask questions and take their advice to heart.
    I have found wholesalers will distribute anything they think will sell and make them money. They are as purely profit driven as any enterprise. They have dozens of reps talking to hundreds of buyers on a daily basis. They see what dozens of suppliers have to offer in products. And they are very sensative to what will and what won’t sell in their market. Chances are, if you can’t sell your brand to a wholesaler, you haven’t a chance of success in that market. There is only so much shelf space and someone got there before you. I know it is unfair, but life is unfair. My advice to the winery is that wholesalers always take the easiest road, so your job is to pave it for them. You’d have to do it anyway if you didn’t have them, and it’s really nice to have one person there making the delivery and sending you a check.

  16. James McCann - April 14, 2010

    Very well said.

  17. Tom Wark - April 14, 2010

    Give me one good reason why any winery any where in the States ought to be forced to choose to sell only direct to the consumer or through a wholesaler. Tell me one good reason why they ought not be allowed to sell direct to the trade. Only a very few states allow this and in some of those few cases only wineries under 25,000 gallons may sell direct to the trade.
    And let’s keep in mind that only 13 states allow consumers to legally have wine shipped to them from retailers…something we can thank wholesalers for.
    In most states wholesalers, as a group, are MANDATED by the STATE to be the only entities that can bring wine into the state. OK…Not a monopoly: State-mandated welfare for a shrinking group of business that are unwilling to compete on a level playing field.

  18. Jo Diaz - April 14, 2010

    The business term for this phenomena is called an “oligopoly.” I’m amazed that it’s taken the wine industry so long to catch up with other industries, like banking, soda companies, fast food chains, car manufacturers, airlines, etc. Only a few companies dominate most industries in our free enterprise system. It is what it is, and beats a non-free system… but still sucks for the little guys trying to make a decent living and selling their products directly.
    As I used to tell my Girl Scouts, when someone got four cookies, but someone else only got three, “Life’s not fair.”

  19. James McCann - April 14, 2010

    Perhaps I have not made myself clear:
    1. I agree with you! Open it all up, and then let the chips fall where they may.
    2. I think you continue to unfairly demonize the wholesale segment in order to make your point. There are lazy salespeople in every segment of the industry, including in tasting rooms and on retail floors. The average large wholesaler rep runs himself ragged doing in store tastings, working the floor, building displays, consumer tasting events, charity wine tastings, etc… whatever it takes to hit his quotas and increase his or her income. (Have you ever sat down with a group of wholesale reps and listened to their stories about what they are asked to do by retailers daily… it would make a great story as they described trips to the dry cleaners, running to the post office to mail off christmas presents, and anything else you can imagine, all under threat of perhaps losing an end cap. Does that never come up at SWRA meetings?)
    You continue to call the wholesale segment a shrinking field. That is not correct. The opposite is true. Driven mainly by consumer and retailer demand for fine wine, we have MANY more wine wholesalers in this country then at any other time in our history.
    4. While the share of the top wholesalers is very large, remember that it includes spirits, so their percentage of control in the wine business is lower. While Southern may fight tooth and nail against out of state shipping by retailers and wineries, they do nothing to prevent the small winery from finding a small, fine wine wholesaler (or supplier) to take on their wines.
    3. There are retailers running very successful internet business right now. What do they know that other retailers do not?

  20. Kevin Whelan - April 14, 2010

    Great comments all around. Really illuminating. And everybody remained civil. Nicely done, I learned a lot.

  21. Richard - April 14, 2010

    Being one of the small “boutique” wineries, I can emphatically state that the distributors will not even listen to me about possibly carrying my brand. I have great demand, thankfully, and am mostly sold out, but that is because most of my sales have been in California where my wine is made and those sales have been through wine trade shows; word of mouth; and good old fashioned wearing out shoe leather going to retailers and letting them try my wine.
    I have a real “day job” and don’t have a “marketing and advertising budget” nor do I have numerous employees doing marketing, “social media” etc. It’s me and a few other dedicated souls. And before someone says “have you approached the distributors?”
    Yes, I have – I happen to do consulting work as a day job in a three tiered state where my wine must be sold through a distributor – being familiar with the area, I am also on good terms with several local wine retailers – I let the retailers try my wine and they immediately wanted to buy (between two retailers, I would have sold almost one-quarter of my stock which is how small I am) – they approached their distributors – three of them – the only three operating in the state from a big conglomerate that has been named but will remain nameless; a mid-sized distributor who covers a five state area; and a small distributor who is local only. I too spoke with the distributors, none would carry my wine – the smaller distributor was very blunt – he said “there’s no profit in it for me…” He then had the nerve to ask for another bottle of my wine to “try” because he said “I love it, it’s great wine!”
    So, Tom, I completely agree with you – it is the distributors – the other comments (no disrespect) are way off base, particularly the folks putting the burden the “small producers who want access to consumers.” This is not the small producers, this is the large distributors and, I completely agree the managers and sales reps who don’t work the floor – I spoke directly with either the owners or the GM’s of these distributor/wholesalers and they have no idea what is going on – one of them told me he doesn’t even drink wine… One of the sales reps with the small owner wholesaler told me that he dictates what his stores get based on his inventory and what they buy. This was effectively proven by the fact that the local retailers practically begged him to carry my wine.
    Of course, I do agree if wineries and winery owners are just sitting around on their butts and not actively trying to sell, then they can’t expect a distributor/wholesaler to come knocking.

  22. Mark's Wine Clubs - April 14, 2010

    There are of course distributors which do a good job, but overall anyone who says the system isn’t a broken mess simply is saying so for either their own benefit or they aren’t paying attention.
    I’ve dealt with some truly outstanding wineries that produce 7500 cases in Napa that don’t have a national distributor because the customer service is so abhorrently bad. We’ve also been asked by a few small production spots to be a broker for them because at under 5k cases a distributor doesn’t even want to talk to them unless they start offering outrageous prices.

  23. James McCann - April 15, 2010

    If only two retailers could take a significant amount of your wine, why would you want a wholesaler? And why would that wholesaler go through all the steps of setting up state registrations, inventory locations, issuing a purchase order, paying a pickup stop fee to his trucker, receiving paperwork at his warehouse, etc… to only sell a small amount of wine. The numbers don’t add up.
    Do you really think a wholesaler would just pass up business if the wine was already sold and all he had to do was process the order?

  24. James McCann - April 15, 2010

    “A broken mess” is a bit much. Somehow many millions of cases of wine find their way to consumers each year, with new wineries finding distribution channels on a daily basis.
    Why does a winery need or want a “National Distributor?”
    And you have to know that there are many, many wineries that are at 5K cases or below that have no problem finding distribution.
    When you agree to broker a small winery, where do you look to place the wines? Do you have go-to distributors?

  25. Richard - April 15, 2010

    You say “If only two retailers could take a significant amount of your wine, why would you want a wholesaler?”
    Well, primarily James, in this three tiered state, the retailers cannot – repeat – cannot buy my wine unless it goes through a distributor and/or wholesaler – they cannot buy it directly from me. And this is what is so insidious, for me as a winery. So, either you are sadly misinformed about various state distribution laws or you’re being disingenuous – unless of course I’m misinterpreting what you say? But, I repeat, and please take note – I cannont – cannot – sell my wine directly to these retailers and they cannot, repeat, cannot, buy directly from me – the wine must, repeat, must, go through a distributor…
    Second, you say: “And why would that wholesaler go through all the steps of setting up state registrations, inventory locations, issuing a purchase order, paying a pickup stop fee to his trucker, receiving paperwork at his warehouse, etc… to only sell a small amount of wine. The numbers don’t add up.”
    I’m confused James – aren’t you contradicting yourself – this is precisely what I said – and this is what the wholesaler told me – that “there’s no profit in it” So, please explain.
    Third, you say “Do you really think a wholesaler would just pass up business if the wine was already sold and all he had to do was process the order?”
    James, did you actually read what I wrote? The answer is yes – the retailers begged the distributor to carry my wine – they were willing to buy from every vintage a set number of cases for five years (yes, they liked it) and the distributor said it just wasn’t possible because there was no profit for them – despite the fact that, for sales and publicity, I offered to sell it to the distributor for below wholesale – I would have made from about $2-$5 a bottle; the retailer would have made about $3 a bottle; and the distributor would have made about $20-$30 a bottle. Yet, they would not carry.
    So, James I would first say that, to me, and please forgive me, I mean no disrespect, but perhaps I’m just not smart enough to figure out what you said – your second statement and third statement are contradictory? or am I just not getting it?
    Last, James, just out of curiosity, do you work for a distributor/wholesaler in a three tiered state – you seem to be very much taking sides here. Or do you work for on of the larger wholesaler/distributors? or a small one? as you seem awfully angry about this entire debate. I’m not taking sides, only giving my personal experiences in comparing two states I happen to spend time in – one is California where I can pretty much sell my wine to anyone and the other is a three-tiered state that allows only sales through a distributor/wholesaler, not direct to anyone. I can sell to consumers online, but not to retailers.

  26. James McCann - April 15, 2010

    I’ve tried to stay civil during this debate, I am sorry that you are taking this personally. I have worked in management at all three levels of the three tier system, currently at the supplier tier. I speak with wineries, wholesalers and retailers on a daily basis. I know and understand the industry inside and out.
    My statements are not contradictory:
    1. I questioned why you would want a wholesaler because if your production is that small, then giving up your margin to a wholesaler doesn’t seem to make sense. (Sell it all in CA or DTC)
    2. If you are giving the wholesaler $240 to $360 per case profit, then I assume the case quanitites are very low. I did read that you said the wholesaler told you that there was no money in it, but you did not seem to think that it was a legitimate answer.
    3. No contradiction… you seem to think you are being lied to about the profit. If we are talking about 10 to 20 cases, while a few thousand for the wholesaler seems like a lot, when you subtract the costs involved in setting up new items, it probably did not add up to the wholesaler. Do you think he said no just to spite you?
    If you read my posts, you’ll see that I actually do agree with the entire premise of opening up all markets. My issue is that in making their arguments, wineries and retailers often make false statements in order to attempt to draw consumers to their side. Why can’t it be an honest debate? Why do people insist on saying that there are fewer wholesalers now? Why do they say that wholesalers have no interest in small wineries, when there are small wineries gaining distribution every day? Sometimes people start wineries and they happen to make lousy wine, price it too high, or have no marketing plan. It happens. That’s not the fault of Southern.
    And yes, I did in the past work for a large wholesaler, where among other things, I evaluated potential new wineries for distribution. I can tell you that weekly we received samples of wines priced from $30 to $100 (or more) per bottle, no story, and often just average wines. Was I supposed to take in those wines anyway?

  27. Tom Wark - April 15, 2010

    I have to tell you that I’ve really enjoyed your participation in this debate. You come to it with pretty deep experience.
    You and I both know and understand something very basic: The 3 tier system is set up and maintained in a way that puts wholesalers in complete control of distribution in this country. You and I both believe and know that allowing self distribution, winery to consumer shipping and retailer to consumer shipping would be good for consumers, retailers, and wineries.
    But I’m willing to bet you don’t come out and say this to the large wholesalers you work with on a daily basis. I’ll bet that you don’t actively get your company involved in the debates that surround these issues both at trade events and in the halls of government.
    I know, time is precious and we have to prioritize. But until folks like you speak publicly about these issues in forums where you will be hear and listened to, it’s unlikely things will change.

  28. Tom Crawford - April 15, 2010

    I work for a large wholesaler in North Carolina, we have one of the largest portfolio’s of wine in the state and constantly have people going to and from Califonia looking for new wines both in quality and value.
    Our sales staff is very much out in the market talking to the public and selling product not just taking orders and definately not just selling bulk wines. In fact they all always try to upsell the consumer to better, higher quality wines.
    But one point I think is being missed in all of this is the economic factor. Our company employs over 500 people and between all of the other distributors in this market I can only imagine how many people are gainfully employed because of the three tier system.
    While I feel for the little guys in California trying to get their wines out in these tough economical times, I would feel even worse if they found a way to limit wholesalers in my state to selling only bulk wines by making boutique wines available through internet sales. I can only imagine what that would do to unemployement in this state. In fact there are probably 30 or more distributors in the state that would be completely out of business along with some of the small wineries they represent.
    I also believe that without distributors there are a lot of wineries that started out very small and have become very large and successful, but without our people getting the wine in front of the consumer they probably would not have had the growth and success that they have enjoyed.

  29. Jim - April 15, 2010

    As a small importer/distributor, I can’t say that I disagree with anything that has been posted on this subject, with the exception of throwing a blanket over all distributors as bad organizations that don’t want the system to change.
    My company does not belong to any wholesalers organization. We promote and sell small wine growers from Europe and small artisan winemakers from California, Oregon and Washington State. Yes James you are right we spend a lot of time in retail wine shops and restuarants doing tastings, wine dinners and training restaurant staff, with very little thanks or loyalty from the retailer. It is frustrating for me to hear from a consumer that was at one of our tastings that they can’t find the wine they had at a tasting because the retailer did not get behind the wine and re-order. Consequently I would love to sell the wine I import directly to consumers but the State I am in won’t allow that and there in lies the real problem. The distribution of all Alcohol in this country is controlled by the State where you live and do business. So we have 50 individual markets and in some States even regional markets with their own set of rules, taxes and regulations. Tom, I wish this would change, but I don’t think it will happen in our lifetime. Look how excited everyone was a couple of years ago when the supreme court ruled it unconstitutional for States to prohibite direct shipment of wines from out of State wineries. The State’s legislature just wrote laws that protect their own in-state wineries. The big distriubutors played a hand in this but it was the in-state wineries that really stopped it. Nothing changed, only the lawyers made a profit.
    In this current economic market, there have been at least 6 small to medium sized distributors in our State go out of business within the last 18 months. None of these distributors represented any of the big brands they all were small niche players specializing in small wineries.
    With huge inventories of wine the large big brand producers are dumping their products at extremely low prices with large volume requirements to both the large distributors and retailers. Consequently the retailers don’t have the dollars to put the small wineries product on the self. I know that this will change, but how many of the small distributors will disappear before it does and then where do the wineries turn then get distribution?

  30. Tom Wark - April 15, 2010

    It won’t change as long as wholesalers/importers like you don’t actually make their voice heard during debates on this issue. As long as progressive wholesalers like you stay quiet and let WSWA and state-based wholesalers give the impression that all wholesalers are against self distribution and direct sales, then that’s the impression that will be left.
    It’s critical that folks like you stand up and say something to lawmakers AND to the industry. Until that happens all wholesalers will be painted by the same brush the the WSWA and state wholesaler organizations provide.

  31. Tom Wark - April 15, 2010

    Why should wholesalers get protection from competition via state laws that MANDATE wineries only sell via wholesalers? Why is it SO important that wholesalers are given this protection? I fail to see what is so special about wholesales that they ought to receive this state-mandated protection.
    If wineries are allowed to sell direct to retailers and restaurants and if wineries are allowed to ship direct to consumers and if retailers are allowed to ship direct to consumers, we will still have wholesalers.
    I’m not sure why wholesalers seem to think that their entire industry will disintegrate of wineries are allowed to sell direct and bypass the wholesaler.

  32. Richard - April 15, 2010

    Thanks for the clarification, it makes sense.
    Your comment: “I questioned why you would want a wholesaler because if your production is that small, then giving up your margin to a wholesaler doesn’t seem to make sense. (Sell it all in CA or DTC)”
    Absolutely, you are correct and I do sell most in California or DTC on the internet because my production is so small. The point I was trying to make is that I know several retailers in the three tier state – one is a personal friend and the others I know from just going to their shops periodically – they all know I make wine, tasted it, and wanted to carry it – what I described was both myself and the retailers trying to obtain the wine for sale. The point was, it proved to be impossible. I simply wanted them to carry my wine locally because so many people in the area who know me, wanted my wine. And despite the proliferation of the internet, some people, many of them the older, established buyers from these retailers simply will not use the internet – especially for purchases (yes, I find this hard to believe as well). So, effectively I was trying to do the retailers and their customers a favor and I ran into the brick wall of distribution.
    James, you continue: “If you are giving the wholesaler $240 to $360 per case profit, then I assume the case quanitites are very low. I did read that you said the wholesaler told you that there was no money in it, but you did not seem to think that it was a legitimate answer.”
    Yes the case quantities were low – it would have been 50 cases total.
    You further state James: “No contradiction… you seem to think you are being lied to about the profit…” and “Do you think he said no just to spite you?”
    OK, James you said you wanted to keep it civil? I never said I was being lied to about the profit – I do not see that I even implied that – I said the distributor told me “there was no profit in it.” I never implied anything to the contrary but found it very frustrating as I was simply trying to get my wine to the local retailers. And I never said the distributor said “no just to spite” me. Nor did I imply that anywhere in my comments. Again, this is what I meant when I said you seem so angry – I think, you, James, took my comments personally.
    And I too am trying to stay civil – I was simply representing my opinion and personal experience with trying to get my wine distributed in a three tier state. And I never plan to try again, it’s simply not possible, from my perspective as a small 250 case a year winery – I plan to increase production to 500 cases, but even then, will still simply sell in California and DTC.
    Sorry if you took my comments personally James, they were not meant as such – you simply seemed to be defending the status quo or a rollback to a full distributorship only system and I wanted to voice my opinion on why I thought that was a bad idea, given my experiences. I suppose my point was, and remains, that it is virtually impossible for a small case production winery like me to get any distributorship.
    NB: I would add here before someone comments that it must be bad wine because a “distributor won’t take it…” I make good wines – they are not cheap swill – I take extreme care and if I ever made a bad wine, would simply dump it out – I would not foist it upon an unsuspecting public. And while I have limited production I do have some high scores (95, 94, 92, 89) from four different vintages…
    Last, I do agree with Tom’s comments to you James when he said: “until folks like you speak publicly about these issues in forums where you will be heard and listened to, it’s unlikely things will change.”

  33. Randy - April 17, 2010

    I’d like to thank Tom wark for hosting such a great and informative topic. I know there’s many many people interested in this issue, including myself.
    I really can’t think of another wine blogger so passionate about the DTC and its importance to our wine future.
    Cheers Tom!

  34. Neil Barham - April 19, 2010

    So True, the problem is not the hugh distributors but hapless fools called wine buyers at the various restaurants and retailers. These guys are on their knees with their mouths open for the big distributors and over-sized wineries. I work for a small house in Colorado, we only sell wine from small family operations, almost all are at least sustainable, but the buyers buy a case here and there, but load up their stores and lists with wines that have a name, yeah right! I feel this whole sommelier thing is out of control, they have churned out clones that have no idea about the history of wine and the historic sites.
    PS I sell Weygandt here in Colorado now, how any buyer could pass wines from Dressner, Weygandt, Rosenthal, etc for homogenized wines like Louis Martini, etc is beyond me

  35. [email protected] - April 22, 2010

    I am a small boutique producer from Napa Valley and am reading all of these comments with great interest. We set up our entire business from the very beginning to be DTC and DTT only because we knew, in advance of this current economy, that we wouldn’t be able to get the attention of the wholesalers to carry our brand. This was proven recently when our brand was selected to be part of a large restaurant chain with 40 sites who wanted to add us to their wine menu and asked that we work with one of their three distributors. The order, for us, was quite large and, not one of the distributors that this large restaurant chain recommended wanted to do business with us, EVEN THOUGH IT WAS A GUARANTEED, LONG-TERM SALE! No distributor, no sale. End of story.
    So, how do we sell otherwise? We sell ONLY to those states that allow DTC and DTT –we don’t even bother with other states. We talk with our retailers constantly and learn THEIR business and how they want us to treat them as their partner. Now, with the possibility of HR 5034, that whole concept gets thrown out the window if this bill passes and we are only able to sell within California, which is already saturated with wine. Our best markets are in states such as Wyoming, Arizona, Texas, etc. I’ll tell you, if all the small producers got together and filed a class action lawsuit concerning our inability to have access to market, THAT would be a story.
    And, oh by the way, I happen to know that a lot of the large wineries are looking to move away from many of their distributor relationships because some of those same distributors have stretched out their payments back to the winery, putting the winery in a tight financial squeeze. In this current market, that is a death knell. Do that enough times, and even the large players will drop and run to manage the sales process themselves. With the recent plethora of DTC and DTT consultants here in the Valley offering to help the large wineries “take back” their margins and go direct, it is only a matter of time before they get comfortable with doing more of their own direct sales in key markets. As a former consultant myself in the technology business, where we are in the wine business is exactly where the large computer companies were with the advent of the PC — they left the distributor behind and went direct to the consumer and direct to the retailer. And that was in the early ’80’s.
    Being small in this market environment makes us the canaries in the mine for the large guys. But being small can make us become more innovative in order to survive. We are also often more nimble since we don’t have the large facilities and staff to worry about like the big boys do. Believe me, the larger wineries are watching what we do because they feel our pain times 10 plus. It is only a matter of time before they find alternatives to the current distribution troubles they are bearing…

  36. Richard - April 22, 2010

    Thanks for your comments! I feel your pain. I am about one tenth your size and have had (as you can see from my comments) similar experiences. Thanks for weighing in. Also note that there are no comments from the “distributor arena” since my last comments. They simply cannot defend their position. I think all of us “small guys” should get together and form a group!

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