Does Big Business Control the American Wine Industry?
In honor of the great Michael Broadbent's 400th column for its magazine, Decanter Magazine today ran a story touting this achievement as well as giving us some insight into Mr. Broadbent's current and highly educated view of the world of wine today. One comment in the story struck me:
"He [Broadbent] mourns the demise of the smaller players. 'Big business seems to be taking over and I don't like the way things are going' "
Does "Big Business" really have a grip on the wine industry? I'm not so sure. And I'm not so sure that Broadbent is speaking about the American wine marketplace. But I will.
There are a few ways of looking at this issue.
From the PRODUCER's Perspective
There's simply no way to argue that the producer sector of the wine market is controlled by BIG BUSINESS. While the vast majority of wine in America is produced by 50 wineries, the vast majority of wineries are small, family-owned, artisan affairs. And their numbers keep growing year after year. Add to this the enthusiastic American importers who seem to find new and interesting small ventures from the Old World and the Newer World and you start to get the picture that despite the big producers that dominate wine sales, the small producers just keep on coming like there is no one in their way.
From the RETAILER'S Perspective
The largest producers of wine in the world do tend to have greater access to the brick and mortar retail sector of the wine industry. In fact, if you look at the four shelves at grocery stores, the bottom two, and a lot of the third will be holding the wines from the largest of the world's wine producers. This is not always so of the top two shelves however, where smaller brands have a distinct foothold, particularly in metropolitan areas where demand for quality and higher prices wines is greatest. But then you have to ask to what degree BIG BUSINESS Retailers control the retail sector. It goes without saying that consumers can if they like shop for wine at the big grocery stores and the Costco's of the world…and they do, in huge numbers. Yet when you look around the country, there is no dearth of small, independent retailers who provide consumers with a remarkable selection of wines from both big and small producers. Finally, the Internet provides consumers looking for diversity and looking or the those wine producers hanging on to the Long Tail unprecedented selections of wines produced in the tiniest amounts and produced by wineries located in every region of the world. In fact, there has never been anything like the selection of wines now available if you look at the marketplace from the perspective of the Internet retailers. It is the Golden Age of the wine consumer. Across the Internet you find all sorts of smaller retailers that specialize in a region's wines, in wines of a particular price and in wines of the highest quality. While wine retailing probably is big business heavy, it isn't dominated by bigger businesses. And with the Internet, the barrier to entry is lower than it ever has been for prospective retailers.
From the WHOLESALE Perspective.
Certainly when two wine distributors control 20% of the U.S. market and five control 50+% of the wholesale market you have to admit this sector of the wine market is controlled by big business. Consolidation among wholesalers continues at breakneck speed even as smaller wholesalers try to get into the business. Here, Mr. Broadbent, were he looking at the American marketplace, would be correct.
The American wine marketplace has issues. An often inflexible three-tier system. Trade barriers. Often absurd restaurant pricing. Consumers that still think wine is for the Tuxedo-Class. However, Big Business I don't think is our biggest problem here.
The Cold Wave caused this
Excellent points, Tom. The small producers, retailers and distributors are the innovators leading the growth in dollars and quality in the US wine market
The 2 trends in the retail sector and even now being seen in the larger on premise chains , that are starting to squeeze out small independents is the proliferation of what in the industry, are called scanbacks (a program whereby a supplier will be billed back up tp 2.00 per bottle scanned at a given retail chains POS over a specified time frame). This legalized form of kick backs is on top of some already rather hefty discounts already in effect. The other trend fueling the growth of the big megabrands is another sort of program called CQDs or case quanitity discounts that allows a retail chain to receive additional discounts once a predetermined quantity of a given wine has been ordered over a specified time frame. When a consumer sees a brand selling at a 50% discount in a major retail chain , it is these sort of programs that are behind the lavish discounts. Smaller, independent brands simply lack the resources necesarry to compete on this level and the double whammy here is that the smaller independents lose huge market share when their 14.99 wine is vying for the consumers purchase alongside a mega brand dicounted down to 7.99.
Is that a national thing or just in your state. Which state are you in?
Tom, not sure how anyone could argue with Mr. Broadbent on this one. When the vast majority of wine in America is produced by 50 wineries, that’s enough right there to all but prove his point.
The other thing to factor in is what is being purchased. My guess is it’s the products of those 50 producers (i.e., they probably control majority of marketshare and profit as well).
…and that 50% props up the 3 tier system.
That 50% produces wine in the price point of the vast majority of Americans… $3.99 and $4.99, $7.99 and $8.99 mags, $9.99 box wines, etc…
If we get rid of the big companies, who will produce these wines, and are you willing to just give up on wine drinkers that can’t afford more expensive wines?
Also note that the big wholesaler makes much lower margins on these wines, which a small wholesaler would not be able to match.
Yeah, this is a bummer. We all know the immorality of those big corporations. They are just bad people. And how about the auto industry. It is entirely controlled by big business. We need to do something about that too. Particularly the way they all have their own dealerships and repair shops. And try to get UPS to deliver one. Yeah.
I notice labeling lacks a legal requirement that the parent company’s name appear on all its owned labels. Revising that one simple laxity and forcing the parent company to put its name on all its owned labels might encourage many members of the public to search further along all five shelves at the market, with an outcome that retailers would begin attempting to present more diversity than the top 50.
One legitimate but over-rated effect the top 50 often are causing is seen when, for example, a 400,000 cases/year vinification facility develops new reserve products for sale at elevated pricepoints, often prices that are more than the reserve product is worth. However, interestingly, some of these specialty products compete in quality with artisan wines carefully crafted by small producers; so the dominant companies often reveal they actually know how to produce good wine instead of the bulk common wines which keep the dominant companies in control of the overall market.
We’re all about big ideas at Thomson Vineyards. I nominate John Lopresti’s idea as the best I’ve heard all week. While vacillating on whether or not to comment on this post (I’ve visited twice) it’s refreshing to read that there are others out there who realize that when a winery projects itself as “small” or “family”, sometimes that’s not in fact the case – instead owned by a parent company. Parent company to us as growers, equals big business. I guess we fall into the producer’s sector, so I beg to disagree on that point.
It takes an advanced degree to navigate the tangled web of grower relations reps, general managers, winemakers, and decision makers at the big business wineries which have come to inhabit Napa. As a small to mid sized family owned and operated grape grower of Chardonnay, Pinot Noir and Merlot (approx. 100T/annual yield)it is increasingly difficult to sell grapes in this market let alone track down the person who is empowered to make the “buy” call in the over organized org charts happening at the moment.
We’re extremely happy selling 5-10T lots to small, boutique winemakers who can best represent our vineyard site in Carneros; but in the end of the day it’s essential to contract with an “anchor” for 60T+ of Chardonnay to maintain our business model. When I can’t find an anchor to talk to, because I’m passed from one Big Business “representative” to another, I conclude the production component is indeed dominated by Big Business.
Relevant post – thanks!
I have not read Mr. Broadbent’s Decanter article. However, if the consumer is currently in a position of “being as confused as ever”, it lies within the transformation of the retail side of wine over the last twenty years, along with other goods as well.
I had my first job in the wine industry in 1987 at a “small”, family-owned liquor retail shop in Buffalo, NY. It was a third generation business, being issued one of the first ten liquor licenses in the state of NY after the repeal of prohibition.
I was “taught” the value of understanding and being knowledgable with regard to the selection of the wines carried in the store.
At first, they let me service the day-to-day buyers. Eventualy, I was given the privelege of helping the “high-end” accounts, where customer service was an expected requisite.
We no longer live in that retail world. Wines are bought and sold on third-party “endorsements and ratings”. Wine is just a minor part of the retailer’s overall business, and education is a much too time-consuming effort.
This transformation has been happening for years. If the average consumer wanted the best service instead of the best price, then the independent wine retailer would still have a thread of viability in today’s market.
Lastly, is to my objection with those who think the market is controlled by the “big” producers. These companies have always been part of the wine trade, and the independent retailers were the balast that promoted the small, under-valued brands.
One last comment, the internet has opened up retail commerce in a wideranging and permanent fashion. However, with regard to wine, it has not enhanced the buying opportunity for the “average” wine buyer. The average wine buyer is the one who buys a bottle and consumes it within 24 hours of purchase. The internet has immensely helped the sale and purchase of high-demand wines by producers, collectors, and investors alike. The frenzy of 2009 Bordeaux “en premier” is the best recent example of ridiculous, unsustainable pricing in spite of world economic conditions which do not support such pricing in the long run.
The wine industry is no longer about an agriculturally-driven product, with everyday revenues and expenditures driving business decisions. It’s purely about “perceived value”. How else could an 11,000 case upstart Pinot Noir producer sell to an investment company for 10X their net asset worth? It’s dot-com economics all over again.
Any suggestions on how to stabilize wine pricing; where it is not driven by the “low-end” bulk wine conditions or the frenzied “collector-investor” dollars on the luxury end? Both spell instability for the industry as a whole.