Top 10 Reasons Wineries Hate Their Wholesalers
In examining the latest Wine Conditions Survey published by Silicon Valley Bank, WineBusiness.com noticed something interesting and asked, “What’s behind that?”
What WineBusiness.com noticed was that wineries’ satisfaction level with their wholesalers has declined significantly from just two years ago. The percent of wineries reporting being satisfied with their wholesalers has dropped from 60% to 37% since 2012. Meanwhile, the percent of wineries reporting they are unsatisfied with their wholesalers has risen from 26% to 41% since 2012.
What’s behind this is a very good question.
When talking about how one feels about any commercial relationship, the issue of satisfaction and disappointment always revolves around one thing: Value. What’s clear is that wineries are finding less and less value in their relationships with wholesalers.We could discuss the obvious weakness with the three-tier system in general—the system that in most states requires that producers engage a wholesaler to bring their products to market whether they want to use one or not. But the deficiency of this “system” is well-known.
Instead, this issue got me thinking about all the various complaints I’ve heard from winemakers over the years about their wholesalers. Below are those complaints about wine and spirit wholesalers that are quite common in the wine industry and most likely have a bearing on the pitiful view of wholesalers that the Silicon Valley Survey shows exists.
1. My wholesaler made promises about sales they never kept
2. They justify their slow sales record by claiming our ratings aren’t high enough
3. They only time my wine gets focused on by sales wholesaler sales people is when I travel to their state to help the sell my wine
4. They never use or lose the collateral material we produce for them
5. I can’t get timely depletion reports from my wholesalers
6. They don’t pay me on time
7. They undermine me by pushing regulatory changes that hurt my direct sales
8. Most of the salespeople don’t know anything about fine wine
9. They keep adding new producers to their book that are direct competitors
10. They tell me I need to “program” my wines in order to get the sales people behind them
SPOT ON!
So these are recollections you had over the years from various winery friends? Not too scientific? Some of them may ring true w some winery/wholesaler relationships, but I’m here to tell you that it ain’t always so…certainly not in NY/NJ/CT and certainly not with 95%+ of Skurnik-represented wineries.
Howard -While we don’t work with you guys, i have heard nothing but good things about Skurnik from my friends around NYC.
Jay at Uproot
As a wine Importer and Marketer I can only feel the pain of the producers but in today’s world, the Sales Pitch you make to the Wholesaler is as important or more important that the wine itself: Packaging, Pricing, Promotions the Product itself are keys to interesting wholesalers, the 5th P of Press is now an essential component but I would say that small wineries can compete with the help of professionals such as me or others that can help them prepping for wholesalers meetings. After all, it is a business and you have to be aware of the competition you are facing, the prices applied and so on… Feel free to reach out if I can be of assistance (and you happen to read this post of course…)
Can I get your contact information, Bertrand?
Thanks, Mike
the above are all true and have been true since the beginning of time. That is why Gallo, the Franzia bros and to a lesser extent Kendall Jackson, own their own distributorships. If the winery wants their products in the top 25 restaurants per Zagat in each market as a key part of their marketing strategy, then they need to be prepared to pay for it, either by sending in their own sales staff/ and or the distributors sales staff. dropping $300 on dinner and expecting a quid pro quo from the restaurant is insulting to the restaurant and doesn’t work very well. Wineries need to grow up and be responsible for their own success. Bad mouthing the wholesaler or the three tier system doesn’t solve the problem
Great reply Mr. Heller.
All too often suppliers are useless !!. From setting unrealistic goals for their distributors and holding them hostage if they do not accomplish those lofty goals to not knowing ANYTHING about their products. Winery owners /suppliers need to pull up their big boy booths and get into the market and work for their business and not rely on their distributor to do all the heavy lifting….. Meet us half way… Mr Winery Owner
This is why I buy 90% of my wine directly from producers, and not that many of them. This way I can develop a relationship with them and they attend to my needs. I but mostly from California and New York, and sometimes in the Northwest.
This is the crux of the question of “franchise laws” which exist in so many states. If they could ever be stricken down by a federal court (and they should be), these problems that suppliers have with their distributors could be greatly eliminated. Suppliers could merely choose somebody to do business in that market with a distributor that suits them better.
I agree that the franchise laws protect lazy wholesalers and should be done away with. But I don’t think it will change the issue. There are way too many brands. I was a wholesaler broker in California for many years. Now I just do private label and closeouts. I am always amazed when I get calls from wineries desperate to get rid of wines in December, when decisions were made in October
Funny, one of the markets that California wineries bitch and moan the most about and is probably the most frustrating for them sales wise outside of New York is Chicago. Chicago has no franchise laws. Wineries can change as frequently as they like with no penalty. It’s also an incredibly competitive market on the wholesale level with approximately 125 distributors of all sizes and focuses currently active. As such, all of them are eager for new products that will help them leverage new accounts and grow sales.
Yet–other than perhaps New York–there is no market where domestic wine struggles so much. Perhaps–just perhaps–there are other things at work in the market besides lazy wholesalers.
The ever encroaching act of distributors to undermine a wineries direct to customer sales in the legal realm is ridiculous. This hardly occurs with any other type of product, except alcohol. And one of the justifications, that it is for “safety” reasons is laughable. It’d be fun to give these guys a basic wine chemistry quiz. They often can’t even remember if a wine is dry or sweet, oaked or unoaked… 3rd party distributors started out to ensure a winery/brewery couldn’t take over all the alcohol establishments in a given town and monopolize a town. They have succeeded at that, but now, want to make any direct sales to customers much harder and force wineries to work through distributors, not for any safety or monopolization reasons, simply because they now want their cut and do not want to compete directly with us. I say open it up… Competition is the great American equalizer. If distributors had to compete more, I assure you, they would learn their product and do their homework more and in the end, the customer would be better off.
I think it is agreed, the most important thing a winery today can do is develop a relationship with its customer. To me that is a primary question of any business plan. The flip side of this is the direct to consumer winery with high prices, maybe a few restaurants and no scores. The wines don’t sell, inventory backs up and they call me. They don’t understand is what they have is essentially a very over priced private label wine, that none of my customers have ever heard of. The conversation tends to deteriorate from there because I can’t help them
Well stated!
If so many wineries are unhappy, why don’t they make a change? Even in franchise states, you can generally appoint several distributors.
Your list is right on and shows many of the reasons to get rid of the three-tier monopolistic system. Add to your list the following reasons:
1. Distributors do not have/want inventory to sell.
2.Wineries send sales people out for orders and distributors FAIL to deliver.
3. Distributors hitch you up only so you will not go to their competitors.
4. Distributors store fine wines in non-climate controlled conditions affecting the quality of your wines.
What are the 10 reasons that Wholesalers dislike wineries?
“Perfect Storm”. The reality is that in todays competitive market, the fact that 80% of the shelf (+/-) is controlled by 5 wineries, the fast rise of DTC), the power of negociant value delivery, wholesaler effectiveness is only established by the contributions of the supplier. Change takes time & it starts in-house: wineconceptsintl.com
Someone ought to write up a list.
Not a wholesaler, but I am somebody who consulted for several high end Napa Valley wineries for a year, and the top item on that list for me would be that wineries do NOT want to hear honest, unvarnished feedback about what’s happening in a particular market. They are naked Emperors, and they want to be told how wonderful their clothes look.
Try and explain to them that in a world where Michelin starred restaurants generally devote, at most, 25% of their wine lists to domestics and where the buyers don’t care about their decade of Parker scores anymore that it is just not in the realm of realistic expectations that they will be on most of these lists, and they look at you as if you just told them the moon was made out of cheese.
That and they constantly lie to each other about how well things are going, so it creates this insular bubble in Napa of distorted market perpective and unrealistic expectations.
Bill, what year did you consult?
Also, you’ve said for quite some time that Napa is flailing…not selling wine. This doesn’t square with other reports. What stats and info do you use?
Traveling and this is my first chance to respond, so my apologies. It was a couple of years ago but long enough after 2008 that the economy was rebounding. Now, it’s important to understand that the statements that I make are solely relative to my little slice of the world which mostly revolves around the higher segments of the market in NYC, Boston, DC and Chicago. Beyond that I do a little bit in some secondary Great Lakes markets. On a macro level, I have no idea how Napa is or isn’t doing, but in these markets (and I think one can add SF from what I’ve heard) Napa Valley and premium Cali in general are grossly out of favor, and this isn’t some grand conspiracy on the parts of distributors. Rather, any decisions on the part of those distributors are a reflection of their buyers and markets. Distributors will ALWAYS take the path of least resistance, and if that means concentrating inventory dollars and sampling on Barolo instead of Napa Cab, it’s because that’s what sells more easily, not any personal choice on their part.
I posted once about a night bar hopping to three Michelin 1* restaurants in Chicago. All three had California wines as part of their program, but none had more than 20% of list space devoted to them. For wines by the glass, we counted a total of 54 that broke down as follows: 39 Euro, 9 Southern Hemisphere and 6 Domestic. And what I’ve seen happen in the above markets over the last half dozen years is now filtering out to secondary markets. The fine wine wholesaler who a decade ago had half his inventory invested in California wine now has less than a third and has begun to self-import many wines–which you never saw in secondary markets ten years ago.
None of this the Napa people wanted to hear. They wanted to be told that everything was the fault of the lazy, evil distributors, that they were still the trendiest things in the market and buyers were chomping at the bit for the opportunity to get to buy. I don’t want to embarrass anyone personally, but I recently took a photo of a famous Napa winemakers “cult” Chardonnay in a retail presence: stacked at the end of an aisle at Mariono’s grocery stores with a 50% off sign stuck on front. Now, I guarantee–and I’ve met him–that this guy tells all his neighbors that he is on-premise only. That’s the mentality that many distributors–many of whom love Cali wine and want it to succeed–have to deal with.
I couldn’t agree more. Working for over 30 years in the industry, as a wine supplier, in various distributor management positions and now representing a small craft distiller,I can verify the claims and frustrations of the small wineries. Add to that list Small Craft distillers and brewers and you have an industry of upset yet compliant individuals simply because we have limited or no options.
Distributors provide needless management layers upon layers or never ending internal restructures to deal with Supplier expectations and objectives as well as customer needs but to no avail.
Sales Training, product knowledge and education or lack thereof, and a history imbedded in old school tactics dating back to the days of bootleggers keeps distributors in the dark ages and behind times.
Constant computer updates and obscure and outdated point of purchase technology keeps this dinosaur alive and kicking.
It was and is a good ole boys environment, run by gentlemen’s agreements and families protecting other families protecting the Three Tier System.
I agree with Mr. Haydon. Owners often come from very successful careers in other industries, buy a winery, hire an overpriced consulting winemaker, do a pseudo blind tasting of their own wines and say my wine is a good as Silver Oak, Far Niente or whatever, and price accordingly. The consultant readily agrees because they don’t want to lose their job… then wine the doesn’t sell and the jerks at the distributors don’t understand it? Oh and the winery wants the wine priced real high on wine lists because it is a reflection of prestige. Such nonsense
Let’s address these complaints from the wholesaler’s perspective:
1. My wholesaler made promises about sales they never kept – Did you get it in writing or did you simply infer the commitment from a phone call? Did you promise “x” amount of support and not deliver? Did you take a mid-year price increase that wasn’t mentioned during your yearly planning meeting? Do you understand the difference between a projection and a commitment? These are very common scenarios that have a big impact on your business with a wholesaler.
2. They justify their slow sales record by claiming our ratings aren’t high enough – Wineries often use this one, but fail to mention the string of 84’s they’ve recently gotten. It’s a sad fact that much of the business is now ratings driven, and when a customer can pay $300 for your wine with little or no ratings, or $280 for a Parker 92 wine, it doesn’t take a math wizard to figure out which way that’s going.
3. They only time my wine gets focused on by sales wholesaler sales people is when I travel to their state to help the sell my wine – Just like any business, capturing mind share of your customer is a key priority. Out of sight, out of mind. With teleconferencing, email, and cell phones, if you can’t figure out how to keep in front of your wholesaler, then you’re in the wrong business. Asking for the wholesalers attention is as important as your expectation that the wholesaler ask for the sale.
4. They never use or lose the collateral material we produce for them – 95% of the time, wineries produce collateral material without wholesaler input. Ultimately, that material is irrelevant in a given market. Case in point: A winery created a 25% Off Tie-In Coupon to use with an internet bar ware company this year. Most retailers that carry wine also carry bar ware. What retailer is going to be happy with a coupon that drives the consumer to buy something from a competitor? Consult your wholesalers on their needs, and create something relevant. That’s how you get your POS in the market.
5. I can’t get timely depletion reports from my wholesalers – This one is heard often. On the other hand, you’d be surprised at how many wineries wait until the last minute to ask for these, then complain when they don’t get an immediate response. Pre-plan your requests for these reports with your wholesaler contact, and I promise you, you’ll get them quicker, or at least have someone to hold accountable.
6. They don’t pay me on time – Again, it’s key to have an established contact at your wholesaler who you can turn to when there are issues like this. This is another area where actively communicating with your wholesaler can help you in resolving issues more quickly.
7. They undermine me by pushing regulatory changes that hurt my direct sales – Your wholesalers manage logistics, warehouse inventory and so much more. Of course they want to protect their business. This is shocking to you?
8. Most of the salespeople don’t know anything about fine wine – Then find a wholesaler who has a well trained sales team. There are plenty of them out there. Don’t be surprised when you go to one of the big wholesalers with monster retail brands and find yourself buried. Once you sign on with a true fine wine wholesaler, make sure you are in front of them introducing your brand, telling the story and giving them the features and benefits of your brand that are relevant to their market.
9. They keep adding new producers to their book that are direct competitors – Again, wholesalers are in business to make money. If you, as a winery representative, stand out, so to will your brand. Blaming the wholesaler for having competitive brands in their portfolio is the biggest cop-out in the business.
10. They tell me I need to “program” my wines in order to get the sales people behind them – Wholesalers definitely tell wineries this, but usually, after the winery has ignored the first 9 issues on the list.
Look, wholesalers need to be your partners. So many wineries think they should be able to sign on with a wholesaler then sit back and watch sales grow. In the real world, it doesn’t work that way. Wineries need to partner with the wholesaler, consider the feedback and listen to their needs, then work together to grow a brand. Look at the most successful brands in the market, and you’ll find a great wholesaler-winery partnership. Successful brands are proactive with their wholesalers, but sadly, most wineries take a reactive approach, then point fingers.
Lots of words here. The problem lies with both. Wineries think they can sell their wine to a distributor and sit back and cash checks. They’re basically lazy. They have to look at their wholesaler as an entity that factors their accounts receivables, stores and delivers the wine, but they don’t actually SELL anything. The winery has to make the contacts and the calls.
Wholesalers are totally beholden to their big suppliers, specifically the ones with liquor, which is what drives their sales and profits. Too often a wholesaler will take a winery in order to bury it because it’s competition with one of their national brands owned by a big distillery. If you don’t like how this is set up, then go out and try selling the wines yourself. Or, try to find a wine only wholesaler or broker. Most of them are out of business anyway.
The biggest problem is that most wineries are owned by people who made their money doing something else. The wine is a hobby, and unfortunately a very expensive one. Hobbiests are really bad at business and it shows in the way they market, or really don’t market, their products. Most wineries are so out of touch with reality it’s a joke. Just look at how they price their precious jewels!
Wholesalers are also lazy. It takes too much time to take a new wine around and try to sell it to people who already have too much wine in the first place. If there’s no big score to sell, why waste the time?
So what do you do? Simple. As a winery who wants to woo a wholesaler, the first thing you need to know is what are they selling and to whom. Learn THEIR market and THEIR products, what sells and what doesn’t. What price point moves. If you can’t hit that price point then it’s time to find a wholesaler whose best selling price point you can hit.
Don’t lower the price unless it’s to get rid of the last of a vintage. You’ll be stuck there forever. If you can’t make wines that the wholesaler, retailer, restauranteur and final customer don’t think are good values then find a different business to be in because you ain’t gonna make it in this one.
Listen to ED
Interesting article. I’d like to see a top ten for ho Wholesalers feel about some of their wineries:
1.) Unwillingness to spend time in the market. If there are 300 California Cabernets in the market, yours isn’t going to get much attention from the marketplace if you don’t support it. You are better at telling your story; take advantage of it.
2.) Lack of understanding of how distribution actually works, and the costs associated with maintaining a the business.
3.) Unrealistic expectations. One of the very first commercial conversations I have with a winery is: What do you want to achieve? Most wine makers are not great business people and have a hard time with this question.
4.) Use of the Press. It is really easy for us to sell out of something that gets 98 points from Penny the Wine Dog. But if you get a great score one year, and don’t deliver the next, don’t expect your wines to sell themselves. Retailers and the public pay attention to this stuff. If you pander to the press, you have to expect the good with the bad.
5.) Your wholesaler is not a bank. Your bank is. Stop trying to use your wholesaler to help you with inventory problems; we have plenty of those ourselves. If our cash flow goes in the wrong direction, we’ll buy less wine.
6.) Selling direct to the consumer would be ideal – we’d like to do that with our import stuff, but the laws are the laws. There is a huge cost for selling direct – attrition at wine clubs as consumers move on to new things; sampling (estimated at 10%); and understanding shipping laws and associated taxes.
7.) Wine is an agricultural product. Acknowledge this, and acknowledge that your product is subject to the weather, bugs and parasites. Great wine makers make good wine in difficult vintages. There are not a lot of great winemakers out there.
8.) Collateral materials – no, we do not use them. In many markets there are 40-50 wholesalers. Wine buyers are fatigued; and they really don’t want paper products cluttering their desks. We live in a digital world, pretty pictures of the winery and grape porn don’t do much for most buyers.
9.) You have a choice, do your homework. Understand the markets you are in, what your distributor’s strengths and weaknesses are, and make decisions on that basis. If you are a California Pinot producer who wants to sell in Oregon, the only way to succeed is to have a great product, a cheap product and or great packaging – or some combination thereof.
10.) You are running a business and so am I. Behave like an adult and we can have adult conversations.
Finally, depletion reports. The best depletion report I can give a winery is a purchase order. Oh, and inventory. Can I get inventory reports so that I can plan accordingly? I might order extra if I know that something is going to disappear. Especially during the holidays.
There is a huge difference between wine distributors and wineries vs the regular distributor-supplier world. Wine Distributors are a licensed monopoly of which wineries must abide by the rules. Wineries will find it hard to beat this legalized monopoly. Too many Distributors act as if they are Royalty and not a part of the three-tier system. It would be great for consumers to buy directly from wineries without getting an increase in price as a result of the Distributor wanting his cut. The end result is that the consumer bears the price increase! This is my perspective as a wine columnist!
Ron,
You made an excellent point that you are a wine writer and I would guess that you never have sold a bottle of wine in your life as a retailer or a wholesaler and have no idea on what it takes to sell.
Guys like you and Tom Wark think the answer to everything is direct sales and I say have at it. In most of the US a winery can sell direct.
All of the points made by Jim are spot on and I know since I run a small but quickly growing wholesale company in Chicago and I deal with these situations every day of the week.
Most of you in California are delusional about the QPR of your wines and have no idea how to price wine properly so that it will sell. I have seen several wineries California wholesale pricing that is so low that I can’t even sell the wine at a low margin to my customers and keep there wine under wine-searcher pricing.
A lot of wineries have a fantasy that Wirtz or SWS are going to sell a lot of their wine since they have such a large sales force and billions behind them but they are a tear drop in an ocean of corporate driven wines.
Those same wineries ignore small wholesalers or fall in love with certain small wholesalers who tell tall tales and never get it done while skipping out on paying the bill.
A smartly run winery has their wine priced well for their wholesaler partners and does research on who they are about to work with.
I work with one such winery who dismissed my company at first and ended up in my portfolio due to numerous circumstances and now can’t give us praise enough for what we have done with there wines in the market.
I never made them promises, just told them what the market needed and how we needed to work the market and the wines are selling well and will only continue to grow as we grow.
There are plenty of quality options out there and not all wholesalers are the bogey man.
To sum it up when all of the consultants, journalists, bankers, winery owners etc actually do my job for a few years come and talk to me about how bad the wholesalers are!
The wine purchasers are the ones that are ultimately impacted by our monopolistic three tier system paying more than they should to compensate the distributors and the lack of a full range of wines. Most of the time the wines on the shelves are limited only by the distributors with lack of consideration for better wines made on a limited basis. I applaud Kroger’s Stores in Texas since they have placed Texas wines on the front shelves in their wine departments in each of their Texas grocery stores. The results are obvious with Texas wines outselling French wines. However, wine consumers would like the option of buying direct from the winery which bypasses distributors. Distributors have a very strong lobby and are consistently fighting this concept in every state that I know of. As a result only a handful of states allow “direct -to-consumer” wine deliveries. This means competition for the distributors which they do not want and continue to fight against. I believe wineries should be allowed to sell direct to wine consumers in all of the States, not just a few, for the benefit of wine consumers!
Ron;
Your comments are instructive. As an importer and distributor, I would like nothing more than for the three tier system to go away, but I still have to function within it, which means figuring out how to do right by both customers and suppliers. I would like to point out the following:
– Kroger does well with Texas wines in Texas because…. they are in Texas. Washington in Washington, Oregon in Oregon and Virginia in Virginia for the same reasons. Local consumers want to support local producers. And in a lot of cases it has nothing to do with the quality of the wine. Kroger can do it because they have pricing power and can charge a higher margin for product they know people will buy. Who gets hosed? The consumer, and they feel good doing it. I would also posit that people in Texas might not buy French/German/Italian wine for the simple reason that it is a foreign substance.
– The big distributors actually tend to be the lazy ones. In most cases, they got into the wine business because they wanted more goods going to the same places as all of the Bud/Miller/Coors. If the trucks are full, the unit cost for delivery is lower and the distributor makes more $. And the big brand houses are willing to throw $ at the retailers for displays & shelf space (even though it isn’t legal) to push KJ/Gallo and others. And the stores are in turn just as lazy, because they are unwilling to educate the consumer and turn them on to better product – why bother when you are meeting your numbers with Plonk?
– There are three or four tiers on the production side of the industry as well. I encourage small (up to 4,000 case) wineries that we work with to sell as much as they can through their clubs and tasting rooms. But you reach a point where the economics stop working – self distribution is expensive; customer loyalty (clubs) is fungible; and tasting rooms have very high sampling and labor costs. And these small guys tend to be where the best wine is being produced. Tier two is probably the most difficult place to be – up to 18,000 cases say. Costs go up (loans for equipment, the winery and consumables); it is possible, but very difficult to maintain boutique status. The next tier has you going into non stewarded stores – say up to 40,000 cases – which requires you to have a large organization that merchandizes for you. This is no-mans land, because once you go here, you lose control of the market and in most cases the quality of the fruit (remember, that is where the whole thing starts) – why would a specialty wine shop want to buy something that is available at Walmart, Safeway or Kroger? And once you get bigger than that, you are for the most part an industrial winery.
– None of the above addresses the question of how you get product into distant markets, and sell it once it is there. Nor does article itself address – as some readers have pointed out – that there is too much supply in the first place. There is simply too much wine, and a lot of it really isn’t very good.
Personally, I would love to find a way to lower cost and improve consumer experience. Legally, I can’t do this myself and am dependent on the retail and restaurant community to do the work for me. The biggest challenge we as an industry face is customer education and creating new users, and as an industry we are failing miserably because we (the big we) want to think of wine as a beverage instead of as a compliment to our foods.
Ron,
And yet wineries almost never pass on ANY of the savings for eliminating the distributor to their customers. Wine is always at full retail and throw in shipping, and now the wine is actually more expensive than buying it locally.
And since this is about distributors, I had a friend who once tried to help some Napa wineries establish direct-to-trade channels in Chicago. None of the savings of cutting the distributor out of the pipeline were passed onto the restaurants and retailers.
If wineries were serious about truly building DTC pipelines, they would give consumers an economic incentive to purchase this way. Instead their greed and hubris deludes them into believing that they are soooo special and their wine is sooooo earth shattering that people will go to extra hassle and extra expense to buy it from them directly.
Bill, you wrote: “If wineries were serious about truly building DTC pipelines, they would give consumers an economic incentive to purchase this way. Instead their greed and hubris deludes them into believing that they are soooo special and their wine is sooooo earth shattering that people will go to extra hassle and extra expense to buy it from them directly.”
And yet, consumers are buying directly to the tune of nearly $2 Billion a year. And it’s a sales channel that is increasing in value upwards of 3 times faster than traditional retail.
I don’t dispute your overall numbers, but how much of that is within California or even at the winery itself as opposed to consumers in Ohio or Maryland purchasing bottles and having them shipped? What the wineries want, however, is to bypass distributors on a national level (but then again have those distributors still work to place wines on-premise), and I don’t see that happening until it is actually cheaper to buy DTC than local.
Hey, if somebody wants to pay the same retail, plus shipping and then have to wait for the wine and worry about the weather during certain parts of the year, more power to them. I don’t think it takes a University of Chicago economist to see the inherently unstable aspect to that business model.
And while I would trust macro numbers from somebody like SVB, I know better than to rely on the stories that Napans tell each other because I’ve seen the B.S. flow. I’ve literally sat next to a client in St. Helena and listened to him tell an acquaintance that the reason his distribution had shrunk to less than ten states was because he had no wine ($50 bottle Zinfandel) to sell due to selling 85% DTC. It was all B.S. Complete and utter B.S, and this guy lost his job at the end of the year.
Bill,
The numbers I’ve cited are only for wine that is shipped, not walked out of a winery.
You wrote: “Hey, if somebody wants to pay the same retail, plus shipping and then have to wait for the wine and worry about the weather during certain parts of the year, more power to them. I don’t think it takes a University of Chicago economist to see the inherently unstable aspect to that business model.”
Not only is it a stable business model, it’s the most successful business model the world has ever seen: supplying demand at prices people are willing to pay. DTC has been continually increasing because the wines that travel through that channel are exceedingly underrepresented at retail. That is, they are in demand and hard to find. DTC has never been primarily about providing a great bargain. It has always been about meeting a rising demand: folks want unique, high quality wines.
“And while I would trust macro numbers from somebody like SVB, I know better than to rely on the stories that Napans tell each other because I’ve seen the B.S. flow”
The numbers i’m citing are used by SVB.
The generalization that wineries always sell at full price plus shipping costs is not necessarily a true statement. Wineries will discount 10% for wine club members and an additional 10% for case lots plus free shipping, BUT you got to ask for it. Otherwise, those wineries will charge you full retail plus full shipping. DTC carries the burden of weather problems and being there when the shipment is being delivered. That is the downside. However, DTC will get you wines you cannot get in your area. Recently purchased case of AVV Cab Franc and Mauritsen Jack’s Cabin Zin because I got case lot discounts, free shipping and it cannot be found in the Houston area.
Ron:
Nice discount for a savvy buyer. Looking at the basic economics of the transaction, if the wine is available in the market at retail, most retailers will give the same level of discount – in some cases because they want regular business and are happy to turn the asset, in some cases because the consumer asks; and in some cases because they know that a portion of their consumer base is looking at Wine Searcher. Consumer feels good, retailer turns product in cash. Works for everyone.
Savvy purveyors in the DTC market play the same game. If they are smart, they have figured out what they need to sell the wine for to keep the lights on and make a few extra bucks. In many cases, they are offering the consumer a discount without really giving anything up – you don’t know what their margins are. So everyone feels good.
What we don’t know is whether you also took the step of informing said wineries that you are a wine writer, or whether they know that you are. That skews what would normally be a level playing field.
Those discounts, particularly for wines not in your area, are great. As a part of the wine industry, I am afforded discounts. However, my friends are using these tactics to get wines delivered to them for wines not available in our area. Many wine shops and grocery stores will offer discounts of 10% for purchasing six or more bottles.
Lots of good advice here. Pay special attention to the first paragraph in Ed’s post. Distributors in any industry do not sell anything – they take orders. They provide fulfillment services, pricing and credit to their customers. If a supplier of any product expects the distributor to actively sell their product, they are going to be sorely disappointed. It is the responsibility of the winery (or manufacturer/supplier of any product) to create demand for their product that will then be fulfilled by the distributor.
My perspective is that of someone that has been on the supplier side, managing 3-tier distribution in multiple industries. A few years ago, I attended the OIV Wine Marketing Seminars at UC Davis. All of the speakers are the “who’s who” in the industry. When we got to the session about distribution, I remember thinking that the entire discussion could have been taking place in a seminar about high-tech (my previous life), because ALL of the issues raised were the same.
Bottom line, is that, as a supplier/winery, you need to understand and accept the role/value provided by distributors. If you think they will create demand for you, they won’t. That is your job. Believe me, if you don’t take this to heart, you will be unhappy and so will your distributor.
Although the supplier- wholesaler issue we are talking about does exist in every industry and the specific wine industry failures pointed out here by both parties are legitimate, the reality is that both sides of the deal, suppliers and retail buyers, feel under served by the middle tier. In business that is what is called opportunity. The middle tier is not responsible for the suppliers success, but by taking an adversarial position, they risk their position in the market. One day, I think it was about a year ago, many in the middle tier will be asking “who moved my cheese”?
Awesome, emotional, and fact-filled article AND comments, with many insights getting close to the truth, but YA’ALL ARE MISSING THE BIG PICTURE!
There are too many wineries.
How can a distributor grow or even sustain brands if there are more wineries every day and a “relatively” flat amount of consumers of “fine wine?” Impossible, and not their fault.
How many wineries in 1960? 1970? 1980? 1990? 2000? 2010? Where oh where did supply meet demand? I’m pretty sure in the 1980s.
In the top 10 list, most of the points aren’t even valid and are simply constructions made up by marketing people to keep their jobs! They are hypothetical terms, philosophies, and tactics that might help the winery sustain, when in the end, only one thing in business matters- the bottom line.
So, this age-old “pissing contest” does nothing to make sense of it all. Of course the distributor is not to blame- SOMEONE will take the unneeded wines to market whether they are a distributor, DTC, box store, or on the internet. When will people figure it out that no one needs more suppliers, we need more educated consumers!
The excessive amount of wineries does what? It forces all the wineries to increase their marketing expenses! Who pays? The consumer. In a perfect world, variety comes without expense- in the world of wine, an untold amount of money, jet fuel, “programming,” and other marketing expenses are wrapped into the cost of a bottle and have made this house of cards we call the wine business. Don’t shoot the messenger (distributor sales manager perhaps?)
Consumers!- Do your homework and support real wineries that earn your hard-earned money with unique and delicious wines with a real story- after all, real wine is not a commodity, it’s a craft that has to play by the rules of supply & demand to survive. Yeah, if you can buy a real wine at your corner market because the distributor got it there, all the better. If you have to order it online because it’s all $2 factory wine being sold for $14 because they bought their spot on your market’s shelf, please do.
We’ve done a spectacular job educating the wine consumer. They now know that 95 points is better than 85 points and $18 is less than $25.
Don’t get me started on restaurant wine programs.
Please get started about restaurant programs – the glass pour programs in most are the largest rip-off of the end consumer.
I dare any supplier to get the wine lists of the top 25 Zagat wine lists in any market. Break down by variety. How many Chardonnay’s,Cabs, etc.? Priced under $100/bottle. Look at the wines sold by the glass. Their vintage? Then look at the Wine Spectator top 100. How many are Californian? I know their biased, but this is the world we live in. Then take the Wine.com top 100. How many are from Califonia? Go to a Costco? How many are from California? Costco, like any chain discontinues wines that don’t sell. Stop whining!!
Stop being a victim. It is tiresome and doesn’t help your bottom line
Awesome response. See my post above about the three Michelin 1* restaurants in Chicago, yet I bet that every fine wine distributor in Chicago is constantly having to defend himself to his California wineries as to why they are not listed in them and similar restaurants. I know of wine bars in Chicago and NYC that literally have larger Greek sections than California, and their business is booming. That is the market at work, not the inefficiencies of the three tier system (of which I admit there are many) or some insidious plot on the part of the wholesalers.
While the disparate allocation of power in the relationship between supplier and wholesaler was mentioned numerous times, and the fact that in some franchise states suppliers are sometimes thought of as literal chattel, what was not mentioned was the abusive behavior suppliers (typically Old Skool ones) can sometimes indulge in when a supplier wishes to leave the fold for greener pastures. Just today, for example, my colleague was given a shocking and abusive tongue lashing by the president of a large wholesale wine company when my colleague tried to patiently and politely explain to him why we wished to find alternative representation in the Great State of X. (They weren’t selling nearly enough wine for us by almost an order of magnitude in the Great State of X.) I have heard this sort of thing before when my company attempted to leave the Great States of Y and Z. Maybe this behavior is not just limited to the wine industry, but the sense of entitlement and arrogance and the exceptionally poor manners exhibited by some distributors can sometimes be just breathtaking.
Very interesting post – we launched about 18 months ago and haven’t went wholesale yet. We haven’t heard too much good about the options in the market especially for small producers like us (1500 cases a year).
We have a very strong DTC business and would like to see our wines placed in some key markets outside of Cali (NYC, Chicago, Miami, etc).
I’m open to any suggestions on how to approach this market – to date we have ignored all the calls from distributors.
Thanks
Jay, if you are producing 1500 cases and selling it all direct, that is perfect space to be in. As a distributor, I would encourage you to keep the margin for yourself. If the intent is to grow beyond what you can do DTC, then be prepared to take a hit on your margins as you go into distribution. Retail price of your wine should be very close to what you sell out of the winery.
So you want your wine in “key” markets: NYC, Chicago, Miami. Right? No boring old Rhode Island or Ohio for your genius juice. No offense, but you’re part of the problem. You’re brand new. Nobody’s heard of you or your wine. Yet you’re focused on the most competitive markets, the ones that everybody is trying to get into. Maybe the distributors are not ignoring your calls because they’re lazy or inefficient. Hell, they might think you’re a good guy who probably makes good wine. But, just perhaps, maybe they’re struggling to sell the California wine that they already have. Maybe they’re busting their asses to take care of the people to whom they’ve already made a commitment. Maybe their accountants are breaking down their inventory by catagory and showing them that more Euro wine is a necessary business strategy given their sales breakdowns and inventory depletion rates.
I remember, during the mid 90’s when, after what seemed like years of brutal supplier management at Southern Wines, Kendall Jackson, pulled the line and decided to self distribute.
Salesmen at Southern lost a lot of commission dollars and felt betrayed. They were thrilled when other wineries offered incentive dollars to replace KJ on wine lists that they had worked so hard to place. While management maybe ill mannered, and their salesmen not sophisticated, a lot of work gets done outside of the top 50 restaurants and retailers in a given market. Does a change in wholesalers significantly increase market penetration. I am sure in some cases it does. But I am also positive in many cases it doesn’t.
Comes back to the question – what does a producer want to achieve? SWS and their clones have their role in the market. If both customer and supplier can handle the abuse, then both sides can be successful. Having said that, SWS also serves a purpose for smaller distributors by (1) becoming a parking lot for brands and keeping things out of the market by ignoring them; and (2) pissing some customers off to the point where more customer friendly distributors gain share.
An anonymous emailer asks that I post this comment from them. They work in the industry in the Wholesale tier:
“I’d like to offer some feedback to your “Top Ten Reasons Wineries Hate Their Distributors.”
Some of this is legit. If a distributor isn’t paying their bills, providing depletion reports or making sure their staff is educated (or making sure that they are hiring educated professionals), or if they are just paying lip service to wineries needs, that’s indefensible. But reading your list I was struck by the lack of self-awareness woven through it.
2. They justify their slow sales record by claiming our ratings aren’t high enough
For on-premise sales there’s a kernel of truth here. But this compliant ignores the fact that if scores didn’t sell wine, wineries wouldn’t submit wines for scores. For good or ill, third party reviews drive a ton of business in the retail channel and when we talk about QPR, scores are a part of the Q.
3. They only time my wine gets focused on by sales wholesaler sales people is when I travel to their state to help the sell my wine
This is one of those things that’s easy to say and hard to prove. There’s no doubt that having a principal selling the wine in the market is more powerful than having any given sales rep selling the wine. When a rep pulls samples and shows wines, any given wine in the bag will be one of 6-8 shown from 6-8 different wineries. When a producer comes to town to work the market, their wines are 100% of the wines being shown. That’s not a normal circumstance. Even small distributors have to please a lot of different producers and there aren’t enough days in a year for every producer to get their own focus day in the absence of a market visit.
4. They never use or lose the collateral material we produce for them
The flip side of this is that wineries will ship in voluminous quantities of paper point-of-sale items without any kind of discussion as to (a) whether we need them or (b) how they should be used in the market. The company I work for has a well developed marketing arm and we produce all of our own POS in house; we don’t need these materials. I’m sympathetic to the fact that these POS materials cost money and I wish wineries would engage us in dialogue about what the most efficient use of their resources is rather then sending in a bunch of stuff blind.
7. They undermine me by pushing regulatory changes that hurt my direct sales
There’s a kernel of truth here for sure. However the demand for any given producer’s wines in a given market is relatively inelastic. Producers with robust DTC sales are quick to complain about distributor-channel sales but rarely acknowledge that retailers don’t like to support producers that they see as competitors. We’re all fishing in the same pond. DTC isn’t a ‘new’ market, it’s a facet of the existing market.
9. They keep adding new producers to their book that are direct competitors
Again, there’s a kernel of truth. But this complaint misses the basic fact that direct competitors are direct competitors irrespective of who distributes them. This complaint feels like wineries blaming their distributors for the fact that they are getting beaten in the broader marketplace. The wine market is as competitive as it ever has been. Some producers have been quicker to accept this and adapt than others. I’m not surprised that the ones who have tend to be more successful (and, as a corollary, tend to complain less).
10. They tell me I need to “program” my wines in order to get the sales people behind them
As noted, the wine market is as competitive as it ever has been. If you aren’t programming, your competitors are. Retailers are merciless when it comes to grinding out every last penny of profit. Programming allows sales reps to drive enhanced profit to the retailer. Retailers like profit and tend to buy wines that they can make more money on. Blaming distributors for this dynamic is misguided.
I love wine, which is why I work in the wine business. In my time in the wine business my observation is that there are a small number of wines for which demand consistently outstrips supply, a slightly larger number of ‘flavors of the month’ who catch the tailwind of a good score, a good vintage or both, and a massive (and growing) number of good wines made by sincere people who really have no broad market awareness of where their wines fit in the general scheme of things, what it’s like to be a street-level salesperson, who can be very impatient with communication when they want something but silent when their distributors reach out and who want to look everywhere but in the mirror when they aren’t getting the results they want. Distributors aren’t perfect and those of us who work for distributors should always be sensitive to complaints like the ones you’ve listed. But it’s always easier to blame other people for your problems than it is to look within. There’s an ocean of delicious wine out there and ‘if you build it they will come’ is not a go-to-market strategy.
Maybe the survey information is wrong? Who can trust bankers these days?
HA!!!! Awesome.
I love this topic! As a former supplier for 15 years with both huge suppliers with dedicated selling divisions in the top wholesalers and a start-up brand that had to break into every market in the country, I really appreciate the dynamics at play here. For me the 2 most important factors are 1. Suppliers need to have realistic expectations. Wholesalers are jammed with lots of products that all want attention and sales. The reality is that it’s not only extremely competitive to gain presence at retail, but its also difficult to get attention inside your own wholesaler. You need to work hard to get that exposure and attention at your wholesaler by showing up on-site for general sales meetings, team meetings, walk the halls and make yourself known and liked. Having a phone call with a sales manager isn’t enough to initiate the execution of a program. Some of the best time spent as a supplier is in sales team meetings where the DM has his 7 reps in a room for you to interact with. 2. The reality is that if you truly want your products presented and promoted at the best accounts, you will need to take an active role in doing it yourself. Thats the reality. To do this, you need to get back to basics. Identify the key accounts you want to be in. Go visit them! Build a relationship with them. Engage your distributor about these specific accounts with a plan of how you can work collaboratively to penetrate them. Distributor sales reps give the most attention and support to the suppliers that do them most work in the field. Earn their trust and appreciation from selling in their accounts and they will return the favor.
Well sad Tim. Wholesalers are very busy with sometimes 3000-5000+ line items and no matter how great a product is, without someone working the field with relationships & integrity it s easy how a brand can get lost in the shuffle.
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Great discussion. It seems that the biggest issue is that there is not a solution covering all different angles of the business. And clearly, the 3 tier system could use some improvements on all sides of the coin.
A few points I didn’t see covered:
F the most part, consumers are getting charged more then they should in an effort to keep across the board pricing, which can be crucial to brand image.
Wineries charge full prices for DTC because it doesn’t make sense for them to undercut the distributors and retailers. They sell wine based on a personalized connection and people are willing to pay more because it feels better to buy from someone you know. This is proven to work but wineries tend to cap out at some point.
There is also the issue of wine clubs which can be both problematic and great because they have figured out how to sell at a higher volume then distributors yet create a personalized buying experience. Wine clubs are able to take advantage of the failures/gap between the winery and the distributor. Most wine clubs buy at FOB and are able to sell in one large quantities making the largest profit on very little effort. Sadly, wine clubs can turn sales over in a few weeks for the same profit margin that the winery gets although they have invested 1-2 years in the growing/winemaking process. And small distributors expend a lot of energy for their profits.