The Meaning of Wine Distributor Consolidation: Pain
When a mere four distributors control more than 60% of all wine distribution in the United States, isn’t it time to reconsider the privileged place and government protection from competition that these distributors receive via the state-mandated three-tier system?
With the merger of Wirtz Beverage and Charmer-Sunbelt and the reported merger of Southern Wine & Spirits and Glazers, you now have four companies that control 61% of wine distribution in America: 1) Southern/Glazers, 2) Wirtz/Charmer, 3) Republic and 4) Young Market.
The primary reason states, in the wake of Prohibition’s Repeal, mandated that producers sell only to wholesalers who would then sell to retailers was to assure that producers could not dominate and control a market’s retailers and restaurants through pressure tactics common prior to Prohibition.
With well over 8,000 wineries in the United states now and a drinking public that is hell-bent on promiscuous buying habits, someone has to explain to me exactly how the threat of a single producer could possibly pressure retailers. If a producer of $15 Merlot tried to pressure a retailer to buy gobs of their wine, the retailer could easily procure an equally well-known and equally sweet Merlot from another producer.
The rationale for a state mandated use of a wholesaler by producer makes zero sense. And that’s why you’ve never heard and will never hear any wholesaler defend the three-tier system on the grounds that it was originally created.
The fact is, one could easily do away with the state mandate that a wholesaler be used and still prevent pressure by producers by keeping any number of tied house laws in effect.
And of course, even without the state mandate that the middle tier be used, producers would still largely choose to use wholesalers to distribute their wine. The difference would be they wouldn’t be forced to by state law and wholesalers would have to work a little bit harder. Given that wholesalers are notorious for not working very hard at all on behalf of most wineries, a little extra work surely couldn’t hurt them.
Wholesalers like to brag that it is the three-tier system that is the gold standard and that this government imposed system of protecting wholesaler profits is what has given American’s the broadest selection of wines anywhere in the world. But this is a lie. And because wholesalers know this is a lie that makes them liars. What made America the source of the best selection of wine in the world was a combination of American wine drinkers and the entrepreneurial spirit of winemakers. Wholesalers just happened to be in the right protected placed at the right time.
But if you really want to see the American wine market take off there is a very simple plan to accommodate a surge in the American wine market:
1. De-Mandate use of wholesalers by producers so that entrepreneurship combined with technology and logistics efficiencies can bring products to markets faster.
2. Rescind all “Franchise Laws” in every state so that wholesalers are actually forced to perform to keep a brand.
3. Remove all restrictions on direct shipment of wine by both wineries and retailers in every state so that consumers can immediately and easily obtain every wine in the American marketplace.
Ask any mid-sized producer of wine in America how they feel about the three-tier system. Ask them how often they have been held hostage by their wholesalers who demand market visits to sell their wine. Ask them how often wholesalers demand a “great review” to even try to sell the wine. You’ll get horror stories from 90% of these wineries for the simple reason that wholesalers have them by the you-know-whats.
The bitter fact today is that wholesalers are able to coerce producers, retailers and restaurants due to the enormous power they have been granted by state laws they protect with sacks of money. And now, with a mere four companies controlling over 60% of the wine marketplace (and that will be 70% in a couple of years after a new round of consolidation) it will be even more difficult for wineries to get a fair shake.
If you are looking for a more dispassionate understanding of the increased pain wineries face due to wholesaler consolidation, Paul Franson has penned this fine article for Wines & Vines.