Rocket Science and the Restaurant Wine Sales Crisis
While presenting at the Sonoma State University Wine Business Institute Research Summit on July 15 , Stephen Rannekleiv of Rabo Agribusiness delivered the bad news: There should be no expectation that the white table cloth restaurant industry will recover fully recover even by the end of 2022 — two and a half years from now. This doesn’t bode well for fine wine producers and begs them to determine what they can do to overcome what will be a significant deficit in their sales streams.
As Stephen Rannekleiv sees it, the slow recovery in fine dining will hit small, boutique distributors particularly hard. This will lead to many of them going under and significant consolidation by large wholesalers. Large wholesalers are not the friends of fine wine producers. They have not been for 20 years.
The natural inclination of the higher-end wineries that depended upon restaurant purchasing will be to 1) ramp up direct to consumer sales and 2) look to an off-premise channel for help. But with the enlarged giant wholesalers and fewer boutique wholesalers set to transition to focusing on off-premise retailers, particularly the small, independent wine shops, this second option isn’t quite the solution it might seem.
Again, fine wine producers need to figure out what there are going to do.
So, I’ll say it one more time: California, Oregon, and Washington wineries, and wineries in every other state need to start lobbying now to cut out the middleman and seek new laws that allow unfettered sales direct to retailers, and those restaurants that survive.
Without a wholesaler in the middle, there is more margin to cover producer to retailer sales, marketing and shipping. This response to the coming multi-year recovery from the debilitating pandemic goes hand in hand with the effort by retailers to allow more interstate retailer to consumer shipping.
The first place wineries need to start their work are in those states where the in-state wineries may already sell directly to retailers but out-of-state wineries may not. This is the low-hanging, unconstitutional fruit. After that, the wineries, hopefully bound together across state lines by their trade associations, should begin working to open those states with larger wine industries and where the disposition toward alcohol regulatory reform is more progressive.
Moreover, when greater leverage is needed, it will be time to file federal lawsuits challenging state requirements that retailers and restaurants only purchase alcohol from in-state wholesalers rather than out-of-state wholesalers too. There is a very good case to be made that the Tennessee Wine Supreme Court decision opened the door to this kind of understanding of how the Commerce Clause and the three-tier system interact.
The future for wineries, restaurants, and retailers is unknown. One thing is sure, however. Anyone who suggests there will be a coming quick re-opening of restaurants then an equally quick return to indoor dining by consumers is probably the same person preaching the CoronaVirus is a plot engineered to gain the easy submission of the populace. These folks are crazy.
What’s not crazy, however, is using this moment to overturn the old order and bring the wine industry around to a modern posture that gives wineries, restaurants, retailers and importers real agency and real choices in how they structure their sales and marketing. Continuing to operate under a regulatory structure built nearly 90 years ago and barely half reformed in an economic era that has no resemblance to 1933 is the kind of madness that can only be explained through corruption and deceit.
When you hear someone suggest, “Well, just how are you going to market and sell your wines directly to a restaurant 10 states away then deliver it in a timely manner then fulfill re-orders without wholesalers and their salespeople?” remind them that just three months ago a group of Americans shot a rocket into space then successfully landed it on a floating drone-controlled platform at sea. Surely wineries and importers can figure out how to take orders from retailers and deliver them their wine without a wholesaler in the middle.