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.

 


No Responses

  1. Kim Martin - July 20, 2020

    Sadly, I believe this prediction is closer to spot-on than not. I am a commission-only sales rep for three of those small, boutique distributors with mostly boutique, high end producers in the portfolios. I’ve already had three significant white table cloth accounts disappear to never re-open, and among the rest of my accounts, I can count on one hand the number of buyers who have NOT lost their positions. The new “buyer” is usually a GM who does not care about nuanced, high-quality wines from small producers. They are sticking to brands that their customers know well because they can move those bottles with little to no staff training, or in package deals with take out dinners. Another of my white table cloth accounts is restructuring their business and will not be bringing in any more wines that they have to price higher than $130 on their list. They are open to small producers, but drawing a hard line in the sand on pricing. With their 3.5 mark-up, it severely limits what I can show to them. I’m quite concerned for the future of boutique producers. The pivots that they will have to make might very well lead to the demise of the companies I work for, so I’d better brush up on some other skills. Maybe I can marry my 25 years in politics to this legal fight in the wine world. Anyone hiring for that? (LOL)

  2. Davide E - July 21, 2020

    Yes… you could apply your knowledge of that and lead the charge… Help and create a letter for everyone to send into their political leaders at the state and Federal level and get the laws changed… If a small winery can’t sell to a restaurant or retailer those business will die for certain in another year or two. Let’s stop the political nonsense and get back to free market basics… collect a little tax on each and every transaction and viola…

  3. Joe Jensen - July 23, 2020

    Tom,
    The problem with your argument for direct sales is that the buyers absolutely do not have the time to talk to another 1000 sales people, they barely have time to talk to the 20 they want to do business now.
    There will be plenty of small distributors left out there, from what I am seeing we may lose one or two here in Chicago.
    The biggest problem is too many producers out there making over priced mediocre wine who think they are owed a placement on the shelf or a wine list because they made lots of money doing something else, hired a named winemaker and bought expensive fruit.
    As a mid sized wholesaler I know it is extremely challenging to find wineries from the US who make excellent wines at prices most Americans can afford to purchase. When wines are well made and smartly priced they will find an audience and will have no problem finding a distributor.
    I am perfectly fine with direct sales but your are dearly mistaken if you think it is the cure to all non sales issues.
    We are currently talking to a craft spirit producer here in Chicago that self distributes currently and realizes that they need help to expand their footprint and distribution and are gladly willing to give up the margin necessary to make it work for a distributor whose sales team will actually get an audience with the buyers!

  4. Tom Wark - July 23, 2020

    Joe,

    The question isn’t whether or not a retailer can practically meet with more sales reps. Maybe they can, maybe they can’t.

    The question is, as a matter of law and regulation, should retailers and restaurants have the legal right to purchase directly from producers?

    Whether or not the producer and retailer can successfully work together is a different question.

  5. Donn Rutkoff - July 23, 2020

    Boy, you are risking life and limb!!! Good thing you are not on Facebook or Tweeter, you would be banned as UnWorthy of being allowed on the virtuous and pure Internet.


Leave a Reply

Your email address will not be published. Required fields are marked *

*