In the fall of 2005, Wines & Vines Magazine asked me to author an Essay analyzing theconsolidation in the Wine Industry and the effect the then-recent Supreme Court ruling allowingInterstate shipping of wine to consumers would have on the industry’s distribution tier.
At the time, my answer was simple: “nothing at this point.” I went on to comment, “I did not believe it would have any effect soon either. ” I did, however, believe the most significant impact in the coming years was going to be a continued gobbling up by multi-national liquor empires of the small family-owned and operated wine distributors.
Well, here we are today as 2020 comes to end, fifteen years later, and everything I predicted and more has happened. What a disgusting and discouraging landscape that most of the smaller and clout-less wine producers find themselves having to navigate daily.
Add to that challenge the Post-COVID world we are about to enter. I realized there has been a significant increase in consumer purchases of wine on-line; however, in the scheme of things, that will not save the wine producers, most specifically the smaller ones, from the effects of the continued domination by Big Liquor driven companies and their stranglehold on the market. The reality is that going into the year 2020, we had two companies who accounted for close to $40B: (yes, that is Billion with a B) worth of alcoholic sales, representing almost 60% of the total alcohol purchased through the Government mandated 3-Tier system.
So, Post COVID, what does all this mean? Simply that the Big will get Bigger. The trends that were already in motion will only accelerate, just as they have in the general business and political arenas.
The distributors were already demanding and enjoying higher margins at the expense of their suppliers. You can expect them to extract even more concessions along with doing less work. They had already been pushing back on having their sales force work in the market with the supplier representatives. Now, you can bet they will not do them at all. (They can hide behind the veil of safe workplace practices). That means the supplier representatives will either call on the accounts themselves or if their employer cannot find another avenue for them to provide value be let go and out of job. At the same time, the distributors who have furloughed a large amount oftheir sales force during this time will push the accounts to buy on-line and pull back, if not do away with, having any salesperson call on accounts daily. The distributors stopped being Brand Builders some time ago, but they will not even pay lip service to that concept in the future. The Brand Owners will have to always do this for themselves or face falling further and further behind in the market at large as they face more competition for mindshare at the distribution level and the account level.
In my essay of 2005, I raised the question about anti-trust concerns in the wine business. I mused that the 21st Amendment had given Big Liquor the cover it needed along with the protection for just the result all producers are contending with today. A few distributors, a growing consumer base, and no way to reach them efficiently or profitably on a nationwide basis.
To quote my last paragraph in the essay back in 2005; “Experience teaches us that given the options fine wine producers have today to get their wine in the hands of the wine-buying public, further consolidations and the ensuing lack of choice will only increase the distribution challenge and in the end, hurt the consumer.”
I wish I had been wrong back in 2005, but I was not. Is it too late? Wake up, everyone!
Fred Reno is an author and wine industry executive with 41 years of experience in building brands and providing forward looking strategic advice for wine producers in the U.S. and Internationally. You can reach him at firstname.lastname@example.org or view him at www.thomasjeffersonwine.com & www.finewineconfidential.com