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Wine Business

Consolidation of Wine Brands and Wholesalers ~ What a Wild Ride

I’m fascinated by the wine industry’s oligopoly process.

The posturing is not just happening in the US, either. It’s a global phenomenon; so, what we’ve watched in the past with – say – the automobile industry is now happening with the wine industry.

Complicating matters is that it’s occurring simultaneously by not only the top three/four wine companies, but also by the top US wholesalers.

It’s hard to keep a score card right now, because it’s a fast and furious process that’s very hard to track. I can only imagine how confusing it must be for retail wine buyers and restaurateurs to know who’s now got what brand today, as they try to reorder what just ran out of stock.

Next reality check… There’s only so much shelf space. It’s just very basic math and physical science. (It’s so basic, we can’t even call it physics.)

Shelves (somewhat finite)
+ Bottles to be placed on shelve (somewhat finite)
+ Wine shop owners and restaurants (somewhat finite)
= Shelf space/menu placement (somewhat finite)

Somewhat finite because there’s a slight variable by wine shops and restaurants opening and closing, but they’re not growing at the same rate that wine brands and wholesalers are consolidating.

That’s the physical (somewhat finite) situation. Wine buyers can only put so many bottles on their shelves, and restaurateurs only have so much space to store wine in their restaurants. Every time a sales rep tries to add a new wine brand to a restaurant’s wine menu or retail shop’s inventory, that’s the very first objection… Space.

Next come the wholesalers, reducing themselves to the top three US companies. They’ve already got their buyers purchasing a number of brands from them. They can only sell so much wine to a wine buyer, because these buyers have other relationships to honor. Nobody in his or her right mind wants to purchase exclusively from only one wholesale company. That means the odds of adding more brands will only work if what the wholesaler brings into its warehouse is a company that’s already on the shelves or already on the wine list.

This is how the game in played: the limitations are nearly fixed, and yet the shuffle continues to shake itself out only to the confusion of us all.

I received an amazing comment on this blog last week about this process by Morton Leslie regarding Foster’s Beer and Wine Company being told that in order to grow, they must think “demerger,” not merger.

Morton wrote: “What corporations (and stockholders) have forgotten and have to re-learn is that profitability and sound business practices are more important than growth. And that profitability if shared in the form of dividends with stockholders can make a stock worth owning. Yes, stockholders can profit from aggressive growth that disregards sound practices, if they sell the stock before the #$@% hits the fan. But someone always loses and it usually includes a fair number of employees.

“I can guarantee you one thing, someone somewhere is meeting with corporate officers talking about how much they can grow in market share in buying Foster’s wine division, and because they can raise the capital they know they must have superior intelligence, market savvy, and the potential to really kick ass in the wine business. And the wheel keeps turning.”

This is such a fascinating process to witness.

9 Responses to “Consolidation of Wine Brands and Wholesalers ~ What a Wild Ride”

  1. Chris Moran says:

    Nice writing style. Looking forward to reading more from you.

    Chris Moran

  2. Steve says:

    Talk of consolidation has been ongoing for many years. It doesn’t seem that much worse nowadays than it was back when Heublein, Wine World, etc. were gobbling everything up. For every big winery deal like Ascentia, there’s a dozen mom and pop little wineries starting up. Per capita wine consumption is continuing to rise. Even though the big distributors have a stranglehold on the supermarkets, somehow the little wineries manage to place their products. So to me, the glass is half full, not half empty. But I do have a feeling that going public is not a healthy thing for a wine company. I cite Gallo and Franzia as examples. The problem at Foster’s (as at Mondavi) was that awful demand for short-term gain, instead of long-term investment.

  3. kevin keith says:

    Being a retailer, this whole consolidation thing, especially with wholesalers and importers merging and acquiring brands from smaller wholesalers and importers. It leaves one’s head spinning every day I come in to work. I should have started a score card to keep tabs of it all. The worst part is that most of the time, the brand(s) in play tend to wind up with a distributor that isn’t as easy to deal with as its previous wholesaler. One wholesaler in particular has a reigning bureaucracy that proves very problematic with our business. I can’t say that I am a big fan of all this M & A going on. I’d like to believe that the end is near, but I think I’d be kidding myself.

  4. admin says:

    Kevin,

    It’s actually the retailers and the restaurateurs for which I have the most empathy. I can’t even begin to imagine what the score card would look like. Surely, it would have to be a digital file, because a physical one would become a mess very quickly.

    Gone are the days when a restaurant would print their annual wine list.

    What you’re saying is that gone, too, in some respects are the relationships.

  5. kevin keith says:

    I’ve been a buyer in the state of Kentucky for almost 6 years, and in that time, Southern Wine and Spirits had just purchased two old wholesalers, Dixie-Crane and Crown, Republic-National bought Commonwealth Wine & Spirits AND Horizon Wine & Spirits of KY, the small Z&S Distributing was purchased by Heidelberg of Ohio, I’ve seen 2 established Ohio distributors get larger in KY and 3 new OH wholsalers come into the state. Not too mention the M & A’s of Southcorp/Beringer Blass/Foster’s, the Constellation leviathan, Gallo taking over Martini, Martin Codax, Abadia Retuerta, and others, and so much more. Recently Kilikanoon and Brokenwood went to Old Bridge Cellars, Ascentia bought Geyser Peak, Winebow bought Click Imports, etc., etc. It’s frustrating to see, because when we get behind a brand that suddenly changes to a less-compatible distributor, it honestly leaves the customers the most frustrated. And being in the service of customer service, it makes things even more difficult than necessary.

  6. admin says:

    What you’re talking about is a completely different angle I’ve not been involved with, because I’m not the usual consumer. Being in the business of wine has its benefits.

    This sounds like a real frustration.

    Do you have to spend any time talking about all of this with consumers, as they try to get a wine that’s a favorite for them. Or, are they just willing to jump ship and find a new loyalty? And, how often can consumers shift gears like this before they resort to beer?

  7. NH Wine Guy says:

    As fo rthe finte space I can agree, but the larger supermarket chains and Walmarts that offer wine here in New Hampshire rework thier shelves yearly with help from all the distributors that provide products. Taking a drive through upper Sonoma, the small vinters are not going away by any means. Open shiping laws and fantastic delivery modes allow nearly anyone to order they wines that they crave, even if its not at your local 5 & 10. Wine for the masses has always been about larger companies and the power of marketing. Older wine drinkers still ask for the wines of thier generations the carlo rossi’s, the Sebastani jugs, etc. Most wine retailers will tell you that they dedicate thier space based on the volume (or turns) that space provides. If your retailer only sells 1 bottle a month there is little chance that they will dedicate 5-10 facings of that wine. 99% of retailers, if you ask, will gladly bring in products the, you the consumer want, as long as you will support tehm buy purchasing the product.

    thanks for letting me rant a bit

  8. kevin keith says:

    The real problem in the chaos amongst the wholesalers is that being a “bridge” store, most of our customers come from Ohio, where the availability of wine is not as difficult as being a “podunk” state like KY. The explanations come from when wines readily available in Cincinnati (which is visible from the levee we sit right next to in Covington) is not available in KY or that it is exclusive to another retailer some 100 miles away in KY, or it is changing distributors, etc., etc. Customers get angry with us because they drove all this way to get it and it’s not here. They don’t understand that we operate in a different state, under different rules and with different distributors. You’d think some 75 years after Prohibition was repealed, things would be simpler.

  9. EdwardjK says:

    As a consumer, I see consolidation as an opportunity for the small wineries. In my opinion, as a distributor gets larger, they tend to focus on high volume brand names, like Kendall-Jackson, to the exclusion of small wineries. So a consumer has two choices (1) Give up on the idea of being able to buy your favoriate wine, or, (2) Fly out to California like I do, for example, to buy & ship what you like.

    Since not every consumer is as privileged as I, the other option for for small wineries to band together and form their own distributorship that specializes in their own production. Whether the economics work or not, this apporach preserves the cult-like status many small wineries are trying to achieve.