U.S. Consolidation Means Fewer Opportunities for Wineries

As distributors get bigger, they require brands with bigger volumes to service their markets. This will reduce opportunities for small-to-medium-sized wine producers. Liza B. Zimmerman reports.

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Josh Kimball (Photo: Whit Parker)
Josh Kimball (Photo: Whit Parker)

Wine importers, retailers and analysts remain concerned about how the steady consolidation of distribution affects U.S. consumers’ access to the ever-growing selection of international wine choices.

“We are at the mercy of what the distributor will be open to adding,” says Chris Lavin, a senior vice president at the Richmond, Virginia-based Broadbent Selections importer. “We recently promised one of our top distribution partners that we will have a freeze on new brand acquisitions, beyond what is currently in the pipeline, for the next two years. Had we not made this pledge, our portfolio was at risk of being kicked out.”

The bottom line for importers faced with mergers and smaller wholesalers going out of business, is that many are more focused on their individual brands’ needs than ever before. Lavin calls it a more customised approach for suppliers, “so we are working smarter, not harder.”

US distributors want big wine volumes

The cost associated with doing business as a smaller importer or distributor, is high. When I was an importer and distributor in Seattle many years ago—for the now defunct Vinum Importing & Distributing—obscure Portuguese wines were expensive to bring in and even harder to sell.

Even if the wines were placed at a multi-unit relater, they couldn’t be in every location, because we didn’t have enough product or enough staff to keep the shelves stocked. So as chain retailers have grown in size, they have encouraged a slimmed-down distribution pool.

Mario Zepponi, a wine merger and acquisition advisor at the Santa Rosa-based Zepponi & Company, adds the smaller distributors simply don’t have the manpower “due to their relatively reduced wine portfolios and lack of scale to service the geographic need of larger retailer accounts.”

Zepponi says that it is really retail consolidation that has long been driving the shrinking wholesale tier. “The retailer mega‑mergers that have occurred over the past decades have created a desire to simplify their wholesaler relationships. It is much more efficient for a large retail chain store to do business with three to five wholesalers,” he adds. “Therefore, a consequence of the merger activity at the retailer level is that wholesalers are seeking merger partners so that they can cover the geographic footprints of the mid‑sized and larger retail chain stores.”

Importers look elsewhere for business

Consolidation has forced savvy importers to look for new distributor partners in other markets. “What we have done is realized the limitations of individual distributors in each state and looked for alternative distributors to expand over distribution of our portfolio,” says Lavin.

While consolidation among the wholesale tier could possibly have meant fewer hands in the retail pot, bringing lower prices to consumers, it has not generally panned out that way. It has also made it harder for smaller wineries to gain traction at the retail level, according to Zepponi.


"Consolidation made it harder for smaller wineries to gain traction at the retail level."

“The wine portfolios of larger wholesalers are typically dominated by the products of larger wine producers, which in effect serves to squeeze out smaller and mid‑sized wineries from gaining meaningful access to retailer accounts.”

Smaller retailers tend to agree. Since opening Kimball’s Artisanal Wines in Jacksonville, Oregon in 2019 Josh Kimball has had diminished access to wine brands. “We have lost the opportunity to work with a handful of different brands due to consolidation. The reasons seem to vary from company to company, but what we are seeing seems to be a lack of loyalty when it comes to the new distributors wanting to maintain the relationship between us and a winery we might care deeply about.”

He adds that, “Oftentimes, even though we might have sold a substantial amount of a particular wine, once it falls into the new hands, we longer have access to it due to the effort the new company would have to put into cultivating a relationship with us. It's unfortunate, but certainly part of the business.”

It costs more to launch a wine brand

As the wholesale tier continues to tighten its ranks, the cost of brands has become another challenge for retailers. “One might think that eliminating a business [such as brokers that formerly sold to retailers] that had to make a cut on the product the price might come down. But it didn’t. But, also, then there were price increases,” adds Rob Jernigan, the president of the 618-member Oklahoma City-based Retail Liquor Association of Oklahoma (RLAO) and the owner of the one-location, Bacchus Wine & Spirits Shop in Edmond, Oklahoma.

He adds that, “What other increase happened overnight once SGWS and RNDC had monopolies, was an increase in ancillary charges, like split case fees. They skyrocketed. So, products that I will never order a case [of] … will have an effective higher cost to me.”

“Prices are definitely going up,” agrees Craig Perman, the owner of the one-location Perman Wine Selection in Chicago. “Particularly on the European side. Wholesalers are informing us that the freight has doubled in one year. Not to mention rising costs to producers on bottles, corks, labor, etc. So, I do see plenty of increases.”

The rotating door of salespeople makes building relationships with wholesale sale reps more difficult.

He adds that building relationships with wholesale sale reps also has become ever more difficult. “The greater issue is the rotating door of salespeople. It really takes a year or two years before a rep and a customer work well together. Employee retention is so important for a wholesaler.”

These new reps, often if they work for larger wholesale houses, may also be less knowledgeable about the subtlties of the brands that they sell, says Kimball. “It seems to me that the larger the company the less enthusiastic the salesperson can be or lacks the personal knowledge about the products they sell compared to those who work for smaller companies...[so] we 100 percent refrain from doing business with corporate entities due to this.”

Only market trends, and consumer purchasing patterns, will dictate what happens to brands and their importers in the distribution tier in the upcoming years.



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