America’s Incredible Shrinking Wholesale Landscape

In addition, the biggest companies are pushing their suppliers and customers to e-commerce in an attempt to streamline the ordering and inventory process – as well as to cut costs — in a business where margins are more important than ever given the slowdown in retail and restaurant sales.

There is also the rise of mid-sized distributors (who are often importers as well), which focus on many of the market segments and wine regions that the biggest companies don’t service as much any more. And there are also the latest challenges to the second tier’s legally-protected hegemony, including a troublesome lawsuit and potential US government action.

“I think what’s going on cuts both ways,” says Pat DeLong, the founder and principal of Napa’s Azur Associates, a beverage alcohol consultancy. “We’re going to see more of what we’ve seen, with the biggest wholesalers going after the biggest national chain accounts. But if you’re not in that group, it’s not all doom and gloom. There are opportunities, but you have to be able to execute your plan.”
 

Need to know

Wholesalers are crucial in the U.S. because the law in each state requires every bottle of wine to pass through a wholesaler as it moves from producer (or importer) to retailer or restaurant — the infamous three-tier system. The exception, called direct to consumer, accounts for less than 5% of sales by dollar, and almost all DtC sales are for domestic wine.

The current wholesaler landscape is far different than it was 25 years ago. In 1995, at the beginning of the US wine boom, there were about 1,800 U.S. wineries and some 3,000 wholesalers. In 2023, there were almost 12,000 wineries and only about 1,000 wholesalers. That translates to staggering market share numbers, according to the annual Impact Databank report (which includes spirit sales, but doesn’t include beer): No. 1 Southern Glazer’s and No. 2 RNDC with a projected 53% of the market in 2024, and the top 10 companies with a projected 81.5%. That compares to some 72% for the top 10 in 2017.

At the end of July, Southern bought New England’s Horizon Beverage, the tenth biggest distributor ($850 million in sales across five states). Horizon had been around in some form since 1858 and had made a number of wholesaler acquisitions itself in the US northeast over the past couple of decades.

“It’s interesting how wine distribution has evolved over the last 25 years,” says Adam Beak, Managing Director and Head of the Wine & Spirits Vertical of BMO. “The big guys were smart, and they understood that scale does matter, especially given the consolidation in retail and the off-premise.”

A few other changes worth noting:

Growth of business-to-business e-commerce.

First, the growth of business-to-business e-commerce. Southern Glazer’s Proof platform, with more than $3 billion in revenue since inception in 2019, strives to make it as easy for retailers and restaurateurs to order wine as it is for consumers to order something from Amazon. This development was long overdue, says Beak, offering cost savings to the wholesaler and more efficient and easier ordering for the on- and off-premise – reducing the need for so many lengthy and schedule-interrupting sales calls.

Alignment between the biggest wholesalers and the biggest brands

Second, alignment between the biggest wholesalers and the biggest brands. The idea is for one producer to use the same wholesaler in as many states as possible; previously, given the regional nature of distribution, a producer might have half a dozen — or more — wholesalers across 50 states. In the last several years, Don Sebastiani & Sons aligned with Southern across 25 markets, while RNDC signed Riboli Family to a national deal and added Union Wine Co. in 25 markets.

Increased importance for smaller, regional wholesalers

Third, increased importance for smaller, regional wholesalers to fill in the gaps. These are often  mid-sized and well-known importers who are also licensed as distributors in key states. One industry survey identified Winebow, Opici Family, and Monsieur Touton as having made substantial inroads in this area, representing brands that may be too small for their larger competitors but still have a place in the US market. “This is a way for these companies to add value to retailers,” says DeLong. “There is a niche opportunity here.”

Legal challenges

Fourth, the newest legal challenges. Provi, a business wine commerce platform, has sued Southern and RNDC; a judge ruled in May that the case could go to trial, citing evidence that “defendants’ conduct constituted a departure from a voluntary and established business practice.” Meanwhile, several news outlets reported this summer that the Federal Trade Commission, which oversees anti-trust law, could sue Southern in what would be a landmark case centered around the company’s business practices.

“From an enforcement perspective, both private and by the government, it certainly appears the landscape has changed, or at least, is more active with respect to the wholesale tier,” says attorney  Michael Laszlo, member, Clark Hill in Boulder, Colo. “As the alcohol market and technologies evolve and the top few wholesalers work to preserve their dominant positions, it makes sense they’ll naturally be the target of investigations and enforcement actions. Whether it’s warranted or not? Time will tell.”

The wholesalers

So who are the most important wholesalers? Are they the biggest, or is there room for a company that is smaller, nimble, and smarter, as there was in 2017?

Probably not, say those interviewed for this story. Size matters today as it never has before, not only to compete with the other industry behemoths and to work with the biggest wine producers, but to take advantage of the economies of scale necessary to limit costs in the current environment. Says Beak: “Consolidation begets consolidation.”

Here are the nine most important wholesalers in the US. The list is based on the projected 2024 sales from Impact Databank, which does not include the recent Southern-Horizon deal:

Southern Glazer's

$26 billion, 45 states and the District of Columbia. Southern, with some 7,000 brands, saw its annual revenue increase by one-third in the last seven years. It’s the tenth biggest privately-held company in the US., according to Forbes – even larger than Fidelity Investments.
 

RNDC

$12.2 billion, 34 states and the District of Columbia. Two keys here: the 2022 acquisition of Young’s Market and its some $4 billion in sales, which gave RNDC a step up in California and the west coast, as well as 2021 deals with Opici Family Distributing that gave it increased access to Florida and New York state. It’s No. 32 on the Forbes list.
 

Breakthru Beverage

$8.7 billion, 34 states and the District of Columbia. The company, formed from the 2015 merger between then No. 6 Wirtz Beverage and No. 3 Charmer Sunbelt, has increased revenue by one quarter since then and expanded into 20 more states. It’s No. 80 on the Forbes list.

Johnson Brothers

$3.3 billion, 22 states. Johnson, long a Midwestern power, has increased revenue by more than one-third since 2017, sitting at No. 211 on the Forbes list.
 

Empire Merchants

$1.8 billion, one state. Empire, the long-time dominant wholesaler in New York State and New York City, faces increased competition from Southern and RNDC, as well as continuing whispers that it’s a merger or acquisition candidate.
 

Martignetti Co.

$1.7 billion, six states. It remains a leading player in the Northeast, even though it’s not in New York. It has added one state and $500 million in sales in the last seven years.

Empire Distributors

$1.5 billion, four states. Warren Buffet’s Berkshire Hathaway bought Empire, focused on the U.S. southeast, in 2010. Since then, it has purchased wholesalers in North Carolina, Tennessee, and Colorado to move into the top 10 list.
 

and 

Allied Beverage and Fedway Associates

Allied Beverage, $1.4 billion, one state. Allied’s base is New Jersey, where it dominates the market with Fedway Associates one state, $1.2 billion. Together, they account for as much as three-quarters of the state’s wholesale wine business. In 2020, each was fined a record $4 million for engaging in discriminatory trade practices by unfairly favoring 20 retailers with discounts and rebates that weren’t offered to smaller retailers and then hiding the illegal transactions.