April 19, 2011 —
Are your wines distributed? Should they be? Many small wineries ask themselves these questions. The answers are not always easy to come by. Let’s shed some light on the subject.
First, how did we get here? Why do we even have mandated distribution in most states?
The 3-tier system, born out of the demise of Prohibition, was created to break up “tied-houses”, where brewers and distillers had exclusive contracts or ownership in the bars serving the consumer, pushing their own brands and driving for higher sales with little to no regard for the patron’s well-being. Although Prohibition was not the answer, as it can be argued that the collateral damage was greater, the requirement for an independent distributor was put in place to help the states regulate alcohol sales (to insure you weren’t buying from a bootlegger) and to collect taxes. There were 100’s of distributors early on, but as capitalism goes, one bought out the other and today each state has 2-3 big guys who have most of the market and a scattering of a few smaller ones. The system has evolved into selling large quantities of name brand items, purchased in volume at super discounted prices. And with that comes costs and benefits.
The Distributor’s Point of View:
The distributor is a business and the objective is to make money. As with most businesses, 20% of the distributor’s inventory brings in 80% of their cash flow. You can easily guess which brands make up this 20%….Gallo, Kendall-Jackson, Franzia, Yellowtail, Beringer, just to name a few. Let’s say for a moment you are the distributor and your objective is to meet sales goals and hit forecasts. You also know that 80% of your sales comes from a select few brands. The other 80% you carry because, after all, this isn’t a monopoly What then is your incentive to carry and deliver outside of these top money makers, especially those that most consumers haven’t even heard of, and won’t make up more than a fraction of one percent of sales anyway?
The Retailer’s Challenge:
Same deal. 20% of the brands make up 80% of the sales and receiving inventory from one or two distributors is easy! In this situation, retailers don’t have to order from or deal with 25 wineries or smaller distributors selling and delivering wine. Plus the larger distributor is more cost effective and carries all of the name brand products. Of course, the retailer wants to represent local wine, right? You’ll notice they all come from the larger regional wineries. Typically these wineries were actually set up from inception to be distributed, or made distribution a major part of their business model. They make enough wine that the retailer can purchase it cheap and pacify the consumers that are interested in seeing local products on the shelf. Unless they have a large locavore clientele, the selection will stay very limited.
The Winery’s Story:
Now that you’ve heard why distributors and retailers aren’t keen on selling small winery wines, let’s look at the challenges facing the winery itself. What will you have to deal with when you actually are distributed?
A boutique winery typically makes between 1000-5000 cases of wine per year. The law mandates that the distributor has to carry enough wine to sell to all locations the distributor services (a 7-11 doesn’t carry all the same brands as World Market, but the regulators don’t have a way to deal with that). Small wineries can’t handle the kind of volume necessary for a distributor to meet that requirement, typically a few thousand cases of a single wine. Even if you have the production, the next obstacle is creating a roaring demand for your wine. To get your name out there, you will literally have to knock on doors, talk to restaurateurs and retailers, do tastings and show them that you have created a premier wine to get them to carry it.
Okay, you did the leg work, produced the volume needed and got retailer commitment…but how do you get it delivered regularly? You have three choices:
1. Big distributor – Difficult to wrangle, but the most cost effective method of delivery, but you’re a small fish in their big warehouse.
2. Smaller distributor – Delivery costs more, but you have more probability of getting them to actually distribute. You will probably have to make a price cut to ensure the wine remains a good value for the consumer.
3. Do it yourself – But if you go this route you had better have a channel sales manager and factor in the costs – a person, truck, insurance, gasoline, etc.
No matter how you get it delivered, you’ve got to drum up consumer demand. It’s up to you. Not only do you have to run your winery and tasting room, now you need to master channel marketing and sales, and these are very different skill sets than growing a vineyard or making wine!
Congrats – you got it delivered and it’s on the shelf. Now you have to make sure it stays on the shelf, in the spot agreed upon. Distributors and retailers are known for jockeying for best placement and your wine will get squeezed out and pushed around, down and to the back if you don’t stay on top of it. Plan on visiting the stores to see what’s happening whether you are carried by a distributor or not. Remember, distributors make most of their money from a handful of brands, and want the customer to see them at eye level or end-caps when they walk down the aisle.
The best way to get good product placement is sales. Are the customers buying it? How much shelf life can your wine withstand before turning? If it’s not sold within a couple of years, a typical wine will go down hill. If a distributor has cases left in the warehouse for too long, they will attempt to move it at a low price even if it is no good. When this happens you’ve left a “bad taste” in the customer’s mouth and that’s not the kind of word-of-mouth marketing you want! Consumers associate wine quality with you, the winery, not the distributor.
After all of that, why would you still consider distributorship in this David and Goliath world? Here are the benefits of having your quality wine distributed:
1. Being on the shelf in a large supermarket is advertising in itself…just being there.
2. Distribution moves your product to places you can’t afford to reach yourself.
3. It’s easier to get into restaurants and wine bars if they can get your wine from their existing distributor relationship.
4. The more wine you sell, the more you can bottle, the more money you make and thus can expand your business, vineyard, etc.
5. The more your product is seen, the more people visit your winery – a guaranteed sale.
Distribution can be a daunting and costly world, but If you’re still sure that’s what you want to do, you don’t have to do it all at once and you don’t have to do it alone. As a business person, your goal is to produce the greatest profit for every dollar of investment. A typical cycle for a winery is harvest, crush, primary fermentation, secondary fermentation, aging, bottling, and out the door. Often your tanks are empty during parts of this process. Equipment is sitting there doing nothing. Typically bottling is completed during 2 months out of the year in a boutique winery. However, adding a channel such as distribution where you are using your equipment 4 times as much per year can increase your ROI significantly. Premier Wine Blends can help you do this strategically over time – creating a custom wine blend that can be purchased throughout the year with enough volume to be profitable, and still be one that you are proud to put your name on.
Creating custom wine blends that the consumer enjoys at a good price with high ROI is possible and this is where Premier Wine Blends excels. The beauty of this blend, which I like to call Chateau Flux de Trésorerie, is that it leaves you freed up financially to create that wine you really want to make for yourself and friends. Now we’re talkin’!