The Process of Getting Wine to the Consumer Is A Circuitous Process

Different kinds of alcohol on a white background

The logistics in getting a product from the manufacturer to the retails shelf seems not to have changed much until the internet and now the drones. We don’t rely on the brick and mortar store as much. But, there is one area where distribution hasn’t changed greatly over the last 2 or 3 decades-wine. We even get our drugs delivered by USPS and FedEx. We simply assume the manufacturer is trying to keep the price of their product competitive and reasonable and are therefore using the cheapest means to get a product on the retail or consumer direct. Even automobile tires are sold on-line and delivered by UPS to our home; of course the buyer must get them installed. Yes, Amazon sells and fulfills most everything imaginable on-line.

These issues of distribution highlight the plethora of options available to the consumer in purchasing products, using multiple channels of free market distribution. The one area where consumer products are distributed using a federally mandated 83 year-old law are-wines, spirits and beer. The federal and state law mandated system for distribution of wine (specifically) is a Three-Tier System; a system of awarded monopolies condoned by the Federal government. But, recognize that each state controls and manages this system to individual state standards.

It is this system that gets wine on the shelf, which should concern any wine consumer because it impacts the wine consumers’ pocket book. Let me illustrate. What if the government set up a system whereby dairies could only sell milk in their own cartons to milk distributors? Further, the diary must deliver their milk to a distributor who would off load it from the diary’s truck onto their own truck and deliver it to the store. The distributor would get a 50% discount on the milk and then sell it to the store with their mar-up. The distributor would have the contracts with the stores and could also rep competitive dairies. And, the dairies would be responsible also for some advertising support. Would the consumer be happy with no price competition and the mandate from the government that there would never be any options available for milk? Probably not, but that is the issue today with wine. The lack of options are hidden.

The top four distributors for wine in the U.S. are: Southern Glazer Wine and Spirits, Republic National Distributing, Chamer Sunbelt Group (merged with Wirtz), and Young’s Market. These companies sell, deliver, and represent a majority of the wineries selling products in the U.S. and they control 60% market share of a $52.7 billion U.S. market of wines, spirits and beer. In reality the top 10 distributors represent 68.4% of all wine/spirit wholesalers market share.

When you see a bottle of wine on the shelf at your grocery store (not all states allow grocery stores to sell wine), that winery is probably one of hundreds of wineries represented by the top distributor. That distributor is also selling and delivering spirits and beer. The cost to the winery to get their product delivered approximates the 50% discount. A $20 bottle of wine retail is sold to the distributor at approximately $10. The distributor will sell the wine as they see fit. This includes, allocating wine to outlets based upon their volume and pricing the product to larger outlets. So basically, like in all industries, there is no level playing field; the large retailers benefit from their volume-similar to other industries.

Interestingly, distributors of a winery’s brand in “franchise states”, become an exclusive brand that can only be distributed by that distributor in perpetuity. Basically, a winery cannot negotiate with other distributors; generally. Per Mr. J.P. Connell, Esq., “after a winery merely ships a brand to a wholesaler, the winery canĀ neverĀ terminate the wholesaler with regard to that brand, even if the parties never discussed or contracted for such a result. The wholesaler may only be terminated under certain exigent circumstances.” Approximately, half of the states are “Franchise States” and wine distributors enjoy this very beneficial arrangement. “Wine franchise laws are monopoly protection regulations to safeguard the distributor, and are currently in use in 22 US states,” reported in a Wine Business article of June 2013. They go on to say it impacts consumer’s choices and cost of wines.

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