The second tier hasn’t stopped changing since the Recession ended in the mid-2000s, with wave after wave of consolidation since.
By Jeff Siegel
Every time it seems that the wine business can’t change any more, it does. For example, says Ray Johnson, the executive director of the Wine Business Institute at Sonoma State University, who ever thought there would be a Total Wine in Santa Rosa, Calif., where Bottle Barn has been the area’s best-known retailer for years?
“It’s an important scenario to address,” says Johnson. “The landscape keeps changing, and just when you get used to the new rules, the landscape changes again.”
Case in point is wine wholesale and distribution, which takes into account not only sales, per Johnson’s seminar, but a variety of legal turnings says Alex Heckathorn, the senior editor of the The Digest of Wine & Spirits Law.
The second tier hasn’t stopped changing since the Recession ended in the mid-2000s, with wave after wave of consolidation since. Who would have thought that the 140-year-old Young’s Market, once the dominant distributor on the West Coast, would be no more, absorbed by RNDC?
The shifting second tier
Hence, says Johnson, the need to understand why the second tier will keep changing in all its aspects, and how wineries and producers can adjust – even though it has already undergone more changes than most people could ever imagine.
“What does it take to succeed these days? That’s the question that needs to be answered,” says Heckathorn. “Because so much has changed. There’s consolidation, which has led to lack of interest among wholesalers for many producers. And, on the granular level, it’s likely to be different in every state.”
The two men’s point? One size no longer fits all, and just because one approach works for one state or part of one state, be it for marketing or regulatory compliance, doesn’t mean it’s going to work in another state.
Finding the best fit
Producers, from a marketing perspective, must navigate through various scenarios and options, says Johnson. What sort of distribution is the best fit – none, some, or most of the winery’s production? How does the winery make that decision? And, finally, how can the winery make that decision successful?
Johnson says the three distribution choices should be based on the winery’s goals, capabilities, and its audience. A mass market brand must take a different approach than a producer that focuses on direct to consumer; it’s worth noting here, too, that the former is much more affected by retailer consolidation than the latter, and also needs to take that into account when choosing between the three options.
Know your business
Johnson says it’s crucial for wineries to not only understand their business, but to understand what the other players in the wine distribution system need and want from the producer so everyone succeeds.
“Success is about leveraging all of your opportunities,” says Johnson, “and you have to find a way to surmount all of the challenges. You have to stick to your knitting, do what you do best – and you can’t be a Pollyanna about this anymore.”
None of which, though it’s closely related, takes wholesaler compliance and state regulations into account.
His point is key: “You can lose control of your brand to the wholesaler if you don’t understand how the regulatory side of distribution works in each state that you’re in,” says Heckathorn. “If your wholesaler doesn’t do what you want, and more of them seem to be doing that these days, but you’re in a franchise state, what are your options? How do you find out what your options are? What can be done? You have to take the necessary steps to retain control of your brand, and that means you need to do your homework about each state’s wholesale regulation.”
In the end, says Johnson, it’s about understanding all parts of the equation.
“You have to respect the people you’re working with,” he says. ”When both sides are at the negotiating table, both sides have to be OK with what’s going on. Otherwise, the relationship won’t continue.”
And that’s hardly a winning situation for anyone.
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Both Ray Johnson and Alex Heckathorn will lead panel sessions at the Wine Sales Symposium on May 16, 2024. Johnson will present “Succeeding and Growing in the Wholesale Channel,” and Heckathorn will host “Navigating Wholesale Distribution — Keys for Success When Launching New States and Managing Wholesalers.” For more information about these panels or the Wine Sales Symposium, go to winesalessymposium.com.
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Jeff Siegel
Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including The Wine Curmudgeon’s Guide to Cheap Wine.
