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Drinking Out Loud

Déjà Vu All Over Again

The delightful contradiction of American wine marketing
Matt Kramer says goliath wine distributor mergers don't necessarily mean limited choices.
Photo by: Jon Moe
Matt Kramer says goliath wine distributor mergers don't necessarily mean limited choices.

Matt Kramer
Posted: January 19, 2016

Back in 2008 I wrote a column titled “Some Truths of Our Time,” one of which was, "wines today are either ‘preinstalled’ or ‘alternative.’”

"In the computer business," I wrote, "software makers pay hundreds of millions of dollars to have their products preinstalled on new computers. If you want an 'alternative,’ you have to download it yourself. The same thing is now happening in wine."

I went on to point to the significant consolidation occurring in the wine-distribution business, which in turn mirrored the ever-larger expansions of big producers such as Constellation Brands, Gallo and Jackson Family Wines. Big wine feet need equally big distribution shoes in which to race to the cash register.

So when I read last week that the nation's powerhouse bigfoot distributor Southern Wine & Spirits effectively acquired Glazer's Inc., a regional powerhouse distributor with a strong grip on Texas and the Midwest states, it wasn't a shocker. Indeed, they tried to somehow consolidate their forces back in 2008 but they couldn't then make it work to their mutual satisfaction. (The parties involved don't like to use the term "acquired," but what word would you use when a business with $11.8 billion in annual revenue—Southern—engages with a rival with $3.7 billion in annual revenue?)

The renamed Southern Glazer’s Wine & Spirits LLC will have approximately a third of the U.S. spirits and wine market in dollar terms, according to Impact Databank, a sister publication of Wine Spectator.

Now, that's not exactly a paltry share of America's wine distribution. Ever-bigger wine (and spirits and beer) is being serviced by ever-bigger distribution. It's the way of the world, as the recent $107 billion purchase of SAB Miller by beer goliath Anheuser-Busch In Bev demonstrates. Who are they going to play with in the distribution game? Some ma-and-pa outfit that services just one or two states?

You can like this or not, but it's reality. The fine-wine crowd has long been unhappy with these sorts of big-fish-gulping-smaller-fish mergers among distributors. Why? Because a distributor's "book" can hold only so many Chiantis or Napa Valley Cabernets or Oregon Pinot Noirs. Newcomers who come knocking are told there's no more room at the inn.

Also, the small size of many producers makes them less attractive to the big boys. Paying for so many feet on the street to move boxes, a modest supply of a wine is not just unrewarding, but frustrating and irritating to them. Go away. So is the wine world is going to hell in an ever-bigger distribution basket? Not at all. Don't let the handwringers make you despair. As noted in the beginning of this column, wine, like computer software, has long been “preinstalled."

Big distributors have been installing mass-market wine products in big supermarkets and chain stores for decades. It's nothing new. Everything else is "alternative,” as it's been for a long time. Really, it was ever thus—or very nearly so. The fact is, the landscape of "alternative" is broader and more diverse than ever. Just when the doomsayers were certain that the empire of big distribution was to forever cast a dark shadow over small wineries and their many fans, aka the Little People, along came the game-changing Granholm v. Heald decision of the U.S. Supreme Court. This 2005 ruling declared that laws in New York and Michigan permitting in-state wineries to ship directly to consumers but prohibiting out-of-state wineries the same privilege were unconstitutional.

That opened the national floodgates for direct-to-consumer shipping. Although America's wine-shipping regulations still are a bizarre patchwork, the number of states that permit direct-to-consumer shipping by wineries has risen from 27 in 2005 to 42 at last count. (Wine Spectator has a superb guide to direct-to-consumer shipping).

The key point is this: We have never had greater choice as consumers than we have today. Not only are there more wines and wineries to choose from, but the "alternative" means for acquiring these wines is greater than ever before as well. It's far from perfect, to be sure, as some states have curtailed retailer shipping. But the overall opportunity for consumers nationwide is considerably more accommodating.

A paradox of our time is that despite the many predictions of a wine market throttled by big distribution and big wine, the fact is that more wines from more small producers are closer to us today than ever before. Go figure.

Douglas Pendleton
Indianapolis, IN —  January 19, 2016 1:47pm ET
It's great for consumers but, truth be told, shipping is expensive. If it's a $100 bottle of Napa Cabernet adding $4 a bottle for freight is no big deal but when your dealing with $20 drinkers its a pretty substantial bite for the consumer.

The real losers here are the retailers who lose selection when these mergers happen. It may be legal for wineries to ship to consumers but the states still maintain the three tier system that prevents us from buying direct.

What's happened to our anti trust laws... Teddy Roosevelt must be rolling over in his grave!
Charles Chambless
Stow, Ohio, USA —  January 19, 2016 9:01pm ET
I manage a small wine shop that carries less than 600 wines. I compete with the chains who are basically controlled by the big distributors. I only buy alternative wines, some of which are hangers on with the big distributors, but most are carried by much smaller distributors. I do quite well. However, I have to tell you that no less than 50% of the wines rated highly by Wine Spectator are not even carried by any distributor in my state, Ohio. There is plenty of room in my state for a distributor who would carry those wines.

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