By. Neil Williamson, Grumpy Marketing Guy
There are a least two divergent views regarding distributors in the wine business.
While the first group can’t stand them and sees them as the enemy, the second group could not accomplish their business objectives without their existence. Which winery is in which group tends to focus on the ownership’s previous business experience, the winery sales objectives as well as the winery’s geographical footprint.
All of this ties back to the end of prohibition and the creation of the “three tier system” of alcohol beverage control.
In 2009, Jeff Seigal wrote a great piece on the three tier system on the Palate Press wine blog. Siegal explained the creation of the system in this way:
The only consistency, really, is the three-tier system, which exists in some form in every state. In the three-tier system, consumers (with some exceptions) must buy wine from retailers (or restaurants), who must buy from wholesale distributors, who buy from the producers. Retailers can’t buy direct from the winery and consumers mostly can’t either. Say what you will about the system, says Blau, but in 1933, when state officials were looking for a way to regulate alcohol after Prohibition, it was the best thing they could find. And, since then, it has done what they wanted it to do—made it easier to collect taxes, to regulate alcohol sales, and to prevent the corruption and abuses that existed between manufacturers and retailers before and during Prohibition.
Considering the importance of the three tier system to their business their defense of it makes perfect sense. In Virginia, a well crafted compromise has emerged. Farm Wineries (a legal distinction in Virginia) are permitted to use a “co-op” distributorship that is virtual in nature. Orders are placed on the distributor web site and the winery delivers the wine, collects the payment and sends the payment to the virtual distributor who cuts a check on a monthly basis. This option is available to wineries under 3,000 cases in the market.
My experience has been that most distributors are not terribly interested in wineries under the 3,000 case level because they are historically unreliable. Don’t take that the wrong way, it just is under that level (and often above that level) vintages run out before the next vintage is ready placing the distributor in a position where they will likely lose a placement for lack of wine.
I also have found as wineries reach the 3,000 case level, it becomes increasingly difficult to self distribute. In Virginia, as in many states, you can not peddle wine; you must order wine and deliver in another visit after orders have been placed into the system. Even if your winery is limiting the distribution to a 100 mile radius around the winery, that still a a great deal of ground to cover especially when one account in the southwest territory needs 6 bottles and one account in the northwest corner has an order for a case.
Now, that you know I believe distributors are winery friends, I have to fix a myth in the industry. There are some that believe “Now that I have a distributor, I don’t have to work outside accounts, that’s why I’m paying the distributor”. That’s a recipe for low sales for the winery. In order to achieve their scale, the distributor represents a number of different labels. The job now increases in complexity, not only do you have to get the account excited about your brand, you have to get your distribution sales team fired up as well.
All in all, self distribution works to a certain level but working with distributors is a net positive step that can help a winery grow exponentially.
Neil Williamson, Grumpy Marketing Guy