Wine Distributors – Friend or Foe?

By. Neil Williamson, Grumpy Marketing Guy

There are a least two divergent views regarding distributors in the wine business.

Photo Credit: Palate Press

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.

Respectfully,

Neil Williamson, Grumpy Marketing Guy

 

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How Does Push Marketing Impact The Virginia Wine Business?

By. Neil Williamson, The Grumpy Marketing Guy

One of the many distinctions in marketing is push versus pull marketing.  Push marketing focuses on getting the product “pushed” out your cellar door.  Pull marketing focuses on getting consumers to “pull” your product off the shelf.

Distributor promotions (see below) are an example of push marketing while coupons are a good example of pull marketing.

The Marketing Made Simple website has a great post on this marketing concept including the diagram below:

push-pull-promotional-strategy

So where does Virginia wine fit into this picture?

Well, there is a need for this chart to include the three tier system where many wineries are represented by wholesale distributors this adds another layer for between the manufacturer and the retailer.  This presents the opportunity to push to the wholesaler as well as the retailer.

As an overarching marketing theme, Virginia wine must continue to develop brand identity to differentiate itself as a brand rather than “Wine” as a commodity.

Long before George Foreman started selling countertop grills he unsuccessfully attempted to market his own branded milk (then and now a commodity).  His pull strategy was to look into the then new TV viewing audience and tell potential consumers, fist raised, to go to their grocer and demand that they carry George Foreman milk.

Virginia is headed in the right direction when it focuses its significant marketing and advertising budget on the wine press in the US and especially in Virginia.  While getting wine placed in the Whole Foods Markets in Kensington, London is a solid news story – I would like to see more Virginia wine in the Whole Foods Markets in Virginia as well!

In most cases once a winery reaches a certain production level, it makes economic sense to work with a distributor.  Some wineries are amazed that they are still required to work sales once they have a distributor – this is a fatal flaw.  Distributor relationships are like all relationships they require work, a push marketing campaign.

Wineries are wise to remember that a distributor is only as good as the wines in its “book”.  Some distributor books are more like the phone book for the number of wines they represent, this is not a critique merely a statement of fact.

How do you make your wine stand out .  #1 have great wine #2 is “push” marketing.  Don’t bother with #2 if you have not accomplished #1.

A few years back, First Colony Winery, was looking to excite their distributor sales team and 2010_cab_franc therefore increase their sales.  But the fall campaign concept needed a hook.  As the client label featured a large silver star near the top, we built a promotion around the Redskins Cowboys football game.  The top sales representative received two tickets to the game, a hotel room and a voucher for a dinner at one of the restaurants carrying their wines.  The competition was fierce and in the end sales were significantly increased year over year.

It is important to remember that a pull marketing campaign, or even an awareness campaign can be used as leverage for a push marketing campaign.  If a winery is planning a brand building marketing campaign, they would be wise to inform its distributors and its retail partners to better position advance sales.  Only if the product is on the shelf can a pull marketing strategy work.

Respectfully submitted,

Neil Williamson, The Grumpy Marketing Guy

Here’s Grumpy!

Today, with very little fanfare, The Trellis Group launched a new wewsite  http://www.grumpymarketingguy.com.

As a marketing agency, we have been very selective about the clients we represent.  All of our business is from referrals.  While it may seem odd, even though the agency turns 10 years old this year, we have not found the need for a website to promote ourselves.

As we move into our second decade of service, http://www.grumpymarketingguy.com will serve as a showcase of some of our work (both good and bad) and hopefully a window into the world of marketing especially wine marketing.

Check back often for updates!

GMG