The Way We Sell Wine Needs to Change

The American wine industry, like all alcohol businesses, has been shaped by two major regulatory changes that dramatically increased access and market power. These changes have paved the way for today's ongoing consolidation, affecting both which wines reach consumers and how.

The first was the 1933 repeal of Prohibition, shifting from criminal alcohol operations to a legal three-tier system of producers, wholesalers, and retailers. The second was the Supreme Court overturning state direct-to-consumer laws in 2005, which opened the entire country to home delivery.

  

Some of Treasury Wine Estates brands
image from tweglobal.com

What's next? You have probably heard about winery consolidation over the years, with large companies like Gallo, Constellation and Treasury owning dozens of brands. Kendall Jackson, Franzia, Trinchero, Foley, and others also hold a significant stake. Why are they so successful? Part is the economy of scale. Mostly it's about controlling the coveted shelf space in wine shops, retail wine departments, and restaurants. Gallo has been highly successful at this. You have probably bought a Gallo brand without realizing it.

Australia's Treasury Wine Estates, perhaps a company you've never heard of, owns Beringer, Beaulieu, Etude, Frank Family, Provenance, Sterling, and Stags' Leap in Napa Valley.

What you maybe haven't heard about is the consolidation with the middle-men, the distributors. Southern Glazer's and Republic National are about twice the size of the next group of wine wholesalers, both in the number of wineries they represent and in the number of states they operate in. Smaller distributors are gobbled up by the big ones. 

This consolidation makes it harder for the smaller wineries to gain access to a distributor of any size, as the giant distributors tend to focus on their giant accounts. Smaller distributors mean fewer states served and less available shelf space. For consumers, this means you are much more likely to see wines from Southern's and National's large accounts on the retail shelf. Those small family wineries don't stand a chance. Your option for getting wine from the little guys is ordering directly from the winery. The small ones are turning more to direct-to-consumer shipping to stay in business, especially with travel and winery visits down.

It seems like something's gotta give in the consolidation if you want to retain much of a choice in the retail wine market. Having a choice is what it's all about. More competition translates to better products and better prices. I don't have an answer on how to fix this other than government regulation, and that doesn't always work well. In the meantime, seek out the smaller family-run wineries. It takes more work, but it's better for all of us in the long run.