The Decline of the Small Distributor

by Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)

jeff-smI don’t have any special insight into o the plight of the small distributor, just my own perceptions based upon our own marketing efforts during these difficult times.

The wine press has been replete with reports of improvement in the sales in our business, and I have no reason to doubt these reports. But I have to question whether the effect is spreading to most small wineries, who depend largely on small distributors.

I know for us, small distributors have been our mainstay. We’ve occasionally latched onto a large distributor, but the results have been disappointing. Our initial optimism about getting in with a distributor with a huge sales force was quickly tempered by the realization that the big distributors are interested in big sales, something a small producer can’t do. So the small producer with a large distributor tends to languish in the book-like listings of a large distributor, never noticed and certainly not the focus of attention of salesmen looking to sell large numbers of cases.

So where we’ve really found our niche is in the small distributor, where a winery of our size matters. Where sales of cases, rather than 10’s of cases, or even hundreds of cases, matter.

I don’t see these small distributors doing that well. Their sales, for one, aren’t doing that well, from everything I can tell. Most telltale is the fact that they are having increasing trouble paying their bills (or at least their bills from us). I think this is for a variety of reasons.

I think the recession has had a huge impact. I think distributors, large and small, have seen their credit lines, which they depend on to maintain reasonable inventories, constricted. One trend we’ve seen is that instead of getting large orders, we’re seeing increasingly a series of smaller orders. I interpret this as doing everything they can to trim inventories to the bare minimum, and to stretch their buying dollar to the max.

I also see the small, retail wine outlet suffering greatly from the effects of the recession. They are hit with the same credit restrictions of the small distributor. And they are seeing the big warehouse stores cut more and more into their main product lines as people trend downward in their cost per bottle purchasing decisions. Yet these small wine shops are the main customers of the small distributor. So the small distributor not only is hit with a credit crunch, but also with the disappearance of many of their customers.

I think many distributors are disappearing from natural attrition. Unlike a large corporate distributor, the small distributor has the trials of any small business. One of the major issues in a small business is succession, as an older generation retires. Often, the younger generation isn’t interesting in running the business. The smaller distributor then either simply goes out of business, or gets bought up, usually by a larger distributor. The bottom line is that the number of small distributors, while far from disappearing, is shrinking, and with it the outlets for the small winery.

While I expect things to improve as the economy improves (which seems to be happening at an extremely slow pace), I think the problem of the small distributor may be ongoing, as our economy more and more trends in favor of the largest outlets, and the smaller are squeezed more and more by the factors that make it difficult for any small business to succeed.

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8 Responses to “The Decline of the Small Distributor”

  1. Tom Wark says:

    Astute!

  2. Stephen menke says:

    One of the possible responses to larger distributors pushing their volume wares to small retail outlets is a shift to niche specialization by these small retailers. Ultimately, I think this is the way small distributors and small retailers can continue to exist and maybe even prosper. But it means more expense in finding wines to fill these niches, maybe even using independent “scouts” to find them. This can also fit well with the locavore movement, as local wines are usually small in volume and often available mostly at winery tasting rooms that are not close to the urban population. A good small distributor can take advantage of having portfolios that will fit together the specializations of small wineries, small local retailers and locavore restaurants.

  3. Nicely said. Our experience, as a small winery is very similar.

  4. Jason Bucher says:

    Sales people are motivated by money so they will always sell what is easiest. Same for many wineries who would rather make wines that are easier for the consumer to purchase.

    American and Southern get their bills paid before the small guys because a restaurant/bar can’t have their spirits distributor not deliver their order. Restaurants/bars slow pay smaller distributors because there is another one in line when the first one doesn’t get paid and stops delivering.

    What I find ironic is that businesses fail all the time. Wineries are businesses.

  5. Vic Motto says:

    Good article, Jeff - and too true. Most small distributors are under-capitalized, so when finances get tight, they borrow from their suppliers by not paying them. Then the supplier cuts them off so they sell someone else’s wine. Your business suffers.

    What you’ve pointed out that there is no good way for a small winery to be able to rely on someone else to sell their wines. That’s why the most successful small wineries are those with direct customer relationships, with the trade, consumers, or both.

    The wine market is way too fragmented for any distributor to be able to cover it well for very many suppliers, so they can’t afford to sell small wineries products unless they basically sell themselves.

  6. Jim Forchini says:

    I completely agree. The 3 tier system + a lack of small distributors leaves small wineries w/o market opportunities out of state. Big distributors w/ their hard liquors & wine book plus lavish entertaining use this leverage to crush small distributors. Small wineries need a percentage of wholesale to keep inventories from increasing. Without this, small wineries must rely on wine clubs, direct sales and special events. These venues take a lot of time, energy & costs to sell a case. Small wineries are also hampered by the fact you can’t ship wine direct through UPS and must go through a 3rd party where shipping costs go to $5/btl. The prohibits by airlines of carry on bottles also restrict small winery sales to out of town customers. Tough times for small wineries. My answer, reduce production to align w/ what you can sell direct in tasting room or through Club.

  7. Stonedwino says:

    As the owner of a small distributor you are 100% on all counts….It has not been easy the last few years and only the most resilient small distributors are able to keep things going…

  8. It’s hard to find knowledgeable people about this subject, but you seem like you know what you’re talking about! Thanks|

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