The biggest challenge to a winery

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

jeff-smI was talking to a relative in the film business about independent movies. He said they are always a bad investment, because no matter how good the movie turns out to be, there’s no guarantee the film will succeed in obtaining distribution. How apropos of the wine business, where the same problem holds true.

This topic, which is rarely far from my thoughts, came home as our broker (not our distributor) in one of our most important states announced it was ceasing operations. Bad, but not nearly as bad as it could be—at least our distributor is still in business.

For those not in the industry, a distributor is the company that buys your wine, and turns around as sells it to retail outlets (stores and restaurants). A broker in most cases (though not all) is a marketing company that works at moving your product through the pipeline. They don’t own the wine and resell it, as a distributor does. They do play an important role in doing a lot of the work necessary to keep product moving through the distribution pipeline, assisting the sales efforts of the distributor.

I am not privy to the reasons why the broker decided to go out of business, but I could hazard what I’m sure is a pretty good guess. The broker dealt primarily with smaller wine and liquor companies. In fact, most brokers do, as larger wine and spirit manufactures usually bring the task in-house. The math is relatively simple: if you’re dealing with smaller companies, then when you multiply your commission times the sales of these smaller companies, the result isn’t enough to keep things going.

I particularly regret the demise of this broker, as they had done an excellent job for us. A small winery is very limited in its ability to project itself into the market place, particularly in far-off places where the hassle and cost of travel makes frequent trips to the marketplace difficult and cost-prohibitive. Having a local broker that can assist in these sorts of efforts is, if not absolutely essential, very helpful.

So where does that leave us, the winery? I’m hoping that we’ve established enough of a presence in that market that we’ll be okay. After all, we still have the distributor, who is out there selling out wines. But now that assist that the distributor received from the broker is history. So we’ll have to wait and see.

But the message for the wine market as a whole isn’t a good one. The economics of running a small operation are challenging. When the volume of goods to be sold is small, it’s tough for anyone to make enough money to justify the time and effort required to move them. Gallo doesn’t have that problem, but small producers always have. But this last recession took many of the small players (such as the broker) that were just above the line below the line. Hopefully, the economy is finally pulling itself out of the most significant downturn in my lifetime, which hopefully will counteract some of the long-term trends running against the plight of the small distributor and broker. But it’s hard to be sanguine about the long-term plight of these smaller companies, which are so essential to the small winery.

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8 Responses to “The biggest challenge to a winery”

  1. Mark Norman says:

    Jeff…I hate to say it but you may be seeing more and more of this sort of thing because consumers are changing rapidly, and that is also creating problems in the distribution system. I know of a NYC based importer (who has a portfolio of 300+ small family wineries from around the world) who is planning on dropping a 1/3 of the wineries to focus on only the most profitable ones…that will be a 100 wineries looking for a new home (?).

    We can bemoan the negative aspects of the 3 tier system but the states generate far too much revenue to ever let go of it. The cost of shipping individually (DtC) is too high for most consumers to handle for all their wine purchases. Basically we are stuck using what we have.

    Yet a new way to reach consumers is starting to emerge and a new form of broker will develop from it (Cave Nil Vino is one) that can provide much more in the way of options for wineries to reach consumers.

  2. Bill Bryson says:

    Mark, Each point in your reply is wrong. Shipping is included in the end price to the consumer regardless of whether they buy it from a retailer or direct from the winery. It isn’t as though the distributor or retailer is picking up the shipping for free or out of the good of their heart. The three tier system only benefits the distributors that hold a monopoly on the distribution in the state. And taxes are due to the state regardless of whether the wine is sold direct from the winery to the consumer or through the three tier. But you make the point for the elimination of the three tier system with your example of the 200 wineries that will not be imported. That importer now limits choice to the consumer. WIthout him, the market would work more efficiently and consumer choice would be much greater. Direct-to-consumer = greatest choice for the consumer and best chance for a winery to stay in business.

  3. Rick Davis says:

    Not yet sure what Cave Nil Vino’s niche is (which I’ll check out later) but there may be yet another hope — in the form of at least one visionary start-up from Chicago called Winestyr. They intend to be a “Groupon” for small wineries…and they have huge ambitions! They’re at http://winestyr.com/ and are poised to launch soon. They’re also on LinkedIn…so folks can connect, read about and follow their progress there as well.

    Don’t know if an enterprise of this nature is likely to be sufficient enough to both attract new buyers and sustain them as long distance patrons — but hey, there’s always hope! Given the universally steep discounts involved with such endeavors, I admit to wondering why so many businesses were so willing to give up so much of their normal margin. Well, it turns out of course that for every Groupon Coupon sold…that’s a customer in the door buying said product or service…with a reasonably predictable likelihood of repeat business after the hugely discounted introduction. According to virtually every businesses I talked to, they couldn’t get the kind of “customer in the door” exposure they get with Groupon/DealSaver etc. if they spent ten times the money in print, radio or tv advertising.

    Hope springs eternal!

  4. George Parkinson says:

    Jeff,
    Times are changing for both producer and sales engine, weather broker or distributor.

    The new player is social media. How its employed and how effective it an be in actual sales is a work in progress and I suspect DTC rules will have a say in that effectiveness as well. But this new path to market and the new younger consumer shouldn’t be viewed as a fad or a marketing tool only.

    Two years ago, while conducting a wine tasting in a restaurant in Philadelphia, i witnessed as many as 20 attendants texting and FB posting their real time experiences which immediately impacted that restaurants next several wine events in reservations and popularity. That type of guerrilla tactic needs to be employed daily if not hourly in order for a brand or a broker or a distributor to compete effectively in this new age.

    So far these efforts are being viewed by many as a video game rather than an effective sales tool.

  5. Ron Saikowski - Wine Walk Columnist says:

    I believe the Distributor is the Key in selling wines from winery to retail. They are the ones that push the wine to the retailer and make the deals to t he retailer so the retailer can price the wines at a lower price. Yes, Price dos matter! I have seen much better wines get left behind by the distributor because the winery was not providing additional fees to the distriubtor. It might be illegal, but it is happening. You will see bad wines go through retail fast because that Distributor paid by the winery is pushing that bad wine over good wine. Money talks!

  6. [...] The Biggest Challenge to a Winery Jeff Miller discusses what happens when your broker decides to close up shop and how this affects [...]

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