Consolidation in the wine business

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

An article appeared last week in the Wine Curmudgeon which highlighted the degree of consolidation in the wine business. I’m not going to repeat what appeared there, except to say that well over half the wine sales in America are made by just a few behemoth companies. The post is certainly worth reading and can be found at http://winecurmudgeon.com/big-wine-tightened-its-grip-on-the-u-s-market-in-2013/.

It’s not like there have never been big wine companies until recently. Going back as far as I can remember, there have always been big players. After all, Gallo didn’t appear yesterday. But there is no question that this trend has accelerated. But why?

There is no single cause, but the common factor in all the causes is that it has become more and more difficult for the smaller winery to compete effectively. And I think that although it is something that has been in the works for a long time, the Great Recession certainly pressed the pedal to the metal.

Marketing and distribution comes first to mind. The Great Recession was a disaster for the small distributor. As credit became more and more difficult to come by, the smaller distributors either went out of business or were gobbled up by larger rivals. The fact that consumers gravitated towards cheaper wines, at price points that the small winery (and distributor) could not meet, didn’t help matters either.

Larger distributors just don’t have the same level of interest in smaller wine brands. Distributors that need to move millions of cases of wine just don’t have the time, interest, or profit motive to handhold wineries whose sales are in the tens or hundreds of cases instead of in the thousands and tens of thousands or even hundreds of thousands of cases.

The same problems with credit that the small distributor experienced the small winery experienced as well. It’s a simple fact of life that it takes money to make money. If you already have money, then that may not be too much of a problem. But if you don’t, then you need to borrow it or find investors. The recession made either very, very difficult.

And finally, we are seeing in the wine business what we’re seeing in many other consumer industries as well. The ability to market trumps everything else. More and more, selling wine is akin to selling mouthwash. But marketing is very expensive. There is no way a small winery can make that kind of investment.

That’s not to say that there are not other ways that the small winery can compete. Social media and marketing by hitting the pavement are still available. But these alternatives mean that at best the small winery will be a niche player. They will not disappear, but market share will continue to decline.

Another factor which, I admit, is less important than the ones I’ve already discussed is that I think big wineries are making better wine than they used to. There was a point in my life where I thought few large wineries were making decent product. I think that’s still the case for many of them, but many others are doing a remarkably good job. The only reason that I don’t rank this factor higher is that I no longer think that the quality of what is in the bottle is the preeminent issue.

I don’t think that this trend is reversible. There will always be small wineries, but their market share will continue to decline. I would not be surprised to see even more consolidation of the larger brands. I hope we don’t one day end up with one Megawinery. Inc., as our source for most of what we drink.

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