Thursday, February 4, 2016

Two Giants Join Forces...Why You Should Care

When we hear about huge companies consolidating most people shrug. If you own stock in one, you might receive a windfall but otherwise, most people spend little or no time considering the implications. This is especially true when it comes to wine/liquor wholesalers. Consumers pay attention to wine outlets that carry their favorites but not the distributors that sell to those stores. However, this new, massive operation could affect the variety of wines you see on shelves and lists.
In the Wine Spectator, Matt Kramer wrote, "The renamed Southern Glazer's Wine & Spirits LLC will have approximately a third of the U.S. spirits and wine market in dollar terms, according to Impact Databank." You can read the rest of Mr. Kramer's article here but he addresses the concerns about small wineries being squeezed out of portfolios, or not even allowed in, due to such a wide array of wines already under one umbrella. Those neglected wineries can, and do, find smaller wholesalers to represent their products but that's only half the battle. They need to sell them to restaurants and stores and that process will be tougher after this consolidation.
One ironic effect of a wine and spirits distributor significantly growing in size is that they actually need more salespeople. With so many products in their book it is hard for any one person to know what they sell, much less be informed about the products. Even if some savant could master the specs, stories, deal pricing, etc. of the massive portfolio they would either make insane amounts of money selling to dozens of accounts or they would need to be limited to a handful in order to keep their income at a reasonable level. To avoid either of these extremes, wholesalers carve out portions of their portfolio into sales divisions and hire salespeople to represent that section of the entire book. An interview published in Shanken News Daily, quotes Wayne Chaplin, a senior executive at Southern Glazer, saying, "For many years now, we've had dedicated sales teams, both in spirits and wine, to take away clutter or conflict. We've built fine wine teams, craft teams and artisanal teams, and we'll continue to expand on that. Once Southern and Glazer's are combined, we'll have more people in the field to ensure we're representing all our products in the right way." [Here is the rest of that article].
This means a buyer who used to see two reps from Glazer's might now see five or six from the larger entity. No big deal you say? Sommeliers and retail buyers can not magically create an extra hour or two in their day to see more salespeople. What usually happens is that the smaller distributors, the ones with lots of esoteric, fun wines, lose face time with decision makers because they do not carry "must have" products. This makes it very hard, and, eventually, perhaps impossible, to sell enough wine to remain in business. The consumer loses here although he or she may never notice.
Larger companies are also selected to design and execute shelf layouts for wine and spirits in grocery and other chain outlets. For example, Kroger is now doing away with an old system and placing Southern in charge of their 'sets' [Shanken News Daily]. This means Southern will decide (mostly) what wines are represented in the store and how they are arranged. This is a big, big deal. Think many Southern Glazer products will be on the bottom shelf? Granted, chain stores are primarily outlets for mass-produced, name-brand alcohol and this will make it even harder to change that.
Mr. Kramer goes on to make the point that in many states people can buy direct from wineries or ship wines in from other states. This only works if you actually know what you want but how can you really know if you can't experience the wines first? A great way to experiment with regions or grapes unfamiliar to you is by trying some less expensive versions but would you really pay to ship inexpensive wine? At the risk of sounding like the old man on the porch griping about the planet, this continuing trend of consolidation is insidious and has bigger consequences than people realize.