Wine Marketing Caught in a Squeeze : Wave of Mergers and Business Failures Has Reduced Competition, Discounting
In 1974, the Louis Martini Winery had about 40 wholesalers selling its wine in Northern California alone. Today, the Martini winery has one wholesaler for the state.
Wine maker Mike Martini thought about the changes in the way wine has been marketed in California during the past decade and he said, “Things used to be a lot easier.”
Marketing wine today is a headache. In the past two years or so, a wave of mergers and business failures has reduced competition in wine marketing and thus reduced the discounting that was so common soon after a fair trade law requiring a minimum price for alcoholic beverages was wiped out in 1978.
Now, not only must a winery place its product with one of the few remaining major wholesale houses, but often a brand is at the mercy of competing brands in the same wholesale house that are tied to important liquor sales.
In addition, as competing liquor brands have come under the same ownership, some key brands have been pulled from wholesale houses. This has meant financial hardship for the wholesalers, some of whom merged to survive. Others simply went out of business.
Only a handful of the major wholesale houses remain from the hundreds that existed in the 1970s.
Martini said wholesalers today are so burdened with large numbers of wineries to represent that they simply do not represent his winery as they might with fewer wineries. He said he has been forced to add four people to his staff to handle marketing chores that previously might have been done by the wholesaler--such tasks as making point-of-sale signs.
“When you have reps with (sales) books that look like the New York City phone book, there is more pressure on the salesmen,” said Darrell Corti, a Sacramento wine merchant. “And since there are a lot more products out there, the merchant is forced into a position of not having much loyalty.”
Martini said the retailers best able to take advantage of the trends in the wholesale wine trade are the major grocery store chains and a few large, well-financed specialty wine shops that understand wine marketing.
“About 70% of our business is being done in the chains,” Martini said. “One-stop shopping is the marketing of the 1980s, and establishing wine as part of our culture is done best through the grocery store.”
That was one key reason Mark Newman, a Southern California wine industry executive, formed Vintage Financial Corp. and in August bought Liquor Barn’s 16 Arizona stores.
Newman said a key to the deal was Vintage’s intention of putting specialty foods, cheeses, coffee, tea and other gourmet items into the stores.
That same strategy is being used by Steve Boone, who helped develop and operate Safeway’s successful Liquor Barn division before Safeway was taken private in a leveraged buyout and the Liquor Barn division was sold.
Safeway, taking advantage of its large warehouse and trucking operation, set up Liquor Barn in 1979. Starting with one store in San Diego, Liquor Barn was a full-discount operation that eventually grew to more than 100 stores.
Boone, now president of Cost Plus, based in Oakland, said in an interview that Cost Plus has begun adding discount wine departments in all of its 31 California stores. “We already sell a line of quality wine glasses and we have about 860 gourmet food items in our stores, so this is a natural extension,” Boone said.
Cost Plus already operates a free-standing wine shop at Fisherman’s Wharf in San Francisco, and Boone said the limited-selection discount wine concept was test-marketed in three Northern California stores with great response.
“Since we added wine to 25 of our stores, our response has been terrific--50% higher than we expected,” Boone said.
Liquor Barn, on the other hand, has suffered recently under Majestic Wine Warehouses, a British concern that acquired the chain for about $105 million.
One industry source said Majestic “paid too much for Liquor Barn and then didn’t understand the dynamics of wine marketing, so a lot of money was wasted at the start. Also, they didn’t have a warehouse or trucking system, and that hurt them.”
Revamping Operations
A source at Liquor Barn said: “We do in fact owe companies money, and a lot of them have us on COD, but we’re paying our bills.” The source acknowledged, however, that “we may have made a lot of odd (wine) purchases.”
However, Frank Berger, vice chairman of Liquor Barn, said the company is revamping internally “to find a more efficient way of doing things,” including moving some key wine specialists from roving positions to store-level positions.
Still, being forced to pay cash for wine has limited Liquor Barn’s buying power, and store shelves now are lean and prices nowhere near as low as they once were. To save money, the company reportedly has cut its in-house wine education program and trimmed in other areas.
In a bulletin to employees, however, Liquor Barn President Bob Vonderhaar recently said that the company was going ahead with plans to add 39 stores in the next three years.
Liquor Barn’s troubles have actually helped shops like the Wine House in Los Angeles, a large specialty shop that buys carefully and offers prices competitive with the lowest in town. High-demand wine that once might have gone to Liquor Barn now goes to places like the Wine House.
Buyer Chris Sandin said the Wine House takes an aggressive position with wineries, and that it’s fairly simple: “We buy lots and lots of merchandise, and sometimes that can help you with a particular house.”
“The salesman has a lot of other products he wants to sell,” Sandin said, “and we have a sophisticated clientele, so we can afford to take things that are a little more esoteric, and usually the salesman can find us a few more cases of that Cabernet we wanted.”
Buy at Auctions
Steve Wallace of Wally’s in West Los Angeles takes pride in the fact that he is current with the hottest new wines. He travels to California’s wine country areas frequently and buys certain specialty wines not available to competitors.
Wine merchants Dave Breitstein of Canoga Park and Paul Smith of Northridge use another tactic. They buy wine at auctions such as the Napa Valley Wine Auction and the Sonoma Auction & Showcase, thus bypassing the traditional wholesale network for such key items.
The practices of Wallace, Breitstein and Smith augment their offerings and bring in savvy buyers. The bulk of the retail shops, however, are forced to deal with an ever-shifting wholesale market.
“With so many brands in so few houses, it is putting too many brands in the hands of too few people,” wine merchant Corti said.
Also, brands are moved around from one wholesaler to another as wineries attempt to find the right representative. Corti noted that “people play games now. Within four years I’ve seen a wine brand go back and forth, from one (wholesale) house to another house and then back to the original house.”
Jon Fredrikson, a San Francisco-based wine industry consultant, said the shifting of liquor brands from one wholesaler to another is based in part on the shrinking market for distilled spirits.
“The brands have shifted around to get their sales back in place and because of the consolidation (of distillers), with the shuffling of different brands to different owners. And the movement of liquor brands has affected wine,” because some wine is tied to liquor brands.
Must Use Distributor
For example, Everett noted that Jack Daniels whiskey is an indispensable brand to liquor stores, and that Brown-Foreman, which markets Jack Daniels, also markets Parducci, Bolla, Korbel and Cella wines. And Heublein has the important Cuervo and Smirnoff lines, as well as its own Inglenook and Beaulieu.
“It makes it very difficult to buy, because if you don’t like buying from a particular distributor, you still have to,” Corti said.
He said most wholesalers hire liquor sales people who know less about wine than they should. “The people who have to sell that stuff (wine) don’t know how to do it. All of the wineries that make a serious quantity of wine, say 50,000 cases, need to be in a distribution system that gives them exposure, but unfortunately everyone wants to be in the same distribution system.”
