The Merchant23 Blog

The Merchant23 Blog

Distributor Consolidation: Why There's Still Hope For The Little Guys

December 05, 2017 / by Olivia Schonewise

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If you've followed the alcohol industry for any length of time, you know that large distributors are continuing to consolidate every year. In the past, consolidations led to small producers getting dropped, independent retailers having less diversity to choose from, and consumers becoming frustrated by the lack of options. Now, for the first time in history, the little guys have reason to be hopeful.

 The new three-tier system model

Distributors have begun rapidly consolidating in the last decade. Today there are about 500 major alcohol wholesalers in the US market, down from 7,000 at the turn of the century. To adapt, some producers and retailers have started using a new three-tier system model; the winery direct model. In the winery direct model, a retailer sources products without the help of a distributor. The products are then shipped directly from producer to an in-state distributor, who clears the transaction for a small fee, and delivers the wines to the retailer. The winery direct model was born from retailers' desire to purchase wines not found on their distributor's books and from producers' desire to sell their wines in new markets.

While this model is perfect for both small producers and retailers in theory, it has required a tremendous amount of work. A retailer must research and find the products they want, negotiate pricing with the producer, and figure out logistics with in-state distributors. Presently, the only retailers who consistently use the winery direct model are those who have enough buying power and resources to do so (think Total Wine & More, Costco, Grocery Outlet). These retailers are clearly not the little guys - but recently that's started to change.

 

Technology is leveling the playing field

Thanks to advancements in technology, small producers and retailers have begun using the winery direct model through Merchant23.com. Merchant23 is a searchable, online marketplace of wholesale wines. Products are uploaded with bottle shots, tech sheets, and wholesale case prices. Any buyer in the United States with an ABC license number can view them. This vastly simplifies the sourcing aspect of the winery direct model. But it's not just the sourcing problem that Merchant23 fixed. Licensed buyers can also purchase the wholesale wines on Merchant23.com and have them shipped directly to their stores - all while remaining compliant in the three-tier system. How is this possible?

Merchant23 took the winery direct model and innovatively built partnerships with local distributors in 48 states for clearing and compliance. This allows for any product on Merchant23.com to be purchased by any retailer in the United States! * 
*Excluding retailers in Utah and Pennsylvania

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Hope remains

The-three tier system is here to stay, at least for now. However, the small wineries who have difficulties selling their products, retail owners desperate for help with sourcing products, and local distributors looking for competitive differentiation against the industry behemoths - they all need something new. Thanks to consolidation, they finally have it. The winery direct model and Merchant23.com were created in response to consolidation. Since Merchant23's launch in 2016, the company has sold millions of dollars' worth of wholesale wine to retailers across the nation. That's just one company! Think of the innovations and new companies that are growing and adapting at this very moment.

When the news broke this November that Republic National Distributing Company and Breakthru Beverage were consolidating, many people felt dread. They worried about their place in the market, the new era of distribution, and how that will affect their livelihoods. However, for the first time, people also felt hope. They see that there's still people in the world to champion for the little guys.  Small businesses shouldn't have to die because of consolidation; not this year, not next year, not ever. 

 

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Topics: Wine, Wholesale, Three Tier System

Olivia Schonewise

Written by Olivia Schonewise

The Merchant23 Blog