Distributor consolidation is a huge issue - not enough distributors to handle all
the suppliers - they saw this as an opportunity and are working with distributors to bring in product direct from suppliers and make them more profitable per sale
As a result of this explosive growth, we have retailers forming alliances and copying the same model and banning together to create massive buying power to reduce the cost of product and barrier to entry.
Distributors offer a precious service. They will take the title of the product, pay the necessary taxes, get the proper licenses, collect POs and invoices, and handle merchandising. All in one stop.
The distributor does not make the product, and they do not sell the product to the consumer. They do dictate what's available to the retailer and how much margin both supplier and the retailer make.
Distributors are the state-mandated supplier for the retailer. As such, they have a lot of control over the profitability of products. Retailers are limited to the products they carry on their books. For all intents and purposes, you and the retailer are at their mercy.
Even more so with the trend of distributor consolidation. There are not enough distributors to handle all the suppliers. A huge pain point for wineries who get cut off from markets - and to the shrewd businessman like Total Wine, a huge opportunity. Total Wine worked with distributors to bring in product direct from suppliers through the use of clearing distributors, taking this disadvantage and turning it into a profitable opportunity. We detail the strategy here if you’re curious.
As a result of Total Wine’s explosive growth, retailers are forming alliances and banding together to leverage their collective buying power, thereby reducing the cost of raw product and helping their margins.
As a consequence of this behavior, companies like AllBev, The Wine and Spirits Guild, and Merchant23 have sprung up to provide winery direct solutions for wineries, giving them on-demand distribution.
This is the next step of evolution in the wine industry.
Winery direct is the winning strategy Total Wine & More has used to grow up to 173 stores in just 26 years. In 2017 they made over 2 billion dollars in revenue with a projection to be at 3 billion by 2019.
Companies like Merchant23 have sprung up to give that same power to the sellers, so they can register a product, have on-demand distribution, and fulfill their own sales.
Wouldn’t you agree that having more control over your business is a good thing?
Winery direct is buying the product straight from the supplier mitigating the distributor's wholesale mark up. This process allows access to better pricing direct from wineries. This is better for your bottom line and margin, and the retailers.
The winery direct mechanism uses clearing distributors. A good clearing distributor network can get the product to retailers in all 50 states. This allows retailers higher margins, exclusivity on the product, and a better competitive advantage.
Either you or your distributor (or both) will have to register the product. It is because of this extra step that you give the retailer a better margin. Once registered, you can keep selling your product to the state. Luckily companies like Merchant 23 are partnered with Federal Importers to help mitigate this cost.
It’s no secret that Total Wine & More is one of the most successful retailers in our industry and a behemoth to be reckoned with. Their 172 store growth in 26 years can all be attributed to the winery direct model. They even tell you, point-blank, on their website “...more than 2,000 Winery Direct and 900 Spirits Direct items.” Can you argue with 2 billion dollars in revenue?
A recent write up in WineBuisness.com talks about how Total Wine is going to focus even more on the winery direct model in 2018 by expanding the category. The owner's project 3 billion in revenue by 2020!
We have a strategy guide to help you get started with this newest trend. Download below.