The retail landscape is rapidly evolving as more consumers seek new and convenient ways to make purchases. On the other hand, how most retailers buy wholesale wine hasn't changed since 1933...until recently.
In the Three-tiered System, most retailers still purchase wine under the Conventional Model. Here is a quick rundown of the Conventional Model; a winery sells its wine to a distributor, then the distributor presents their 'book,' or a portfolio, of wines to an in-state retailer. The retailer views options from the book and places purchases directly with the distributor. The retailer then turns around and resells the wine to consumers.
Phew. Did you follow that? Here's a visual map to help:
In the United States, wine has been sold this way for almost a century, and it's expensive. So expensive in fact that many of the industry behemoths (Total Wine & More, ABC Fine Wines, Costco, Grocery Outlet) have now created a new way to buy wholesale wine within the three-tier system.
These retailers have started using the Winery-Direct Model. In the Winery-Direct Model, a retailer sources the types of wine that sell best to their specific customers. The retailer then places their orders directly with those wine producers. For compliance purposes, an in-state distributor takes title of the purchase order to clear the wine into the state; then the distributor transfers the wine over to the retailer.
Visually, it looks like this:
The Winery-Direct Model is growing fast. Why? Because it gives control back to the retailer. Retailers can access and purchase the exact wines that fit their customers' needs and aren't limited by the offerings of their distributors.
Retailers are also saving a tremendous amount of money. By only using distributors for clearing and compliance, the distributor margin is slimmed significantly. Winery direct enables retailers to earn higher margins and generate more profit.
Perhaps the biggest reason why more and more retailers are adopting the Winery-Direct Model is for competitive advantage. By sourcing new producers, retailers sell unique wines that their competitors can't directly price compete with and wines that their customers can't find anywhere else. Thanks to rapid consolidation within the distribution industry there are fewer distributors per state and therefore less product diversity. This translates to nearly every retailer offering the same products at the same price points when using the Conventional Model.
If you're contemplating which three-tier model your business should be using, here's a side-by-side comparison of the Winery-Direct Model (aka Merchant23 Model) vs. the Conventional Model. The infographic compares the statistics, costs, benefits, and differences between the two.
As the world of retail is growing increasingly competitive, and web technology is changing consumer behavior, it's no wonder wholesale wine buying behavior is changing too!
Why does the Winery Direct Model work?
In summary, the Winery-Direct Model works because of exclusivity, high margins, and great products. It has been such a successful program for Total Wine that they intend to expand to "more than 2,000 Winery Direct and 900 Spirits Direct items" according to Total Wine's Website. By Utilizing their network of distributors Total Wine & More has brought in exclusive wines at great prices. Winery direct has given them a tremendous competitive advantage that has allowed them to grow to nearly 3 billion in sales. This is made possible because small wineries don't get picked up by distributors and they are an underutilized resource.
You do not have to be a big company like Total Wine & More to take advantage of the winery direct model. Lucky for you Small retailers and wineries alike are using this model to grow their businesses as well. You can take advantage of the Winery-Direct Model as well.
Check out our Three Tier comparison chart below.
Use this chart to visually compare the different:
• Costs Associated