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 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. This enables retailers to earn higher margins and generate more profit.
Perhaps the biggest reason why more and more retailers are adapting the Winery-Direct Model is for competitive advantage. In 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 less 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 techonology is changing consumer behavior, it's really no wonder wholesale wine buying behavior is changing too!