Rabobank Takes Bets On Future U.s. Wine Market Conditions

Posted: Sep 05, 2018

One of the nation’s leading investment banks has quite a lot to say about what the wine future holds. Rabobank, and its New York-based global strategist for beverages Stephen Rannekleiv, have long tracked the growth of and changes to the wine business. The institution’s third quarterly report, published in July of this year, had a number of interesting insights.

Rannekleiv noted that major changes this year include a tight 2017 harvest in both Old and New World areas; continued consolidation among wholesalers; and a potential lessening of the costs of bulk wine in many regions around the world.

The United States continues to be the largest wine market in the world, he noted, and it continues to constantly evolve. “It is also widely seen as an exceptionally difficult market to penetrate [particularly for small wineries] given the [existence of] the three-tier system, retailer consolidation,” he concluded in the report.

The Nitty Gritty of the Situation

Rannekleiv noted that a number of factors are also hugely influencing the wine sales market in the United Sates. They include continually merging suppliers and importers; major chains—such as noted multi-unit Total Wine & More—aggressively discounting; and over-the-border shipping and taxation issues such as what has recently occurred in both the Chicago and New Hampshire markets.

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One of the largest wholesale mergers was the consolidation of Southern Wine & Sprits and Glazer’s, which is now called Southern Glazer's Wine & Spirits, two years ago. “The process of consolidation has had tangible benefits for some large suppliers who can now access the market via a single wholesaler,” shared Rannekleiv.

Some of the smaller players—who would not even have been called minor in years’ past—such as the East Coast-based Winebow and Napa-based Wilson Daniels—are also trying to expand their sales footprint. “The dilemma facing small suppliers of whether to work with a large wholesaler but may not give their brand sufficient attention an to support, or to work with a smaller wholesaler that may not have the same market access is not new, but has become exacerbated with the ongoing consolidation,” he noted.

Other major changes to retail distribution of wine and spirits include the market entry of major chains such as Total Wine as well as myriad delivery vehicles. Drizly, a Boston-based company that operates in more than 100 states, is one of the largest and is partially funded by a separate Dba of the Washington, D.C.-based Wine & Spirits Wholesalers of America Association.

Rannekleiv also shared that Total continues to be a formidable competitor to other retailers. At the same time, “The chain has been a boon for many small- to medium-sized suppliers that have found success in supplying the retailer with exclusive brands at very reasonable margins.” Few operators can offer an impressive 10 winery-direct imported Bulgarian wine brands.

What Lies Ahead

The standard mom-and-pop retailer in the United States is facing some major challenges. Since UPS and Fedex pulled out of retail shipping into 36 states in fall of last year, it has been an uphill battle for many well-known national operators to keep a national customer base.

“Moving into 2018, these retailers are now facing a challenge, as Fedex, UPS and other carriers have announced that they will no longer accept interstates shipments of wine, responding to pressure from states that have been increasingly seeking to enforce bans on shipments from out-of-state retailers.”

This ban will continue, sadly, to be most strongly felt in states that have the weakest wine markets. So it is not about New York or the West Coast, where there are vibrant wine production, retail and auction markets. Is it just a question of when executives in Bentonville or retires in Florida realize that they have been cut off from access to great vintages and many imports because of the way that the current three-tier system is being enforced.

By Liza B. Zimmerman
September 4, 2018
Source: Forbes.com

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