Distributing the Praise and the Blame
(Originally published November 2006)
Let’s make believe for a second that people actually read Hanes’s reviews of individual wines. These people think a few wines sound worth trying and look for them. It’s an admitted fact that Hanes drinks fairly obscure wines or, at the very least, wines that are not made in very large production numbers, that is, enough produced to saturate different locales throughout the United States. This can be frustrating for readers. Well, too bad, Hanes isn’t drinking Turning Leaf just to be a swell fella. Hanes hustles to find these wines, youse gotta do the same.
That said, there’s a cyclical phenomenon in the wine industry which can make it even harder to find many of the wines reviewed herein. It’s nothing truly new, but right now, we’re at a point in the cycle which doesn’t necessarily favor the savvy wine consumer. It has to do with the size and scale of wine distribution and a current trend towards consolidation. This is one way of saying, any knowledgeable wine consumer has to be aware that not only are not all wine stores alike, but not all wine distributors are alike. The differences among them represent a tremendous factor in the sorts of wines you will be able to find locally. So, let’s paint a broad picture of wine distribution to improve general public education and weal.
A lot of this issue boils down to a single factor. This being, what percentage of total sales and/or profits does wine represent for the distributor in question? The answer to this question has a lot to do with wine sales because many larger distributors derive the majority of their profits from the sale of hard alcohol and not wine. And because it is hard alcohol that captains the ship, “fine wine” often does nothing but swab the deck.
Now, before the hue and cry goes up from outraged salespeople employed by large distributors, this is not to say that their portfolios do not contain many fine and upstanding wines of esteemed pedigree. What it does mean is that, more often than not, money talks and bullshit walks. Especially in the wine business. Which is, in effect, the booze business. Naturally, this is but a single opinion and others will disagree. But this is how Hanes sees it and, hell, it’s his website. Dammit.
Size plays a major role in the distribution of wine. Size in terms of the distributor as well as in terms of the quantity of product too. Wine distribution is the furthest thing from a level playing field. As alluded to at the outset, there’s a lot of wine out there to be sold. Perhaps too much. Any given store or restaurant/bar can stock only so many different types. Many factors play into the decision of choosing the wines. Not all have to do with the quality of the wine. That’s two short declarative sentences in a row by Hanes. This is a world record.
Back to hard liquor. Brands sell and make people millionaires. Think Absolut, Stoli, Tanqueray, Bombay Sapphire, Jim Beam, Jack Daniels, Bacardi. The distributors which control these brands possess incredible clout. Every store or restaurant carries brands like these. The demand is huge. Note in passing that the profits in hard alcohol are much higher than for wine. These are huge volume businesses. Even if in most cases the margins are thinner, the quantities sold more than make up for it. (Note further that this is why wine stores don’t include hard alcohol in mixed case discounts, the profit margin is lower and differs too much from still table wine to offer the same 10/15/20% off on the hard stuff.) Major alcohol brands face stiff competition. Among themselves and from new “trendy” brands. So, there’s always games being played to maintain market share. Special discounts, giving out swag, other things more nefarious. In New York State, a lawsuit was just settled wherein major distributors got their hands slapped for favoring some retailers over others, showering them with gifts, trips and other shit to keep their product on the shelves and their competitors off the shelves. These distributors were fined millions of dollars! Hah! What a joke. They are still laughing all the way to the bank, contrition not even in the picture. This type of behavior is not going to stop, no way José. There will be the proverbial “fifteen minutes” of notoriety and public apologies then the authorities will go back to sleeping on the job. Like the saying goes, “Plus ça change, plus c’est la même chose.”
Here’s the scenario. You own or manage a wine store or restaurant/bar. Size doesn’t really matter too much, you can be small, medium or large in size. You’re busy, why, harried even. You know you will be getting your Brand A of vodka, Brand B of whiskey, Brand C of tequila. The sales rep is there, right in front of you taking down the order. He also happens to be selling a Chardonnay from California and a Shiraz from Australia. It’s decent, maybe good, maybe bad. Who knows. Who cares? It’s real easy to order from them. One delivery, one invoice to pay, less overall aggravation. Chances are the product will sell just about as swiftly as its immediate competition would. Few people are going to care. And big brand hard alcohol purveyors tend to carry big brand wines, those with marketing clout and name recognition. Sweet.
If you read Hanes’s blatherings chances are high that you are one of a select few who would care. Believe it, you are in a very distinct minority. The numbers show this. Most retail and “on-premise” (restaurants/bars where the booze is consumed on the premises) wine buyers don’t care because their clientele doesn’t care. There are a zillion of “them” and thousands of “us.” If this were not the case, the sales numbers would be different. This isn’t a normative judgment, it’s just basic empiricism.
Most, if not all, of the major distributors not only have “salespeople” but they divide up responsibilities, their business is so large. A wine store can have a sales rep who sells them Distributor X’s wine and an entirely different sales rep who sells them Distributor X’s hard alcohol. This cracks Hanes up because it underscores how big the money is - it flies right in the face of using the booze to sell the wine by divorcing the purchasing of either from each other, the benefits of which were illustrated above. But they can afford to do it, and the booze guy’s mental hard drive isn’t big enough to remember the “story” behind that Washington State Merlot or New Zealand Sauvignon Blanc and more effectively sell it. Better to let the booze guy focus on printing money for the company with gin and rum and get someone else to try and move the wine.
Now, of course, it’s not all such doom and gloom. First, a lot of the largest distributors do end up hiring wine salespeople who like wine and care about wine. And the wines in their “book” may include some wonderful high end gems and cheapie winners. However, the wine divisions of these bigger guys are always under the gun because the people running the whole operation rarely care about wine as deeply as these foot soldiers do. And the wine divisions don’t add as much to the bottom line either. Where’s the shareholder value?! In some regards it’s a fanciful luxury, or maybe even a clever beguilement, to keep fine wine around. Distracts people from the actual nature of the booze peddling biz.
Hanes doesn’t drink a lot of “big brand” wine. Sometimes he’ll buy a bottle for shits and grins. Or someone else will open a bottle around him and perverse curiosity gets the best of him. No Yellowtail, Ruffino, Santa Margherita, Gallo, Mondavi, Black Swan, Napa Ridge, Meridian, Sutter Home, Fetzer, Kendall-Jackson, etc. Sorry, kids. Nevertheless, the quantity of cases sold of these types of wine staggers. And remains highly bound to the sale of hard alcohol. Conversely, if a large distributor does have a highly desired, small production wine, it’s “allocation” may be to the accounts who play nice with said distributor and buy big across the board (another point of contention in the aforementioned lawsuit).
Enough beating this horse further to death. On the other end of the spectrum, there’s the “boutique” distributors, smaller operations hawking “artisanal” wines. The quantity of such distributors tends to wax and wane cyclically. No real rhyme nor reason. Today they are kind of on the decline. Bigger fish swallow them to bolster their book of wines until the general scene reaches a point where a “white space” appears in the market and some young buck goes out on his/her own and opens up a tiny distributorship. Until they then grow and become attractive for acquisition. Or fail. And so the cycle turns. There will never be a lack of new guys on the block, dollar and dream in hand, ready to preach the gospel of the vine to the huddled masses. Just the way it goes.
Scale is a pervasive factor here too. Small and/or new operations don’t have millions to sink into product until it gets sold, the profits to be put back into the business to buy more product to sell. So they tend to align with smaller producers who themselves don’t make a lot of wine. It all fits nicely. And it tends to fill Hanes’s belly too, since these continue to represent the lion’s share of the world’s distinctive, idiosyncratic wines. Living in New York City, Hanes has easy access to the majority of these wines. As with wineries, small distributors tend to deal with “boutique” wine stores and high end restaurants and wine bars, of which NYC is decidedly not lacking. Denizens of and visitors to this fine city know of which Hanes speaketh.
These small fries have to fight and scrap for their mere existence and it’s not always easy. They cannot offer multiple case discounts at the level the big guys can. For every wine that sells easily they have a half a dozen that require pleading to move. They may sell “small production” hard alcohol but this is obviously nowhere near the scale or demand to cement entry into new accounts. Life is spelled r-e-j-e-c-t-i-o-n.
Today we have the glories of the internet. And inter-state commerce, even if tricky and/or illegal in many cases. Be that as it may, chances remain high a consumer in less urban geographies can order small production wines from New York City, San Francisco, Chicago, Seattle, etc. As the bare minimum of educated wine buyers grows in these other locales, regional boutique distributors slowly appear to provide certain wines locally. Maybe not the wines Hanes sees here in NYC but fairly comparable. Alas, these ventures are fraught with danger and despair. That’s life: see previous paragraph times two.
None of this is brain surgery. To Hanes, the most interesting aspect of this equation are the “middle tier” distributors. These operations represent the biggest challenge for Hanes when it comes to buying wine. It’s a big gray area trying to figure out these guys’ books and separate the good stuff from the more generic, larger production stuff. They do sell both. And they compete with both the big guys and the little guys. Note that this is not to say that small production mandates high quality or that large production mandates poor quality. Although the latter is more likely, “poor” here meaning generic and lacking uniqueness. There are plenty, plenty, plenty of crappy wines made in less than 2,000 case lots. Or 200 case lots. Hanes has the scars to prove it.
The middle tier guys are large enough to have clout (i.e., things the customer wants and the size to offer meaningful discounts/perks) and have been around long enough to have developed deep relationships with account buyers. Middle tier distributors appeal to established smaller brands such as Californian Cabernet producers with “cult wine” designations who want to place their wines in well-known restaurants and such. They appeal to mid-tier importers who need a sales distribution organization large enough to pay attention to and sell all the wineries they import, a problem which occurs all too frequently with the largest distributors, where many wines (or even entire importers) kind of get “forgotten.” Such importers often cannot go with small distributors otherwise their total imports would make up like half that distributor’s book. Which is not good for either party.
Middle tier distributors have hard booze for sale too but it’s usually smaller hip/trendy brands destined for clubs, swanky hotel bars or other places where wealth demands distinctiveness, a “secret” to be shared with select friends. Eventually the classic existential question of “who are we and what do we want to be when we grow up?” must be asked. The wine biz is like most any biz, there’s lots of ego at the top. You don’t often find anyone saying “I’m happy being a medium-sized fish in a big pond.” Most people want their business to grow as much as possible and get rich. But it is awfully hard to make that final push into the big time. You need perseverance, talent, luck and desired product. And very few moments of ethical crisis. Hence, what role do these middle guys play?
A lot of what they do is provide decent wines at decent prices to a broader base of stores and restaurant/bars than what would happen otherwise. Highly laudable. And true. It’s funny to see, though, how they often navigate between the lofty reasons behind the founding of their respective companies and their alternate desires to join the Dark Side. How do you maintain your valued personal relationship with the winery owners, the key client accounts, your sales force, etc. when there’s only so much time in the day? You keep plugging away, delivering a disintegrating message of personal attention as more and more work gets delegated. It’s either that or the less desirable end of getting a “life” (see five paragraphs above).
There’s still a lot of sincerity left in these folks but at times it all shakes out funny. Here in NYC there’s a chain of pretty damn good Chinese restaurants. The one near where Hanes lives sells wine. The wines on their list have representative bottles lined up on a shelf by the register. What cracks Hanes up is that he knows the labels and all the wines come from a single distributor. As if the sales rep drew up the restaurant’s wine list him or herself. Which probably happened. The funny part is that another wine distributor regularly takes good customers to this same chain of restaurants for free dinner and drinks. Management lets this second distributor bring in wine for free although they probably never consider actually buying wine from this second distributor. A classic situation which probably gets repeated many more times than anyone can guess at.
At the same time, many middle tier distributors are attractive acquisition targets for the big guys. Instant market share increase, without the potentially longer timeline required to grow organically (shareholder value now!). Necessary these days for, as said at the very beginning, the big are getting bigger and covering more states than ever before in the annals of liquor wholesaling. For the biggest of the big, acquisitions are both offensive and defensive maneuvers against their fellow behemoths. And there’s little gained in swallowing up the truly little guys. That said, when the mid-tier outfits get gobbled up sometimes some of their product lines get the axe. If the jettisoned wineries are attractive to little guys (and affordable), they can get picked up by them. If not, they may have trouble finding new representation because the other mid-tier guys already have filled that “slot” in their book and don’t want to cannibalize their existing offerings. So, the cut winery loses. Good day, sir!
Hanes tries to sample the wines from the middle tier outfits as much as possible. Usually this means snagging an invite to one of their big tastings for the trade. This is a bonus since most of the wines Hanes most wants to sample in their books cost between $20 and $60 a bottle, sometimes more. Too much money to buy personally, but worth sampling for free. Especially if any wines with broader distribution are going to appear in THWR! A lot of the middle tier organizations work in multiple states and/or sell credible brands also sold throughout the United States by other distributors. This is as close to staying abreast of the general pulse of what America is drinking as Hanes gets. The elitist socialist that he is.
The gist of all this is that the fine print on the back label naming the importer or distributor may be just as important to availability as the winery name on the front label. And for varying, if not on occasion opposing, reasons. When you are looking for a specific wine, whether Hanes recommends it or not, what kind of distributors they work with plays a major role in whether or not the store in question will carry it (this effect being greatly increased in restaurants and bars with much smaller selections). If a store is cozy with only a few distributors you may never be able to find the unusual or distinctive wines you seek. Conversely, if you’re looking for a bottle of Absolut, the stores that carry every single flavor of it will most likely not carry that Cabernet Franc from Chinon, German Riesling Beerenauslese nor Campanian Aglianico you’ve been meaning to try. Just the facts of life.
Yet another reason why it pays to frequent a few stores, not just one or two. Any given store may or may not have a working relationship with a specific distributor. The bottles look so innocent on the shelf, shiny and new. But the story of how they got there probably could have been penned by Mickey Spillane.