The Skinny on Wine Importing

(Originally published September 2004)

Many of Hanes's most loyal, subservient, doting, fawning and obeisant readers know of his previous flirtation with a small New York based wholesale wine importer and distributor in late 2003 to early 2004. Since then many have asked, "Hanes, why don't you go out on your own? You should start your own business importing wine!"

It warms the cockles of Hanes's so-called heart that so many people believe he has what it takes to succeed in such an enterprise. That said, it is highly unlikely that Hanes will ever follow this path and here is why...

While it depends on where you live, what your overall experiences with wine are, and how your palate has developed (or not), it is hard for someone to argue against the fact that globally we are swimming in an ocean of wine. And by this, Hanes means "premium" wines that come in real glass bottles and retail for around $8 or more per bottle. If you have ever been frustrated about not being able to find a wine Hanes has recommended it was not because the shelves of the stores where you shop are empty. They are full, just with some of all those other wines which Hanes's liver has yet to process. The volume of wine available to the retail customer is simply staggering.

Beverage Media is the "trade bible" of the wine business. It lists the prices, vintages, bottles sizes, etc. of many wines (and hard booze) being sold through distributors. It's a pretty thick book and comes out monthly. The Metro New York edition lists 88 wholesalers in its directory. Wholesale distributors pay to list their wines in Beverage Media. As a result, not every distributor decides to list their wines in this compendium, either believing it is unnecessary to reach their customer base or that it is too expensive. There are quite a few metro New York area distributors beyond this 88 number, a conservative guess would be 20 more. That said, 99% of the time when you walk into a retail store and ask for a specific wine, the first place the clerk will look for the wine's availability is in Beverage Media. If it is not listed, the clerk shrugs and throws his or her hands up in the air. It's a dead end unless a bottle label can be produced which lists the distributor (and such labels are rarely presented to retail clerks).

So! Let's just use a crazy round number and say there's 110 distributors serving NYC's getting drunked needs. Sounds like a lot! But is it? Why, that's the question!

As has occurred over recent years in other industries, the wine distribution industry has seen a great deal of consolidation. Just like there used to be Chemical Bank and Chase Manhattan Bank and Citibank and today there's just Shittybank, so it goes in the wine biz. Are consumers' banking needs being better met now than 15 years ago? Are consumers' wine buying needs being better met now than 15 years ago? Hanes is not long enough in the tooth to say from first-hand experience but "they say" that there used to be many more wine distributors than our current 110 number. They would range from larger operations which also focused on selling vodka, gin and beer in addition to wine to smaller, more specialized operations. Where'd they all go and why?

Hanes suspects a lot of this phenomenon has to do with how wine is purchased. The wine distribution and selling business is not inexpensive. The biggest headache/heartache is that you often have to carry a lot of inventory, cases of wine which can sit for months if not years. Naturally, management wants to avoid this. But it's not always easy to do so. You think (or pray) a wine will sell to retail or restaurants and it doesn't. Or a particular vintage from a certain region gets a bad review from those bogus wine writers/reviewers and thus languishes in the warehouse. There's lots of obvious reasons this can happen, you don't need Hanes to enumerate them. Once the distributor takes possession of the wine, there's no returning it. You need to find a buyer further on down the chain, even if you sell at cost or at a negligible profit margin.

Now, it's pretty clear that those with "deeper pockets" can better absorb these situations. If you move X units of vodka or whiskey a month and that's a steady business, the fact that the French Vacqueyras or South African Pinotage isn't moving is less worrisome. A smaller outfit that doesn't have hundreds of thousands of dollars in cash reserves, those guys can get spanked royally. And beyond a bad situation with one or two individual wines, if the market on the whole gets depressed (bad economy, etc.) all your wiggle room is gone and it's liquidation sale time.

The upshot is consolidation as a form of survival. The days of a couple of devout wine lovers scouring the remote hillsides of Italy or Spain for undiscovered gems to import are all but done. Bigger importers/distributors have people out there beating the bushes for new product and a separate sales force back at home. With smaller operations the guy doing the searching is usually the guy who then has to turn around and carry wine samples out to restaurants and stores and — hopefully — take orders. Very, very, very few have the kind of start-up capital to immediately hire qualified salespeople in addition to the principals of the operation. Just doesn't happen. And there's no time to excel at both finding product and then later selling it.

If a smaller operation with a decent portfolio of wines hits a rough patch and needs an infusion of cash to make it to another day, maybe there's a bank loan or another guy who can help for a piece of the action. From what Hanes has seen, though, the usual result is that the bigger fish swallows the smaller fish. The principals of the smaller operation get their debts paid off and maybe a job with the bigger operation as a sales rep or something. Or just gets shown the door (most of the time the bigger operation just wants the portfolio and not the experience of the principal as they usually already have someone in-house in that capacity). Growth by acquisition is a tried-and-true "90's" approach to building one's business. Gone are many distributors Hanes recognized from when he got into this crazy business: bought out, closed shop or who knows what.

OK, Mr. Gloom and Doom, so then why are there still 110 distributors working the streets of NYC? Hell, something has to be working for them! True. But are they getting rich? Even just making ends meet? Or rather waking up in a cold sweat every night thinking about pushing cases of German Riesling or Chilean Merlot in order to send the kids to school? When Hanes thought about hanging his own shingle out he came to the following conclusions. He'd need to get quality, distinctive product. Not easy in our "information age" where it is increasingly harder to just "out hustle" the other guy. That said, there are good producers out there for the taking. Why? Their current importers aren't paying on time! Hah! Anyway, you'd need to deal with a vast amount of start-up paperwork, sucking up valuable time unless you had a partner or someone to deal with it. You'd need marketing stuff, a dependable warehouse and delivery trucking service, accountants, lawyers, guns, etc. But what you'd really need is CASH. Money talks big time in this business. In order to acquire the "goods" and snag a few already established producers you'd probably have to start with $500,000 on hand and a good line of credit as a backup. Then you'd have to worry a lot about selling the stuff, which means having relationships with a horde of wine buyers and getting a competent sales staff. May sound easy but it's not.

Even the bigger retails stores do not buy from all 110 distributors. That would be nuts. The number is probably closer to like 30, if that. You don't want to have to process 110 invoices and write 110 checks every month. That's dumb. Again, there is so much quality product out there that a smart wine buyer could probably fill the shelves with diversity and quality in all price ranges using only 10 to 15 distributors, maybe less. Hanes has seen a tendency among retail stores and restaurants to pare back the amount of distributors they work with, for many reasons. This can be the aforementioned bureaucratic hassles. Or it can be something like this. Why buy the small operation's humble Côtes du Rhône, even if it ROCKS, when the big operation's is almost as good, costs the same, and buying it gets you good will with your representative when later a highly sought after, allocated wine hits the market? Or you may like a certain Sancerre offered by a boutique distributor. You buy two cases and it sells quick enough. You go to reorder and they are out. Why? They only imported 20 cases because they couldn't afford to warehouse more. By the time they get another 30 cases across the ocean, it's too late, you had to get another Sancerre to fill the shelves and maybe that sells even better. Or the vintage has changed. There are many other strategic decisions that go into the process of buying wines, it's not just may the best $10 Australian Shiraz win.

Now, believe it or not, Hanes does not have a cool half a million sitting in some Swiss bank account. And his credit is shaky at best. So, even if he were able to get funding from a bank or rich moron with nothing better to do with their money and start a wine importing/distributing business he'd still have to pay all the moolah back. Even if his street cunning and wine savvy somehow allowed him to remain one of those 110 viable companies it would be a very long time before he paid off his start-up debt. Hanes is still a relatively young man but not that young! He'd probably have 10-15 years of productive working left to line his own pockets with the company's profits before retiring to Boca Raton. That would hardly produce the kind of scratch that pays for endless bingo and shuffleboard.

In this age of huge wine distribution goliaths such as Diageo, Beringer-Blass, Gallo, Southern, Southcorp, Constellation, Canandaigua, The Wine Group and other names the casual consumer does not recognize, being small and nimble really doesn't get you as much as you might hope. Chances are higher that the brands you do recognize and buy are really subsidiaries of these huge corporations. This is especially true as many wineries are consolidating as well, either merging brands or becoming part of larger corporate portfolios. And don't think that consolidation just occurs with small or medium sized distributors. The behemoths merge too, putting a harder squeeze on the small and medium sized guys to remain competitive on price and availability.

Once more, let it be known that smaller boutique operations will always exist even if in lesser numbers. Canandaigua doesn't have yearly profits of over $100 million by pushing Blaufränkisch or Picpoul de Pinet. And customers will always exist for these more "idiosyncratic" wines. But the market saturation point (that is, how many different Albariño wines can even the large New York market support?) for these sort of wines is much lower now that everyone today is drinking Yellowtail Shiraz or the like. New York City is already well-served by small distributors who sell expertly chosen, authentic wines from every country around the globe. And there just isn't too much room for another Chablis or another Greco di Tufo even if the quality and price are great.

So, Hanes remains on the importing/distributing sidelines. He personally knows lots of these "little guys" and hopes they survive even as he knows the chances become slimmer with each passing year. So much of the new, small production quality product coming from within the United States are fairly expensive and cost over $30 per bottle. And much of the new quality product from Europe or such face the fact that their local competition beat them to the United States and have already more entrenched reputations and followings. As a consumer, this huge volume of wine is a great thing producing more choice and diversity than one can imagine. Or drink! However, for someone who has to pay their mortgage by trying to introduce a new maker of Aglianico or Grüner Veltliner this may not be the golden age.

It's like when Hanes was recently in a retail store spending yet more money he doesn't have on wine. Chatting with one of the owners, talk turned to what Hanes should do in the wine business. When Hanes said no way would he start a small distributorship, the owner breathed a sigh of relief and said he is dismayed by all the young go-getters who think they can make it work and was overjoyed to hear someone have some sense for once. Then he gave Hanes 10% off on the wines he was buying. Sweet!