Wines Vines Analytics estimates there are now just 1,200 distributors in the US compared to 3,000 in the mid-1990s. In 2016, Southern Wine & Spirits merged with Glazer’s to create the nation’s largest alcohol distributor. This year, Republic National Distributing Company (RNDC), already the second largest, announced a merger with Young’s Market, not long after RNDC’s merger with Breakthru Beverage fell through. With a couple of big players at the top and a whole lot fewer distributors overall, the wholesale tier of the US wine market is consolidating.
Smaller distributors are feeling squeezed, but their virtues are becoming more apparent thanks to two contrary trends. One is the huge number of wine brands in the market. “There are around 200,000 wines available in the US,” says Jon Moramarco, editor and partner at the market research company Gomberg, Fredrikson & Associates. “Consumers have untold choices.”
At the same time, the restaurant industry is changing. Moramarco says Commerce Department data shows full-service restaurants growing about 5% annually, whereas the publicly traded restaurant companies are reporting a plateau. Several larger chains have announced closures recently; Del Frisco’s Steakhouse, for example, closed several locations last year and has no plans to open new locations this year or in 2020. To Moramarco, these two points suggest the growth in full-service restaurants is in independent, local restaurants. With diversification at the winery and retail ends of the supply chain, smaller distributors are well-positioned to unclog the bottleneck at the wholesale level.
The opportunity
“With the big distributors, you’re completely taken for granted,” says Erik Segelbaum, who left his position as wine director for the Starr Restaurant Group this year to form his own consultancy, Somlyay LLC. Segelbaum says the purchasing power of a restaurant group, even one with a few dozen locations, can mean little to a large distributor. “It just makes the small guys that much more appealing, because you actually get personalised service. You get accurate communication and follow-through, and you have a more meaningful experience where you believe that the distributor truly values your partnership, and not just your transaction.” This relationship manifests itself in tangible ways. A large distributor, for example, might have higher minimum amounts for delivery, higher delivery fees, or a less favourable delivery schedule for smaller accounts. These sorts of issues can lead to stock management problems, especially for restaurants in urban areas where storage space is limited.
Working with the big suppliers is often necessary for access to the big, well-known brands, but Segelbaum says those are less of a priority for smaller restaurant groups. “I think it’s a much more careful selection process. It’s about being extremely selective about which big brands you have, because some add value and many of them don’t.” While smaller chains can be strategic in adding well-known brands to their list, national chains often need to lean more heavily on big brands that have national distribution, especially if they intend to have identical wine lists across dozens of locations.
Instead, independent restaurants are looking for brands that match their values and identity. “In our company we have a big emphasis on supporting local and supporting small producers,” says Brian Mitchell, corporate beverage director for the Max Restaurant Group, which has more than a dozen locations in Connecticut, Massachusetts and Florida. “So there’s always been a natural tendency to stay within that framework and whenever possible buying wines that are domaine or estate produced, or at least not mass market-type things. When you turn around a bottle and you see Kermit Lynch’s name on it, for example, you know you’re probably not getting something that somebody made with a computer. I feel like I get much better value and I like supporting people who are actually running their own business.”
The increased demand for wine education and certification among sommeliers and wine directors is also driving them to new and lesser known brands, says Jon McDaniel, founder of the consultancy Second City Soil. The large distributors often focus on a narrow set of mainstream brands, and as buyers go looking for education at regionally themed tastings and similar events they encounter new styles, brands and importers those distributors aren’t showing them.
Supporting smaller brands also comes with concrete financial benefits. “It really starts with rising food prices,” says McDaniel. “In a restaurant people are only comfortable paying so much for a ribeye steak, and that price really hasn’t crept up for years.” However, kitchen costs, both for product and for labour, continue to rise, putting pressure on margins. In urban settings like New York and San Francisco, rents are also increasing dramatically. McDaniel says restaurateurs are putting more emphasis on building better margins into their beverage programs to account for these costs.
Less-familiar brands offer several advantages in this regard. “Restaurants are going to wines that are good wines, but that people don’t have a price reference for,” says Moramarco. This allows restaurants to put higher mark-ups on the wines without calling much attention to it. Consumers are more likely to be aware of the retail price for a large, advertised brand, increasing the chances that they will find a restaurant’s mark-up to be egregious or excessive. In the past, restaurateurs only had to look beyond the wines nearby retailers carried. Today, wine apps and social media have pushed that search further afield; an app like Wine-Searcher can reveal pricing for many wines all across the US. Consumers are rarely aware of the state-by-state pricing discrepancies created by the vagaries of different regulatory systems and can get a very misguided idea of a wine’s price quite easily.
Even with wines that don’t show up in retail stores or on apps, restaurants face a few challenges stocking their wine lists with lesser-known brands. “My staff definitely likes it when a name brand appears on the list because it makes their job easier,” Mitchell says. “I have to constantly remind them that we don’t want to simply be order-takers. We do a lot of training on food, service and the beverage program. We’re just not going to rely on big brands that have a lot of advertising to support that side of it.” On the other hand, guests are increasingly receptive to that experience. “A few years back people were much more score- and brand-driven. I think people today are much more open, particularly people in their 30s and 40s.”
Importers and wine brands are tapping into the smaller distributors that know how to support their wines. “There’s always a concern that you’re going to get overlooked within a large portfolio,” says Charles Woods, owner of Bonhomie Imports, with distribution in a dozen states. Woods says new brands even face these issues in vibrant markets like New York City where the recognised brand might be a natural wine from Beaujolais rather than a Constellation product – “You know, all the producers that you see Instagrammed over and over again by sommeliers.” He sees independent retailers as a vital part of the equation, rather than restaurants, noting that New York’s diverse scene exists in part because state law forbids multi-unit retail chains. “The reason that my company exists, and the reason that so many small independent importers are able to exist, is only because there are independent stores to sell to and that there are small stores that are trying to stand apart.”
Large distributors aren’t blind to their own weaknesses in this regard, and several have instituted more nimble divisions more suited to serving independent restaurants and retailers. In Texas, RNDC has created a sales division called Vanguard that is structured to provide service based on passion and building small brands. Representatives operate without the usual big-brand quotas, for one thing. “I have to dig deeper,” says sales representative Cat Nguyen. For example, Nguyen recently made a “pet project” of an Argentine Cabernet Sauvignon producer who had no presence in the market. For her accounts, “I have to do my research and due diligence. Instead of throwing something in the bag and hoping that it sticks I have to actually sit down, look at their program, and approach it as though I’m their consultant. It’s hand-crafting the way you go to market.” From Nguyen’s point of view, it’s not the size of the distributor that matters as much as whether their approach to sales is smart and active, or passive. “If you’re a small producer and trying to figure out how to market and sell your wine, it’s about getting the right people actively looking for the business. If you’re a small Chianti producer, for example, you and your distributor shouldn’t be looking for the major steakhouses. Look for the mom-and-pop places, the chef-driven places, that share your story.”
