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June 29, 2007 | Wine Industry Trends | WineDirect Admin

The Winds of Change in Buying and Selling Wine

Make no mistake, at Inertia we advocate DIRECT sales, believing at our core that DIRECT sales is the best route for a winery to analyze, develop, grow and profitably fuel their business. That said, it’s often good to look at the market to see what is happening at a high-level as the market continually and subtlety shifts in response to the changes in the retailing landscape and the three-tier system, post Granholm.

And, quietly, a change is happening.

Our Direct-to-Trade initiative is a notable shift in traditional mindset, in addition to the core of our business, enabling wineries to sell direct to a consumer. Another small change is occurring, as well, with small retailers, usually the desired landing spot for smaller production, special wines when they are not sold directly to an end customer.

A little background: have you ever shopped at an Ace Hardware or a Do-it-Best hardware store? These are the smaller, legacy hardware stores found in smaller buildings and storefronts, a throwback shopping venue before the Home Depot’s and Lowe’s of the world turned a visit to the hardware store into a lifestyle excursion.

Little known fact, but Ace and Do it Best are member cooperatives—a model not at all franchise like, and more licensing oriented, whereby a store license rights to use the trademarks and then buy inventory from the parent company, gaining economies of scale based on aggregated purchasing power and earning rebates at the end of the year based on volume. Being a member affiliate in a buying cooperative, at the least, gives a hardware store access to inventory that is price competitive to what much larger, national retail chains can offer. They provide competitive balance.

It’s an interesting model.

And, it’s not too different from what we see in the wine retail world where you have thousands of smaller wine shops and liquor stores with distinguished wine sections all trying to compete against their larger competitors.

Quietly, In a ‘blink and you’ll miss it’ article in the August issue of Wine & Spirits magazine, The Wine & Spirits Guild of America, an organization representing wine retailers, hired a National Buying Coordinator as they make a shift from a collaborative (read: traditional member association) association to a buying co-op, just like the hardware stores.

The move is in response to the changing landscape that has coincided with the rise of the mega-retailer, coupled with increasing wine consumption. According to the article this shift in the market has left in-state retailers vulnerable and that the collective Guild buying power equates to about $500 million, on par with the large retailers in the U.S.

This is an interesting wrinkle and plays into the “2.5 tier” model that we hear bandied about as a model for the way wine will be bought and sold in the future. The future of the wine business may now hold a new entry into the way wine is sold to an end customer:

  1. DIRECT to consumer
  2. DIRECT to Trade
  3. Traditional 3-tier
  4. Buying cooperative

In the meantime, while abundant selling options are always helpful to assist a winery find a receptive market, the best bet is to control your own destiny by building your DIRECT business one brick, er, customer a time, even if we occasionally pop our heads up to look at the entire landscape.

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