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August 30, 2007 | General | WineDirect Admin

Who has the power in today’s market - producer, distributor, retailer, or consumer?

This is the age of consolidation. From retailers to producers to distributors, everyone is banding together to form large marketing and sales behemoths to attack the consumer. And under attack the consumer is. From their perception of appellation to whether or not they like the label, consumers’ attention is being pursued – for the ultimate prize of the dollars from their wallet. And that leaves the consumer in the most powerful position, as the point of final purchase.

While some might joke that the only real depletion is the flushing toilet, in actuality it is the ring of a retail cash register. This register can be a physical object in a retail store, a tasting room, or a virtual e-commerce shopping cart; the available channels to the consumer are broad and widening further. The most traditional channels for generating sales for a winery’s products are at their cellar door, to a restaurant or retailer directly, or through a distributor, with the consumer being limited to the wines only obtained between one of these “gatekeepers.” Now, with the advent of new uses of the internet, changing regulations, and a bevy of e-commerce sites, the consumer has increased access to wine. And this is the key – increased access to wine for the consumer increased their power to making buying decisions.

But it doesn’t stop there for the consumer. Wine drinkers today are experiencing the ability to generate their own marketing for a wine brand, to think about the product from what they experience in the glass as well as what they hear from the society around them. No longer does the winery have the sole ability and responsibility for generating the branding message. Consumers at large are creating their own. This is evidenced by wine review social networking sites like Snooth, Vinquire, Cork’d, and others. Here consumers create their own reviews and comments about the wine – from things like how the wines taste to where the wine was consumed, even up to the point where the consumer is making their own video reviews.

So if control is power, the example afore mentioned is one chink in the armor of the producer. And producers have seemingly relinquished some of their power into the tournament of jousting consumers. Large wineries like Coppola have created online promotions where consumers produce their own video advertisements for Coppola’s major brands Bianco and Rosso. This campaign is an example of a winery allowing the consumer to manufacture their own personal marketing message. So, in a sense, wine drinkers are telling each other what to buy – the ultimate power play.

So where do retailers stand in terms of their ability to dictate consumer purchasing. They used to manipulate buying patterns by dictating the number and type of wine SKUs offered on their shelves. Large retailers like Tesco and Costco continue to shrink their inventories, limiting selection for the consumer, thus limiting purchasing to a few select wineries they have chosen to represent. But with increased consumer access to wine through the internet, the ability for large retail to be the single or best point of purchase is diminished. Sites like the LondonTimesWineClub.com provide discounted wine offerings, exclusives and limited bottlings, and professional endorsement by Hugh Johnson – all the things on which large retailers hang their marketing hat. The only advantage a brick and mortar store like Tesco is immediate access. Research has shown, however, that the majority of consumers do not bias against ordering online because of shipping rates or time of delivery.

Retailers have their own problems with access to wine because of the distribution system. In the United States, the three-tier distribution system put in place after Prohibition gave a large amount of power to distributors. They were given rights to sell alcohol to restaurant and retail businesses within state boundaries. And their rights even go so far as to have the franchise on a brand within certain states like Alabama. So retailers are stuck, only being able to offer wines sold by regional distributors. But with new Supreme Court decisions like Granholm, consumers are being allowed to by more and more wine direct form the producer or from other sources, and this benefit is trickling down to restaurant and retail, too. With programs like Inertia’s Direct-to-Trade program, retailers and restaurateurs are able to buy wine direct from the winery. With this new access, distributors’ ability to dictate supply within state borders is weakened.

And in other countries, distributor’s power is being lessened by online retailers. With the creation of the EU and the Euro, the ability to sell wine product outside of the countries borders is being increased. But in certain countries, the government, acting as distributor, still exerts a lot of control over inventory and access. Sweden, for example, continues to limit the ability of wine to be imported by controlling purchasing, requiring specific labeling practices, and imposing heavy import taxes. Russia has a similar program, too. But this example is the minority, not the majority. And as consumer’s power continues to increase and their ability to exert political pressure on their governments, consumers will continue to increase their access to wine even in these limiting countries.

These are exciting times for wine consumers. Their purchasing realm has increased in size. Wine drinkers everywhere are experiencing an increased ability to find wines they want to drink, to talk and market the wines they love, and to spend their money only on wines that they enjoy, for whatever reason. And as the tools of e-commerce increase in ease and number, the power of the consumer will just get greater. The world marketplace is just beginning to feel it.

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