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Does Consolidation Put a Pinch on Consumers? Pt II of II

An article in last week’s San Francisco Chronicle raises a couple of good questions—particularly related to the consolidation of wineries and distributors:

Consolidation may actually be a good thing because it allows smaller wineries to rise up in the wake of the usual brand miss-steps when acquisitions take place.  That is unless ...

Distribution is also getting smaller.

Consolidation of distributors is a bigger threat than Gallo and Constellation to small- and medium-size wineries. In some states —  not including California —  one wine distributor has created a monopoly by buying up or squeezing out its competitors. Once such a monopoly exists, there’s no incentive for a distributor to deal with smaller brands that may not be able to provide a year-round supply of their product. 

Consolidation of retailers and restaurants is also a problem. Gallo spokesman Tim McDonald says, "Large retailers want to have a Cabernet or Chardonnay or Merlot that nobody else has," and his company is large enough to create retailer-specific brands like Winking Owl for them. The low prices on these relatively anonymous brands make tough competition for smaller producers.

Insel says the wine lists at national restaurant chains like Red Lobster "are dominated by Beringer and Gallo. The very large guys have to maintain supply and volume to maintain their distribution channels."

Large wine companies benefit from getting even bigger, Insel says, so they have even more marketing clout. She says she expects more wineries to be bought up in 2006. At the same time, she says, "There’s still plenty of room for small wineries."

The biggest difference between now and then (then being the timewhen baby-boomers where coming of age in the late 70s and early 80s andwines last golden era) is distribution. These days, distributors are a verysmall fraction of what they used to be in total number while quantity of wine brands and the number of wineries is growing.  Who gets hurt in thisprocess of distributor consolidation—relative at least to the winery/brand acquisition:   It’s the small, regional non-California winery who doesn’t havethe ability or the $$ to market #1) very expensive boutique wines or #2)who  doesn’t have the scale to seek distributor assistance or at least get distributor attention. 

Oh, and,yeah, by the way, consumers get hurt too because we don’t have thechoice at the shelf because small wines from small wineries are a raretreat indeed.

So, what’s the answer?  Clearly, it’s to let market economics takehold so I can buy wine from whomever I choose—and to end the fact thatmany states don’t allow consumers to buy wines direct from a winery andhave that wine shipped to a persons home.  But, that’s a whole ‘nother story.  But, in mysimple mind "Adventure" brands, regional wineries, wine shipping andGeneration Y are all linked together.



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