Field Notes from a Wine Life – Hoosier Edition Pt. I of II

Wine with a local twist … because, to borrow from a local amusement park, “There’s more than corn in Indiana …”

Southern Wine and Spirits in Indiana

Southern Wine and Spirits is suing the state of Indiana in order to overturn a longstanding residency requirement law that says wine distributors must live in the state in order to run a business here. 

Southern filed the suit after the Indiana Alcohol and Tobacco Commission said it is not eligible to distribute wine and spirits in the state because ownership resided outside of Indiana.

All indicators point to Southern winning on the grounds of the existing law being completely ridiculous – if every business that did business in the state, had to have ownership in the state, our economy would fold up like a cheap tent in approximately 30 seconds.

Yet, Southern, in a way, is already in the state.  They have an alliance with Glazer’s, who owns a large distributor here, so it is very unclear what Southern has up their sleeve and how it might affect the market.

I have been watching this with some interest.  It has been said that Indiana has access to just 5% of the domestic wine market and with a prohibition on shipping into the state via clubs, ecommerce, etc., you begin to see that our consumer choice is terribly behind other states.  Case in point, I went over to Under the Grape Tree’s store in Covington, KY, across the river from Cincinnati, and was stunned at the selection.  Not a little stunned, a lot stunned.  There were dozens and dozens of producers that I am familiar with but I have never seen in Indiana, all from a humble storefront. 

That said, I asked four people, the owner of an independent distributor, an educator for a large potential competitor to Southern in Indianapolis (who asked to only give background info.) and two independent retailers for their thoughts on Southern coming into the market.  While each asked not to be quoted directly, their anonymity aside, they were not concerned about the 800 lb gorilla.

From an independent distributor (edited for clarity):

Southern’s entry into a market usually spurs a rise in smaller distributors. A large number of small producers and importers vacate the Southern organization which creates a need for distributors that can effectively represent and focus on those smaller suppliers. If anything we would probably have access to the vacating good producers and probably good sales reps and support staff.

Overall their entry is good for the Indiana consumer because it will eventually mean more choices and good pricing.

The number of wine consumers in Indiana is increasing but it’s still a limited market for quality producers without 90+ scores. The outlets for quality wines are overwhelmed and backed up, as a result we’re dropping some of these producers.

My take-away:  A rising tide raises all ships – Southern coming in may create an opportunity for smaller distributors to pick-up smaller producers

Overall, Indiana needs more retail for wine, particularly in light of rising consumption and increased SKU’s.

From an employee at an independent wine shop (edited for clarity):

Small distributors seem to be thriving, and even small out-of-state distributors are figuring out ways to do business in Indiana. One distributor from Kentucky has set up a small warehouse in Indiana that meets the letter of the current law; another from Illinois is working with an Indiana-based distributor who receives the Illinois distributor’s wine and then delivers it for a per-case fee.

Distributors whose territories cross state lines can pull wines from states where they aren’t selling well and send them to states where demand is good. Southern can presumably do that kind of thing in a big way.

To me, more choice is a good thing – I think Indiana residents should have the ability to legally procure any wine in the world, whether directly from a producer or collector or through a distributor.

My take-away:  The Indiana Alcohol and Tobacco Commission is currently without a commissioner and has traditionally been run with a slant towards conservative enforcement.  As the opportunity for wine sales increases, so too does the opportunity for people to exploit the gray areas in the law.  Now is a dandy time to get leadership in there that is pro-consumer.

From the owner of an independent wine shop (edited for clarity):

I don’t think that many more SKU’s will come in to the market if they enter it, so I don’t see any benefit.  I don’t think there will be a huge shake up initially; however, I think the larger distributors will be affected the most.  I think most of the suppliers at the boutique distributors are there because they want to be in a smaller environment and don’t want to get lost in a huge book.  However, bigger suppliers and wineries might already be aligned with Southern in other markets and may align with them here. 

My take-away: The fourth person I spoke with, from a larger distributor, also noted that the shift in large wine companies from one book to another has the largest opportunity for impact.  If Terlato moves and Icon Estates moves Southern may gain, yet other businesses lose on a grand scale.  Now, one can argue that if those large books move, it gives an opportunity for them to pick up new sku’s for the market.  Yes, that is an argument, but not a very valid one, particularly when you consider that large-scale wine distribution is not about the end-customer, it is about velocity of inventory.

Summary

Overall, an interesting exercise to talk to people across the spectrum- small distributor, large distributor, small retail owner, small retailer employee.

Opinions are diverse: 

• Southern will create more choice
• Southern and the existing climate is creating smaller, nimble competitors who are getting savvy about their business and bringing in new wines to the state
• The large distributors in the state will begin to horse trade large accounts

Regardless of what happens, one thing that is not occurring in this conversation about a Southern Wine and Spirits entry is a discussion on the impact on consumers and how we can be best served.  This stunning oversight is unfortunate because the government exists off our backs and every company in business exists to serve a customer.  There may be more than corn in Indiana, but related to wine, there is not much concern for the desires of the people in the state.  It is about power, taxes, laws, lobbying and profit off a branded commodity.