Where did all the wine geeks go?

[Craig Camp]

The other day I had the pleasure to attend a tasting of Piemontese wines represented by an importer that I have particularly high respect for, Neil Empson. The wines were excellent as usual with Marcarini (99 Brunate outstanding as you would expect) and Poderi Colla (99 Bussia, complex and classic Nebbiolo) standing out as the stars. Also encouraging were the new releases of Einaudi (especially the 99 Costa Grimaldi) which showed a pleasant retreat from the ‘modern school’ from recent vintages - except for the Cannubi which is still heavily oaked. Also, the 2000 Barbaresco ‘Rio Sordo’ from Ca’ Rome’ showed great promise with an expansive nose and mouth filling fruit balanced by firm tannins.

By the way IMHO, the Marcarini was the clear star of the show. Both the Brunate and La Serra are outstanding Baroli with La Serra the pretty one and Brunate the brooding complex one.

But the most striking thing was the look of the distributor representing these excellent wines. Empson had been represented for years by a serious fine wine distribution company that had been sold to a large (ahem) fine wine import company, but had maintained some of it fine wine personality. Now this company has been sold again to company that shall remain nameless here, but for the sake of this piece we shall call Engulf and Devour Fine Wines. Now read slowly here as you can’t tell all of the players without a scorecard. In addition to the company mentioned above, Engulf and Devour purchased another serious fine wine distributorship in the same market. What was Engulf and Devour to do with these two excellent fine wine distributorships? Why of course they decided to merge them into one.

Now what stood out at this tasting featuring the outstanding wines mentioned above and the new combined sales team of this new hybrid distributorship? What stood out is that all the wine geeks were gone. Both companies had been, by industry standards anyway, well endowed with highly knowledgeable sales people and were well respected in their market as top wine professionals. What was strange was that in this new hybrid of these two companies is that all of these wine geeks were gone and all that remained were the sales types. The sales staff at this tasting sat at the back of the room with a bored look ignoring the chance to taste and discuss with the producers some of the finest wines of Piemonte. Only upon the arrival of a particularly lucrative customer did they leap up to approach the tasting tables.

As distributor consolidation continues and accelerates where are all of these small producers going to find a way to get their wines to the American consumer. This is a strange problem to have when consumers themselves are increasing in knowledge and sophistication everyday and wines like Marcarini and Poderi Colla are just what they are seeking.

Is there a way around this three tier system?

[Rail Paul]

Craig -

the lack of sponsorship for small wineries has already become a problem in NJ. the state's concentration of wine distributors means it is difficult for a small producer to get access to the distributor (who wants to handle a 200 cases per year account?) and, thus to the stores.

added to that is the state's requirement that a producer / vintner must "qualify" for admission to the state. in practice this is an expensive bonding process, which may be prohibitive for the 200 cases to NJ producer. (Dis id joisey. no gangstas allowt)

when i'm looking for good wines (such as Mr Plotnicki will mention), it's straight to Zachy's, or Chambers Street or Astor in the city. lots of tax revenue flowing across the bridges...

Paul

[Steve Plotnicki]

I'm trying to figure out what that story has to do with the three tier system? It's about consolidation in the wine industry, but you could have been describing consolidation in any industry. Typically industries like the wine industry or the music industry or the fashion industry, entrepreneurs with very little money make a success of themselves based on their unique talent and ability to recognize good products. But quite often, after they built their business, they want to sell it to someone else for a lot of money.

So let's take this example. A famous importer of Italian wines, who is also a distributor in a certain region of the country, built his business from scratch and is now trying to sell it for $50 million. Who do you think is going to buy it, some small operator? No that is serious money and whoever plunks it down will not leave the profitablity of the business to wine geeks. They will bring in beancounters to make sure they make their investment back and then some. That's just the way business goes.

As form availability in your state, come to NYC. We have everything here and the stores all ship. I was in Astor Place Wines today and the selection of Loire, Rhone and German wines was phenomenol.

[Craig Camp]

I'm trying to figure out what that story has to do with the three tier system?

This has everything to do with distributor consolidation, the three tier system and the fact that importer and distributor margins are increasing while retailer margins are being forced down. Large importers will run 40% plus margins to support their 'marketing' while wholesalers that 10 years ago lived on margins in the low 20's are now demanding gross profits in the low 30% ranges. They can do this only because of consolidation. Most restaurants are still commanding 3.5 to 4 time mark-ups just have they have for some time now - but the increases in distributor and wholesaler margins without a drop in restaurant mark-ups have forced pricing up there also.

The irony is of course is that the retailer who is now providing most of the 'value added' activities to the consumer is the one whose margin is shrinking while the wholesalers, who are adding less value than in the past are making more. So you go to Astor Street and see a great selection, but it costs much more because of the three tier system and consolidation - even though the buyers at Astor Street have to do most of the work to find these wines from distributors that often barely know they have them.

Your comparison of the three tier system to other business is wrong because this is a controlled industry that mandates the existence of wholesalers and importers. Astor Street does need either to offer the wines you are referring to. Their buyers are quite professional enough to buy these wines directly and then offer them to you at prices close to half what you are paying now. The importer/distributor you mention in your article is worth $50 million only because of the three tier system – not exactly the free enterprise model you refer to. By the way if you are thinking to drop $50 million on this company - think twice - I bet they don't have one contract with a producer and your investment can disolve overnight.

Thanks for the invitation for the rest of the people in the United States to come buy their wine in New York. I am sure that this will make the retailers in New York very happy and solve everyone's problem.

[Craig Camp]

Craig -

the lack of sponsorship for small wineries has already become a problem in NJ. the state's concentration of wine distributors means it is difficult for a small producer to get access to the distributor (who wants to handle a 200 cases per year account?) and, thus to the stores.

added to that is the state's requirement that a producer / vintner must "qualify" for admission to the state. in practice this is an expensive bonding process, which may be prohibitive for the 200 cases to NJ producer. (Dis id joisey. no gangstas allowt)

when i'm looking for good wines (such as Mr Plotnicki will mention), it's straight to Zachy's, or Chambers Street or Astor in the city. lots of tax revenue flowing across the bridges...

Paul

Click here for freedom!

Edited February 2, 2003 by Craig Camp (log)