Liza B. Zimmerman’s recent article, "US Distributors Awash with Wine," paints a dire picture of the wine market, attributing high inventory levels to a shrinking distribution tier and other systemic issues. However, this narrative overlooks several crucial factors and provides a narrow perspective on the broader economic context.
1. Retailer Inventory Practices and Consumer Demand
The primary reason for high inventory levels in wholesaler warehouses is not due to the supposed inefficiencies of wholesalers but rather changes in retailer inventory practices. Retailers are increasingly taking less inventory due to reduced shelf space and the desire to manage on-hand inventory more efficiently. This shift is compounded by weak consumer purchasing habits, particularly with wine products which according to June-ending data from WSWA’s SipSource is down 8.2% (0.7 % lower than May). Retailers’ cautious approach to inventory is a direct response to fluctuating consumer demand, not a failure of the distribution tier.
2. Increasing Number of Licensed Wholesalers
While the article highlights consolidation in the wine and spirits industry, it neglects the fact that in many markets the number of licensed wholesalers has actually increased. According to WSWA historical data, between 2016 and 2021 in 18 states with available data, active plenary wine and spirits wholesale licenses increased in all but two of the states. In fact, in aggregate, the number of licenses in these states grew by nearly 15%. This increase provides more avenues for wineries to get their products to market, contrary to the claim that the distribution tier is shrinking to the detriment of independent wineries.
3. Market Demand and Wholesaler Capabilities
Wholesalers can only distribute what the market commands. With the wine category experiencing weak performance, wholesalers have limited opportunities to deplete inventory levels. For more wine to reach retailers, those retailers need to be willing to take on more inventory, which in turn requires a robust consumer demand. The sluggish performance of the wine market is a consumer-driven issue, not a distribution failure.
4. The High Cost of Doing Business
The cost of doing business, including the expense of maintaining inventory, is high. Money is expensive, and wholesalers, like any business, must manage their cost of goods and inventory carefully. Until consumers are willing and able to purchase more wine, thereby reducing retailers’ light inventory levels, the current conditions are likely to persist. This is an economic reality that transcends the distribution tier alone.
5. Broader Economic Context and Misplaced Blame
It is easy to point fingers at wholesalers, but the issue at hand is much broader and more complex. Zimmerman's article fails to incorporate perspectives from all tiers of the industry, leading to a misinformed blame on wholesalers. WSWA’s SipSource concurs with the depletion numbers cited in the article and acknowledges current challenges faced by the wine category. However, SipSource analysts do not agree with Zimmerman’s assertion that wholesalers are the root cause of these challenges. This was never discussed during the interview conducted with SipSource director Michael Bilello, quoted in the article. All three tiers of the wine and spirits industry are working together to navigate this difficult landscape, with the ultimate solution resting on consumer behavior and demand.
Rather than pointing fingers at each other let’s work together to share our love for wine and reinvigorate the market. Changes in retailer practices, increasing numbers of licensed wholesalers, economic pressures, and consumer demand are all significant factors contributing to the current state of the market. Blaming any one tier oversimplifies the broader economic context and obscures the need for all is us, across the industry, to work together.