Q: Distributors fighting against supermarket wine sales

So there is an upcoming ballot question in MA on whether to grant supermarkets/grocers licenses to sell wine (not beer or liquor, just wine). Currently in MA, wine can only be purchased at a liquor store (privately owned and operated, not State run) and at some select specialty shops.
The supermarkets are making a big push to have this wine selling priviledge.
The wine shops are trying to fight it as it will cut into their biggest wine revenue source, the <$10 wine.
I was surprised to see the Wholesalers/Distributors siding with and contributing to the wine shops "No" vote push. At first I figured that the Distributors would rake in more cash with a potentially bigger target audience at grocery stores.

So I'm wondering why Distributors would be against this initiative and have a few ideas.
1. The Distributors will have to pay for shelf space at a grocers like the rest of teh produce and it will cut into their profit
2. Supermarket pricing may drive down the cost of the wine thereby putting more pressure on Distributors to cut cost.
3. Supermarkets may next lobby for Distributor status (like COSTCO is tyring) cutting out the current distributor entirely.
4. Distributors will lose clout they lay on wine shops as supermarkets will only want wine at specific price points. (I'll let you have a case of ScreamingBeagle if you take this truckload of Vin du Crap)
5. Distributors see that if wine shops lose part of their cash cow, some will go out of business cutting out the distributors means of selling higher end, more unique wines.

Can anyone else give me more insight into why the Distributors would side with the shop owners here? Am I missing something obvious? (wouldnt be the first time!)

thanks

As you probably know, we have wine in super markets here in New Hampshire. I guess it is somewhere in the rules that they charge a buck or three more than the state stores. Leaves one with a quantry all the time whether to pay up or burn some more gas to make another stop.

Since you don't have state stores, I gress that won't happen if your upcoming ballot question passes.

Bill,
Like you, I'm a bit perplexed by the distributors apparent position. We have grocery sales here in Indiana and the distributors seem to faun all over the big grocery chains..dust their bottles, reset their shelves, etc.. I am just wondering if the distributors aren't perhaps fence sitting. Are they getting their lobbyists and checkbook out in a big way or just giving it lip service to the retailers position? If the latter, and if the legislation passes, it seems the distributors could tell their current clients (wine stores) that they were on their side. Then they could also tell ther new clients (supermarkets) they were on their side since they (the distributors) really didn't try very hard to kill the legislation. Just guessing and am interested in other perspectives.
Redwinger

Is that it's mostly #2, a bit of #4 & #5.
Look at it as a distributor...if you only had ONE wine shop in the state, you could charge a high-markup and know you'd be able to seel to that one shop. You'd only need one sales rep to cover the territory.
Now you have a whole bunch of outlets. You gotta hire more sales reps to get around to all these friggin' supermarkets. Plus large supermarkets have slender marging and are well known for pressuring you to cut your markup/prices. All of it cuts into your $$$'s, and with (most of) the wholesalers, it's all about the bottom line, not about providing a service to customers at a reasonable profit.
Seems pretty natural that they'd be for the "NO" side. And also a bit short sighted. But (large) distributors are not known for being visionaries.
Tom

Carl, I doubt there will be any similar price restrictions here other than the current one which says shops cant sell wine for less than they paid the distributor.

Bill, the distributors have put up a sizeable chunk of change towards the "No" lobby. That is what really surprised me, that it was more than lipservice here. From the fence-sitting side, I know that part of the arguement here against supermarkets is the whole "underagers will now have easier access to wine" issue. The distributors played that card in fighting against open shipping and if they now wave the flag for teh supermarkets they might be accused of playing both sides.

Tom, good points. You are right, there will have to be more reps to handle more accounts

well I don't know what it is like state side but over here in the uk, supermarkets can sell wine in special areas of the store. Now I work for a independent wine merchant and my boss tells me the the supermarkets go to producers and say we want to pay x amount. We want you to sell to us only. And the producer say but i can't make it at that price and make a profit. so the supermarket say fire your sales team you don't need them any more, use these cheaper bottles ...ect...ect...ect. they do not repect the producers they use them for there own gain only. what happens if it does sell very well, and the supermarket drops them , the producer now has an inferior product and no sales team to sell it. this of course does not apply to estabished brands.

don't know if this helps or not?

Bill,

Your list of reasons for distributors to be against the move is mostly spot on.

This fight has been ongoing in NY for years. If it ever happens (wine in grocery stores) I see an opportunity for wine shops to focus on the more interesting, non-mass marketed wines and also to add some cheeses and gourmet products to their stores. But not many "liquor" store operators think like that.

Well, more outlets require more trucks, more routes, more personnel (sales, delivery, and 'merchandising'---the euphemism for hiring people to follow the trucks and put the merchandise on the shelves so the store won't have to pay their people to do it). All that is a sizable cost.

Plus, if you can sell it in grocery stores, you'll probably have to sell it in convenience stores, which take very small orders. If you send a truck out LTL (less than load) you're losing money, so you have to add a lot of trucks (and people, and time) to satisfy those small deliveries.

Plus you have to engage in tremendously more difficult logistics of order and delivery. Costs money, I can assure you. Another element is that chain grocery stores are notoriously difficult in mandating very narrow delivery windows for when they'll accept merchandise, and deliveries take a long time because their delivery protocols are very strict---and that means time, logistics, and manpower costs as well.

Sooooo: if you're operating a business and you have to add quite a few expensive trucks to your fleet, add a lot of manpower to handle the accounts, personnel to stock the merchandise, plus offer tighter margins to the big chains just to get in the store (and you can't afford NOT to be in there if your competition is in there, right?), how might YOU feel about the issue?

Just a thought...

On the other hand, increased distribution is pretty attractive. Just another thought.

Nothing is ever as simple as it appears. Particularly in a profit generating business.

On the East Coast, isn't the issue more related to state controlled liquor stores vs. Ma and Pa liquor stores?

I mean, wouldn't the distributors stand to lose their death grip on profit margins?

Good points there Stephen. You have to figure there will be losts of price-point pressure.

Hoke, ya, there will indeed more costs for a larger distribution, but as an outsider to the business details, I'd think that overall volume would increase to a point to make it all up (and then some) on the bottom line. Pure speculation on my behalf though. I'm sure that the distributors have done a more thorough financial analysis to get them leaning the way they are.

Tim, in Massachusetts, there are no state controlled liquor stores. The control comes in via the 3-tier system, with the distributors firmly in the catbird seat.

On the East Coast, isn't the issue more related to state controlled liquor stores vs. Ma and Pa liquor stores?

I mean, wouldn't the distributors stand to lose their death grip on profit margins?

Tim, while they are essentially state controlled by way of nonsensical and intrusive regulation, NY shops are privately owned. Based on how NY politicians and bureaucrats operate, I shudder to think what the situation would be like if they had to actually work for a living by maintaining an inventory and dealing with people on a daily basis over the counter--grrrrrr!

Actually, there are some grocery stores selling wine. The law here in MA is that no single entity can control more than three licenses. So, we have the situation here that only three Trader Joe's out of sixteen have licenses, three out of 18 BJ's, three out of 131 Stop & Shops. Just with those three retailers you have another 156 possible locations for the distributors to stock with upwards of 300 (or more) facings. Then there's Shaw's, Market Basket, Hannaford's and quite a few others. Who's going to be drinking all that extra wine? When I moved here to MA from CA, I was amazed that I couldn't get wine at the supermarket. Now I'm used to getting it at wine shops (though I do get most at the shop I work at). Personally, I don't like the WSWA or distributor positions. I think having wine and beer available in supermarkets is a good thing.

[Robin Garr]

I think having wine and beer available in supermarkets is a good thing.

I do too, Bob. Just to cite yet another variable in this confusing situation, in Kentucky, where I live, supermarkets can't sell wine or liquor, but they can sell beer, and it's the *beer* distribution lobby that fights hardest to keep it that way, hoping to protect its monopoly. I wonder if this is another silent factor in other states where the issue is up for debate. (Kentucky pharmacies can sell wine and liquor, curiously, and beer is widely sold at service stations, giving "fill 'er up" a whole new meaning.)

Anyway, in the urban areas of Louisville and northern Kentucky (Cincinnati), there's been an interesting recent development in which grocery companies acquire liquor licenses for separate properties, and actually build a little wine-shop alcove into the grocery building, but walled off and with a separate entrance. You have to go outside and come back in, and you have to check out separately, which are minor inconveniences, but it's still nice to be able to pick up a bottle of wine for dinner without having to make another stop. By and large, these are small shops, without serious wine-geek selections, but still it's a start.

One thing that most (not all) Americans have always had is beer in the Super. Not true in Canada, at least in New Brunswick where we usually travel. There all alcoholic beverages including beer are sold only in the Provincial Liq Stores. The one on Grand Manan Island has only been there for ten years or so (you had to go to the mainland previously) and is in a cinder block building that it shares with the Motor Vehicle Bureau. It is like going to the bank to get your package goods!

[Robin Garr]

One thing that most (not all) Americans have always had is beer in the Super.

If memory serves me right, Pennsylvania has (or used to have?) a particularly atrocious arrangement where beer may be purchased only in bars, even for takeout, and if you want it to go you have to buy a full case at bar prices.

Can any Pennslyvanians enlighten us as to whether this is still (or was ever) true?

A former Pennsylvanian, not really a beer drinker, but if memory serves me right...

In PA, most beer for home consumptions is purchased directly from "distributors" (which are obviously far more numerous than in other parts of the country) but is only available by the case or keg. Beer is not available in other retail outlets (including the state liquor stores). I think bars and restaurants can only sell for on-premises consumption, but I'm not certain. Meanwhile, wine and liquor are only available in the state liquor stores.* (Could be worse...could be Utah).

Imagine the culture-shock when I move to Illinois where alcoholic beverages are available nearly everywhere.

* Exception: Wineries can sell their own wine at up to 5 retail outlets they operate, typically the cellar door and 4 retail stores they run in major shopping malls. Actually, it may be 5 off-site (not counting the cellar itself) retail stores; I'm not certain.

actually build a little wine-shop alcove into the grocery building, but walled off and with a separate entrance.

Robin,

It's that way here in MA at "member" stores, like BJ's, Costco, Sam's. MA law says stores can't discriminate against anyone in the purchase of wine, beer and spirits other than those to whom it's already illegal to sell those products to, such as minors, already intoxicated individuals, etc. So, all those member stores that do sell wine (remember, only three per chain) all have separate areas outside the main store that's open to anyone, with a membership card or without one.

My understanding of this (as a small distributor/importer) is that the real nightmare for the large distributors is the demise of the three-tier system, which would surely lead to larger accounts like supermarkets and Costco having direct relationships with producers. Safeway is certainly not going to buy Beringer from a distributor unless it has to.

In PA, most beer for home consumptions is purchased directly from "distributors" (which are obviously far more numerous than in other parts of the country) but is only available by the case or keg. Beer is not available in other retail outlets (including the state liquor stores).

Yes, from my undergrad days I remember taking the trips to the distributors, which were more numerous than elsewhere as you say, and had a decent selection from what I remember.

But, I also remember buying beer at the convenience store/cheesesteak shop. Is that a different category?