grower drinking wine in front barrels

Self-distribution for independent Growers: pros and cons

David BECK Academic - Economics, Society and Political science - Environment and Technologies (AI, blockchain)

You are a small producer of wine. Say, 5,000 cases. Small wineries and distributors often regard each other with disdain and frustration. In the US, the wholesale channel, and the 3-tier system in general, is a major pain point for just about every small to midsize winery that wants to grow their brand beyond the tasting room. What can you expect from working with a distributor? Making wine or selling it? Do you know how to build the relationships needed to market and sell your wine?

For many wine growers, self-distribution seems like the obvious route to market (in states where it’s allowed). At first glance, self-distribution may seem like the cheapest route, but it can save time and money.

As a reminder, here are the basic conditions in the US under which a wine producer must work in order to see their products end up on the shelves of a retailer or the list of a restaurant in another state via a distributor:

  • Most states require a producer to sell their products to a distributor, who then sells those wines to retailers and restaurants.
  • Most states prohibit out of state producers from selling their products directly to retailers and restaurants in the state.
  • Despite the legal mandate that out-of-state producers must work with a distributor in the state, distributors are under no mandate to represent out-of-state producers.
  • Most distributors will require those out-of-state producers they choose to represent sell them their products at a 50% discount off the suggested retail price.

Often, small wineries expect a distributor to get them in front of people and markets they wouldn’t otherwise be able to penetrate. But distributors are fundamentally focused on the logistics of moving product—they’re doing inventory management, warehousing, transportation and fulfillment. To expect that they will do more than that for a small brand is unrealistic. The most successful brands have brand reps out there doing events and serving as the face of the brand in the market.

Typically, the payoff for the distributor to put time and effort into selling a brand isn’t worth their while until it’s bigger.

You’re no different than the thousands of other wineries until you tell them something compelling—something different—about your winery.

How could the relationship between small producers and distributors not break down when the structure of the alcohol market place has so fundamentally changed over the past 30 years, while the regulations have not changed?

What is the solution? It’s simple. Allow small producers to self distribute. Take the wholesaler out of the middle. In the USA, many states discriminate against out-of-state producers by allowing their own producers to self distribute certain amounts of wine, beer, and spirits while denying out-of-state wineries, brewers, and distillers the same privilege.

Much of this is because most consumers who genuinely like wine, don’t understand it very well. They want the comfort of relying on a brand name that they know is going to be good. That means the bigger brands are entrenched. You see them on the shelf and at parties; people talk about them.

Brands have the right messaging with the right innovation at the right time. The most successful brands have brand reps out there doing events and serving as the face of the brand in the market.

Self-distribution can end up being very costly when you add up the time and staff needed to process orders, collect payments, deal with past dues/bad debt, and handle delivery details. Simply put, self-distribution is not designed for growing alcohol brands. Nothing more than moving boxes. That’s what a small, out-of-state producer gets for signing up with a distributor in another state and selling that distributor their products at a 50% discount off their suggested retail price. No marketing. No Branding. Just order taking and delivery. Isn’t this just a slightly augmented version of FedEx and UPS?

Growth will eventually hit a ceiling because the industry has made its product the same way for a long time.

You might already be self-distributing your wine  and you know all of this. You’re ready to graduate to the next stage. If so, congrats on growing your brand from the ground up! You’ve built an empire the hard way: you wore four dozen hats while juggling bottles and jiggers. You built and staffed a small tasting room, shipped to your wine club, and hit the road to sell. As wineries grow, it could be difficult to accommodate self-distribution.

For independent wineries that lack corporate support and favorable relationships with large distributors, this type of hands-on approach is increasingly viable in the digital age. Some wineries are eliminating the need for distributors altogether by selling their bottles directly to consumers via e-commerce sites and social media.

Self-distribution could allow to speak directly about the specifics of your wine. Having direct conversations with merchants resulted in a better experience for consumers. Small winemakers can also see the positive impact of social media on their self-distribution. There are also e-commerce sales, including online stores that work directly with winemakers.

Distributing your own wine is not without its challenges. It can be complicated to deal with licensing, shipping and billing, market by market. All of these logistical details take time away from the winery.