Mass Wine Wholesaler Layoffs Signal a Need for Change

Southern Glazers and Republic National downsizing moves leave suppliers in the lurch and looking for a new system of wine and spirit distribution

Reports of widespread layoffs at Southern Glazers Wine & Spirits, the country's largest wine and spirits wholesaler, are making the rounds. By some accounts, upwards of 3,000+ employees across numerous states have been dismissed.

This comes after Republic National Distributing reportedly laid off numerous employees beginning last year and continuing through this year.

Neither Southern Glazers nor Republic National—together controlling over 50% of the wholesaler wine and spirits marketplace in the U.S.—have confirmed the layoffs. However, former employees and insiders are confirming the RNDC and Southern Glazers’ layoffs on social media.

There was a time, maybe 20 years ago before the massive wholesale consolidation took place, when wholesalers actually marketed and promoted the brands and wines they represented. Wholesalers would work with brands, take brand representatives around to potential accounts, use sales collateral to promote brands, create events, and pour wines to help sell even small and medium-sized brands. It was these kinds of efforts that supposedly justified the wholesalers’ high margins.

That kind of wholesaler effort hasn’t happened for many years. Today, if a brand represented by the big wholesalers desires its wines to be marketed, it’s the job of the brand owner who practically has to sell the wine themselves to restaurants and retailers and then inform their wholesalers what they’ve done so the wine can be delivered to an account. Now, with thousands of wholesaler employees taken off the board in the last months and year, producers and importers represented by the largest wholesalers will be even further pinched and left to fend for themselves.

It doesn’t matter why the largest wholesalers are laying off employees. Whether it’s a downturn in the marketplace, the efficiency that comes with wholesalers’ transition to electronic ordering systems, or the hangover and bloat from having swallowed up so many competitors, none of this matters. What is important is that this development will put suppliers further at the mercy of a middle-tier incapable and unwilling to serve the massive number of brands they represent. Yet without working with these wholesalers, producers and importers can’t enter markets around the country.

When the current regulatory system of wine sales and distribution was designed 90 years ago, no one hoped, planned, or believed that wholesalers would be or should be in a position to so thoroughly control the entire wine marketplace, charging ridiculously high margins, and determining who could sell wine in a market and who could not.

And yet here we are. Producers and retailers are laboring in a very tough market today. But by law in most states, they are tethered to large wholesalers who have little interest in and now even fewer human resources devoted to servicing these brands and accounts. A New York importer of small Tuscan producers or an Oregon Pinot producer who wants to introduce their wines into Texas or Illinois or North Carolina MUST find a wholesaler in those states to represent them and bring their products into those markets. On top of that, the producer and importer must do all the sales and marketing themselves. But they will still pay exorbitant fees to the wholesaler for the privilege of their wines being moved from a warehouse to an account.

Meanwhile, the retailers in those markets are stuck with the selection only the wholesalers in those states offer. If they want to offer their clients an interesting selection of Tuscan or Oregon wines, they can only choose from what the wholesalers have to offer and they can’t distinguish their offerings from another retailer because all retailers, by law, must purchase inventory from the same set of wholesaler—with the largest wholesalers dominating the marketplace and doing little to provide education to the retailer on the brands they are offering.

Very little can be done to immediately turn around the wine market (though it will come back eventually). However, something can be done to give suppliers and retailers the options they deserve and need to start to untether themselves from the noxious three-tier system and mandates that they partner with wholesalers who can’t serve them:

Right now, in every state capitol, lawmakers should say, “Enough!” Given the downturn in the marketplace and the marketplace struggles of producers and retailers, lawmakers should immediately take the following actions:

1. Reform winery direct-to-consumer laws to make shipments of wine to their state’s residents less expensive, less restrictive, and complince less complicated.

2. States should reform their distribution laws to allow both in-state and out-of-state producers and importers to self-distribute their wines, selling them directly to restaurants and retailers without the burden of using the box movers in the middle with their usury-level margins

3. Allow every retailer in their state and outside to ship wine directly to consumers so that suppliers have more outlets to see their wines move, retailers can address the true marketplace for wine, and consumers can finally access all the wines they want instead of just those that in-state wholesalers believe consumers should be allowed to buy.

The “Three-Tier System” is now harming the vast majority of wineries, distilleries, brewers, and importers trying to operate in the American marketplace. With the exception of the largest brands and wholesalers, the three-tier system is helping no one. The nonsense about the three-tier system preventing monopolies, stopping counterfeit wines, and preventing the rise of tied houses is so absurd that no one who has even a passing knowledge of the wine and spirits marketplace believes this.

If things go well, small, nimble, artisan wholesalers will step up, hire some of the best of the thousands laid off by RNDC and Southern Glazers, and give small and medium-sized brands a real chance to enter the American marketplace and show off what great, unique wines look and taste like. This is how one long-time winery representative and former small wholesaler from Napa Valley puts it:

The smaller, regional/local distributor is a key to success for any brand if you want to be successful in a particular market. I cant imagine learning the ongoing changes in each market any other way except through the frequent dialog with the local sales reps. That said, it is frustrating and insulting that wineries are prohibited from conducting business in a state just because they are not capable to establishing a relationship with a local distributor. Many small (no-alcohol) beverages have “launched” in a market without a distribution partner in the hope of landing a partner. With wine, this is not possible. The consumer loses out, the winery loses out and in reality so does the State. Fees and taxes are the end game for any State so why make it so prohibitive to do business there? Why, well that takes us right back to the large distributors. They lobby to make sure they are in control. This inevitably inhibits commerce and hurts consumers choices. 

If things keep going wrong, lawmakers will ignore the problems caused by the continued consolidation of the wholesale tier and help force the demise of thousands of small American wine and spirit brands, while deterring great imported brands from entering the American marketplace for fear of having to partner with a wholesale tier intent on marginalizing them to the benefit of the wine conglomerates and themselves.

When many thousands of workers are laid off like this it is a signal that the wholesale tier, and particularly its behemoth wholesalers, have no interest in servicing any but the largest brands, which may account for most of the wine being drunk, but also represent a tiny minority of the brands and wines in the marketplace. It’s a broken system.