The Three Reforms

The key to revitalizing and shoring up the American wine industry lies in three reforms

Of the more than 11,500 wineries in the United States, 82% produce fewer than 5,000 cases of wine annually. Fifty percent of the 11,500 wineries produce less than 1,000 cases of wine annually. Most of these wineries rely on direct-to-consumer sales and shipments to distribute their wine. It is time for most states to bring simple changes to their alcohol sales and distribution laws to address the significant and growing roadblocks to a healthy and sustainable wine industry in the United States or these small set of wineries and other elements of the wine industry are going to fall prey to economic circumstances they need not.

In a recent article concerning the growing consolidation among U.S. wineries, veteran wine executive and Co-proprietor of Napa Valley’s Charles Krug Winery Peter Mondavi Jr. notes the following:

“We are in challenging times that put many wineries into a stress-test environment….As distributors get bigger, the suppliers then need to get proportionally bigger to maintain their relevance in the distributor’s portfolio. This trend is just further bifurcating our industry where the big get bigger and rely almost exclusively on the distribution network, the small remain small and rely largely on DTC, and those in the middle have a patch work where they may struggle being in a large [wholesaler] house, or rely on a patchwork of small, specialized distributors that have limited reach in a market, and of course DTC.”

What Mondavi is pointing out is that as the wine market shrinks in the face of various headwinds, wineries the biggest wineries need to buy smaller wineries in order to stay top of mind in the shrinking set of wholesalers around the country that control which wines end up on store shelves. Meanwhile, because the wholesalers care nothing about the smallest 80% of wineries, it is almost impossible for them to do anything other than rely on DTC sales and shipments to survive.

To put it all another way, the three-tier system—the ancient alcohol regulatory morass that requires producers to sell to wholesalers who are the only legal source of products for retailers and restaurants—is forcing consolidation on wineries, making it more difficult for wineries to survive in a shrinking marketplace, and preventing retailers from stocking any wines other than the largest brands that wholesalers most profit from.

Three changes MUST come to the alcohol regulatory structure. Three changes must be supported by all 80% of small wineries in the United States. And three changes must be embraced by every single wine retailer in the United States. They are: