Thursday, August 04, 2005

Still fear consolidation?

It's signs like these that keep me from fearing the recent consolidations in the wine markets.

Most of the consolidations that have occurred are larger wineries & corporations which, frankly, don't really concern the smaller wineries on a day to day basis. The photo is just one small corner of the Alexander Valley, and if that many small 'mom & pop' wineries can exist amidst all this 'globalization' and 'consolidation' then I say it doesn't matter in the long run as far as available wines and diversity of winemaking styles are concerned. Essentially smaller producers will be bought out when they feel they should sell as they're generally too small to attract much attention from the big players.

Small high-end producers will still be sought out as "jewels" for the larger corp's portfolios, and also due to their profitability (because they can command much higher prices per case than other small wineries).

And It will contiue to make a difference in market access in respect to whom distributors pay more attention to. In a scenario where mega-global-mondo wine conglomerates own almost all wineries of any decent size, and all that distributors carry are these large brands, the argument that almost everything one would see on the shelves of most supermarkets is just this 'common' wine is probably valid. But with the opening of more market access via the direct shipping campaigns, winery pressures to get the attention of distributors would start to subside in the near future. Also, smaller wine shops and importers probably wouldn't be affected by those conglomerations to any significant level, since quite a bit of their offerings aren't carried by distributors anyway.

Certainly the argument could be made (& I'll make it here and now) that any supermarket wine/liquor manager would still be able to seek those small production wines out - should they desire to - if the changes of direct shipping laws continue to be favorable ones. There would also be quite an opportunity to open more niche distributorships carrying those smaller brands bundled together - though it wouldn't have the same clout a larger distributor would in demanding shelf space, or with other "requests" that might limit stores carrying other wines.

So here's the question - does it really matter if there's consolidation if it's mostly larger wineries that were making less "distinctive" wines already? There's sure to be some smaller and mid-size wineries caught up in the scramble but they would be ones that were looking to sell either because they wanted to get out of the business, had money problems, or experienced other stresses.

If in the end, the entirety of California's Central & San Joaquin Valley producers formed a single company making an average wine of all of them, would anything really change in that scenario (think 'mega-Bronco Wine Company')?

Here's a few thoughts against consolidation:

  1. a distribution chokehold by larger distributors/producers would still exist, and likely get worse to some extent for other players in that same segment of the market
  2. mass marketing of 'bland' mega wine would continue (which it will anyway, provided people continue to buy it)
  3. growers would have to bend to the larger corp's desires & pricing (loss of grower clout)

But in favor I could see the following:

  1. direct shipping should allow consumers to continue getting good limited-bottling wines
  2. the process will weed out the weaker winery companies, that probably weren't going to "make it" anyway in the long run
  3. more price competition will occur, which will lower prices for the majority of consumers
  4. grower prices are too high already in some areas and need some correction (which we've seen already in this over-supply period)
  5. ma & pa producers are not really competing with large players anyway
  6. even if ma & pa could get onto a chain's shelves, they might not have the production capacity to keep that space - so it's better for them to concentrate on other avenues anyway
  7. imports and specialty wines will still be available and prices may remain unaffected due to the fact they have different sales channels open to them

In any case the results will be interesting.


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