Vol. 2 No. 4 It’s all about distribution

…and Prohibition! How so? When Prohibition was repealed the Feds wanted to ‘get the corruption’ out of the beer, wine, and spirits business. Interesting, as who ended up controlling it in those days? That is not to say it is the same today.

But what is the same today is the archaic laws on the books that enrich the distributors (the 2nd tier in the system, preceded by producers, and followed by retailers.). This in the name of protecting the buyers. B.S.!

Let’s go through the system in order and see how it works (I will base this on California law as that is what I am most familiar with).

Producers:

They have to file reports with the state showing the retail price of the wine. Then it is sold to distributors at a 30% discount, who in turn mark it up for restaurants and retail shops. That is the reason you can’t buy wine cheaper at the winery! The only exception to this is if they have a close-out on wines then they can reduce the price accordingly.

If you have a small winery, why should you pay someone 30% off the top if there is good demand for your wines direct from consumers? Most don’t or do a combination of selling to distributors and on-line wine sales.

Ah, but shipping out of state is full of complex, differing regulations. More than a decade ago, some self-righteous prosecutor in New York set up a sting, order wines from some of the best known wineries. Then, when the shipments arrived the state filed charges against them as it was illegal to sell wine from out of state except through a distributor. Get the picture? This has nothing to do with protecting the purchaser, merely protecting in-state wineries and of course, and even more importantly, overpaid distributors.

New York and many other states have since amended their laws. Some allow a resident to purchase up to a certain amount of wine direct from another state. Washington State allowed only wines from in-state wineries to buy direct. All others had to be purchased through the state-owned liquor stores which are a joke and lack a good selection.

The burden for knowing all of these laws rests with the winery and for that reason some have transferred that responsibility to a shipper, such as Aero Packing, in Napa Valley.

Distributors:

Mark up the wine and sell to retail shops. Some do an excellent job. Some are frankly lazy which begs the question: why should a retailer tell THEM about a wine that they don’t distribute so they can mark it up and sell it to the retailer who told them about it? As mentioned above the ’boutique’ wineries won’t even sell to them unless they have to.

Then there is a Georgia law that once a distributor has a contract with the producer who then sees they are not showing his wine, cancels the agreement, cannot sell any wine in Georgia until the distributor has sold his inventory of it. Guess what? They hold back ONE case, hurting the producer and more significantly purchaser in Georgia?

This is a basic right and a law that prevents a resident of that state from getting what he wants, in order to ‘punish’ the producer who cancelled the contract because they weren’t doing their job!

Retailers:

Personally, if at all possible I avoid big liquor stores who carry wine and sometimes put it on sale but when you look you see it is a 2010 Sauvignon Blanc that has been standing upright on the shelf since they brought it in. Do they have knowledgeable help? That brings us to the Big Box stores like Beverages and More in California and the fast-growing Total Wines which is opening 50,000 square foot stores in a narrow radius in Minnesota. We have municipal liquor stores here and that and one big retail chain appear to be their target. First, I don’t believe municipalities should be in competition with privately owned businesses. For one reason, some will not allow a private retailer in their city! That said, it is the way it has always been, but what if they had the competition, got out of the liquor business and collected big sales taxes, wouldn’t that be better for the city and definitely for the state.

There is a Big Box store here called Liquor Boy, they offer a wide selection and fair pricing. It is owned by someone who owns no other liquor stores, TB has no quarrel with that store. They play fair and beat the competition on price. I was a fan of BevMo when I lived in California but I also supported three locally owned wine specialty shops. Most of my buying was done with them.

Now we come to a store that offers good values on some wines (high end where on some they make as little as once cent in MN because state law requires they be sold for a profit to promote competition. Total Wine, they act as a ‘faux’ distributor by making deals with wineries to be a large number of cases on the condition the winery doesn’t sell it in any state that they operate in. The markups on these wines can be as high as 33% – and a knowledgeable associate (yes, they are well trained), will kindly direct you to those stunning values.

Let’s talk about Trader Joe’s, owned by the German company Aldi. It started out in Los Angeles as Pronto Markets and the one in Pasadena came up with the name Trader Joe’s. Both Pronto and Trader Joe’s had a reputation for quality albeit with little selection but they used to (at least), have panels to taste, say mustards, and the winner was the one they would carry. This saves the store money and insures faster turnover of inventory

Finally, there is the wine specialty shop. Some may also carry beer and some liquor but the emphasis is clearly on wine. They may charge a bit more but for one or two bottles what does it matter. They frequently have tastings and sometimes classes, plus they don’t have bottles that have been on the shelve for five years! It is fine for wine to stand upright, but not for long periods of time where the cork can dry out.

What is the fastest growing segment of the wine market? Starting last year it shifted up to the $15-20 range, with no growth in high end and the low end stable. It is Millennials who are casting off their parents habits (especially Two-Buck Chuck – think how little of the price is actual grapes and labor…plus bottle, cork, label, shipping…is that what you consider value?) and finding their own ‘likes’. This is a repeat of the 1970’s when it was the Baby Boomers who branched out but for the most part stuck with the most well-known wines, and in came Robert Parker with his 100 point system which started as a good thing but has gotten way out of hand with probably a dozen different critics (most of whom you have no idea what they look for in a wine and which is very important since all that matters is what you like).

Yesterday, there were two articles on legislative efforts to change wine laws. One in Arizona, which lists several varietals that cannot be shipped including Champagne, or any other foreign wine. Here is the link…must have been written by the distributors!http://wineindustryinsight.com/jump.php?utm_source=newsfetch&utm_medium=email&utm_campaign=nf&url=http%3A%2F%2Fnawr.org%2Fpress-releases%2Farizona-wine-bill%2F

The other in Michigan would have allowed out of state shipments up to 13,500 cases per winery and 1,500 cases at any one time was supported by the National Association of WIne Wine Retailers was killed in Committee. Not the sponsor, Rep. Yonker (R) could not get it through even with a GOP controlled House. It hurts the retailers while the wholesalers benefit…as they always do.

Frankly, it should be legal to ship wine from a winery to any adult individual in any state. Period.

In conclusion, let’s give the producers and retailers a break, and stop this abomination against what the people want.

TB

©Copyright 2016 TBOW, all rights reserved.

 

 

 

 

 

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traderbill

How did Trader Bill originate? It was conceived by me as a way of providing information summaries of global financial markets so that friends and associates could bring themselves up to speed on events and changing market conditions upon their arrival at work. In addition, it provides information on speakers and economic releases that day with consensus estimates and level of last release so that the reader is prepared to react, or knows how the market might react upon the release of information. Who is Trader Bill? Initially any reference to me was as ‘i’. This is to remove the aura of ego and to suggest that i am but a humble reporter, albeit with 35 years of investment experience. Investments are demanding of ego, however, or one would not feel that he was qualified to manage someone else’s money in the first instance. Therefore i needed an ‘alter-ego’. Like Winchell and Mahoney, Edgar Bergen and Charlie McCarthy and especially Trader Vic and Mai Tai’s! Why Trader Vic? Because he was a likeable man who delivered pleasure to his customers and knew exactly what their desires were. The reason for the alter ego became obvious once I introduced Trader Bill into my commentaries: people started asking what Trader Bill thought. They had never asked me what I thought before, but suddenly they wanted to know what TB thought! Now mind you they KNEW that I was Trader Bill but for some reason he became bigger than life. Maybe it was the small ‘I’? What does Trader Bill try to do?His goal is to educate from his years of experience. Consider that most of the traders and people managing investments weren’t even around in 1987 for the crash! Consider that Graham and Dodd, and even Warren Buffet are not relevant to them, too old hat. Their historical perceptions of markets and fundamentals (earnings, price/earnings ratios, bonds, debt service coverage) are irrelevant in this fast moving world. This is the NEW ECONOMY, or is it? How did your style originate?Years ago i found that i had a knack and talent for writing. In addition, i developed an ability to analyze market news about 15 years ago. It took the Crash of ‘87. Prior to that i was just listening to what others said about the economy. But bond yields had been soaring in ‘87 yet the stock market just kept hitting new highs. That was when i began to learn about markets. i have both a dry and witty sense of humor (some call it inane!). Therefore i attempt to make even the worst news somewhat amusing: whether it is the absurdity of an economic release, or the comments of a CEO. This is trading desk humor (or gallows humor). It isn’t politically correct but it does ease tension. Ironically, it is seeing the light at the end of the tunnel (in the Navy they say: it’s always darkest before it’s pitch black!), that allows you to be more objective in your analysis, as bad as a situation is there will still be a tomorrow! You will see that i practice three-dot journalism, a style made famous by San Francisco reporter Herb Caen, whom i idolized. At least to me it is effective. What is so special about your analysis?Frankly, i don’t know that it is special, but at least it beats “the market closed down today on profit taking.” What i do know is that most of what you read is spat out without considering whether or not it is rational, like the above statement. Is it right? Sometimes yes and sometimes no, and that is the key to what is different about my analysis: it is meant to make you think. Is Dan Rather right or is Trader Bill right? If it causes you to stop and think about it, regardless of whether you agree, i win! Because THAT is my goal…not to have you think i am a guru, got that? Bet you never heard that ANYWHERE before in my business! Instead they want you to think just how smart they are but remember in this business if you are right 60% of the time you ARE a genius! Another thing that is different is when i am wrong on an analysis i will tell you, not hope you forget what i said. So now you have the tools to do what the speculators and hedge funds do: challenge authority, and if you make money it is because YOU did it not me. i was just a tool, your flunky to do the grunt work and let you decide…course you could be wrong too but at least you looked at the big picture. But the goal is also to have fun! This shouldn’t be a business of hushed tones and grim faces. It is a living, breathing thing and nowhere else in the world do you have the odds as much in your favor as here. Just beware of the guy who wants to put his arm around you and tell you he is your friend. So there you have it. I hope you select me as one of your sources for market information. If you do I promise to work my best for your financial success. Trader Bill

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