Fragmented Wine Market in NYC

SFJoe

Joe Dougherty
Once upon a time, a very long time ago, I took a trip to Europe for work. One bit of that trip was a meeting with people who studied the pharmaceutical industry from the vantages of London, Tokyo, New York, and so on. We spoke of many things, seemingly interminably, but one item we discussed was the case of pharmaceutical sales reps, how many of them there were, how many doctors they were to call on, particularly in the US, the ratio of sale reps to docs, and so on. We concluded that despite the reputation the industry had then for being able to sell anything to anyone if they put their minds to it, that they were totally overrepresented. That the X salesfolk were each expected to have Y meetings per day with doctors, and that if the docs actually cooperated, they would be doing nothing each day but taking back to back meetings with the pharma reps, and that this wasn’t going to happen. Our back of the envelope calculation pretty accurately predicted the subsequent firing of many of said reps, and the contraction of the sales forces for almost all the big companies. One interesting item in an otherwise tedious couple of days.

I was prompted to think of these ancient events this week when Comrade Levi wrote a bit for Eater.com on the subject of boutique importers. The piece has wounded tender feelings around town, generated much social network rhubarb, and so on, but I’d like to step gently away from people’s motives to consider the underlying economic situation.

If you cast your mind back to the mists of the Triassic, young Kermit Lynch was bombing around France visiting such obscure villages as Hermitage, where he met a nice family named Chave, or Cornas, where there was a guy named Clape, or Meursault, where some dude had a winery called Coche-Dury. These people had some pretty good wines that were available to export to the US, and soon Kermit had an interesting business and a nice shop on San Pablo Ave in the northern reaches of Berkeley. A bit later on, Joe Dressner and David Lillie would hop in a car and meet the likes of Catherine Roussel, Marc Ollivier, Pierre Overnoy, or even a guy like Robert Denis. M. Denis had been making wine for decades in Azay-le-Rideau, and AFAIK no one had made any effort to sell his old-fashioned beverages to the US until LDM came along near the end of his days. In summary, even 20 years ago there were many high quality, long-established vignerons who were unknown to the world even in places that were only a couple of hours’ drive from Paris.

I’m not in that biz, but it seems different to me today. A decade ago, the Dive Bouteille was not mobbed with importers from the US. The 22 y.o. vigneron who had just taken over the domain or was on her first vintage did not face a scrum of people on the other side of the table trying to line up the wines for the NYC market. That is more what I see in recent years.

It is common these days to run into a friend ITB who says, “Yes, I’m bailing on my bar/restaurant/schnook biz and am devoting myself to finding the finest wines of [Montmartre, Swabia, Serbia, Thurbia, Thuringia, Ruritania] for the deserving NYC market, and beyond!” This happens even with folks who looked pretty successful in their strictly 100XX lives, without all the glamorous travel and extra risk of starting a new small business.

But it seems tough from the outside—how do they make a go of it? Chave has already been discovered, as noted above, and Doug and Tina and David are pretty good at the game themselves, just as examples. Not to mention, they already have the boots on the ground.

And if there are really 200 different companies calling on Pascaline, Patrick and Arnaud, it must be awfully tough for some of them to get an appointment, to refer to my pharma calculation above.

But this does raise another question for me. If you consolidated the portfolios of 100 of those importer/distributors into 5 big companies, would that work better? It would still be the same number of wines in front of the same buyers, though they would not have to go to the trouble of establishing a relationship with each seller, which would surely count for something. Is there an opportunity for the artisanal investment banker here? Probably not. But 200 different identities requires some pretty heavy lifting on the social network/marketing side, does it not? How does number 201 get in the door? Hookers and cocaine? Seems expensive until the business is well established.

I ask as an interested observer, and also a guy who is curious about how different corners of the economy run. I imagine my Comrades have some insights into these matters.
 
Ah, but there's more at work than just that, my old confrere. This blossoming forth of "boutique" (gawd, how I hate that adjective!) importers (weren't they all "boutique" at the beginning unless they inherited Pop's business?) is set amidst the first serious challenge to the three-tier marketing of wine in the US: the birth of direct importer-retailers. Because this new breed is poised to undercut the pricing of the traditional three-tier wines, they have an inherent advantage that may offset the lack of name recognition to many of their producers. This may prove especially attractive to restaurants who can hand sell wines with unfamiliar names.

Just a thought,
Mark Lipton
 
Well one advantage the pharma reps had was they could bring food for the staff. I'm not sure how well that works when you visit a restaurant but might work ok visiting shops. How tied to sales were pharma reps for performance? I'm guessing wine sales reps are tied to sales for compensation, if not commission.
The pharma companies blanketed the US, the beyond territory you refer to seems still limited to the usual suspects: SF, DC, LA, Chicago, Boston. There is distribution elsewhere but not a lot judging from searches on WS. Pittsburgh gets some distribution from LDM, Kermit, Thiese and Rosenthal but it's limited to a few stores and 1 or 2 resturants. So I think there is room for growth.
 
originally posted by MLipton:
Ah, but there's more at work than just that, my old confrere. This blossoming forth of "boutique" (gawd, how I hate that adjective!) importers (weren't they all "boutique" at the beginning unless they inherited Pop's business?) is set amidst the first serious challenge to the three-tier marketing of wine in the US: the birth of direct importer-retailers. Because this new breed is poised to undercut the pricing of the traditional three-tier wines, they have an inherent advantage that may offset the lack of name recognition to many of their producers. This may prove especially attractive to restaurants who can hand sell wines with unfamiliar names.

Just a thought,
Mark Lipton
Or trigger work for attorneys.
 
originally posted by MLipton:
Ah, but there's more at work than just that, my old confrere. This blossoming forth of "boutique" (gawd, how I hate that adjective!) importers (weren't they all "boutique" at the beginning unless they inherited Pop's business?) is set amidst the first serious challenge to the three-tier marketing of wine in the US: the birth of direct importer-retailers. Because this new breed is poised to undercut the pricing of the traditional three-tier wines, they have an inherent advantage that may offset the lack of name recognition to many of their producers. This may prove especially attractive to restaurants who can hand sell wines with unfamiliar names.

Just a thought,
Mark Lipton
I had heard that some of them had their origins in La Cosa Nostra, though I'm sure that is just a malicious rumor spread by jealous competitors.

I wonder how much biz the DTC 2-tier guys do with restaurants? I suspect it's not much--the restaurants frequently won't want to front the money, nor to deal with uncertain delivery dates & etc. I am just guessing, but I have the impression that few of them tie up capital in DI inventory. Of course, the model was pioneered in your home region, Lynched Kermit and PC both bypass a tier.

It is hard for me to know how much volume Lyle or Josh can do, to take a couple of examples. It also might be tricky for a winery to establish themselves at a low price point in a new market, and then do enough business to find that they need more traditional distribution.

Interesting questions, I don't have the answers.
 
originally posted by Tom Glasgow:
the usual suspects: SF, DC, LA, Chicago, Boston.
there are other places?

More seriously, a big monopoly like PA has a particularly difficult time having the gears mesh with a small counterparty, so I hold out little hope for Pittsburgh. But maybe Sr. McDuff or one of his colleagues could shed more light.
 
originally posted by SFJoe:
originally posted by Tom Glasgow:
the usual suspects: SF, DC, LA, Chicago, Boston.
there are other places?

More seriously, a big monopoly like PA has a particularly difficult time having the gears mesh with a small counterparty, so I hold out little hope for Pittsburgh. But maybe Sr. McDuff or one of his colleagues could shed more light.

Jason here from PA. Lurked for a long time, but this is my first post... Isn't there some sort of traditional welcome I am supposed to get in that case haha?

But yes, dealing with the PA monopoly is definitely challenging. Especially for some of these smaller importers that we all know and like to drink that could probably sell everything in NYC and CA and be happy, most simply don't have the time or energy to learn all the ins and outs of how the various arms of the PLCB function.

Not to give myself a plug, but that is precisely why I started my biz to help get some of the small guys past the Berlin Wall of the PLCB. The system is challenging, but once you know how to handle proper pricing, shipping, and other various red tape that arises, dealing with the PLCB really isn't too bad. In fact, if you know what you are doing, you can find some cool wines at good prices in the PLCB state stores every once in a blue moon. Restaurants, on the other hand, are sadly screwed until the PLCB wises up and lets them buy their wine at a true "wholesale" price, not forcing them to pay retail like they do now...

Either way, yes, PA has basically been a wasteland until the past few years. Big credit to McDuff for getting the LDM wines back here, that was definitely a tipping point. Hopefully more importers will see that PA really isn't too scary, and you can actually do good business here if you know how it works.

And Tom, don't worry, I was just up in Harrisburg today and there should be some Selection Massale imported Pineau d'Aunis headed to Pittsburgh soon...
 
The situation with restaurants is absurd in PA, near retail pricing and no delivery. Certain stores you can't get boxes because they're reserved for commercial accounts.
Consumers can special order a number of wines but usually with a case minimum.
Jason get that hipster stuff here before it warms up, the state still doesn't understand temperature control.
 
originally posted by SFJoe:

I was prompted to think of these ancient events this week when Comrade Levi wrote a bit for Eater.com on the subject of boutique importers. The piece has wounded tender feelings around town, generated much social network rhubarb, and so on, but I’d like to step gently away from people’s motives to consider the underlying economic situation.


It is common these days to run into a friend ITB who says, “Yes, I’m bailing on my bar/restaurant/schnook biz and am devoting myself to finding the finest wines of [Montmartre, Swabia, Serbia, Thurbia, Thuringia, Ruritania] for the deserving NYC market, and beyond!” This happens even with folks who looked pretty successful in their strictly 100XX lives, without all the glamorous travel and extra risk of starting a new small business.

If you cast your mind back to the mists of the Triassic, young Kermit Lynch was bombing around France visiting such obscure villages as Hermitage, where he met a nice family named Chave, or Cornas, where there was a guy named Clape, or Meursault, where some dude had a winery called Coche-Dury. These people had some pretty good wines that were available to export to the US, and soon Kermit had an interesting business and a nice shop on San Pablo Ave in the northern reaches of Berkeley. A bit later on, Joe Dressner and David Lillie would hop in a car and meet the likes of Catherine Roussel, Marc Ollivier, Pierre Overnoy, or even a guy like Robert Denis. M. Denis had been making wine for decades in Azay-le-Rideau, and AFAIK no one had made any effort to sell his old-fashioned beverages to the US until LDM came along near the end of his days. In summary, even 20 years ago there were many high quality, long-established vignerons who were unknown to the world even in places that were only a couple of hours’ drive from Paris.

isn't it the oldest story in history that it all looks done and said to the closed mind?

and, without wanting to wound tender feelings around town, how is the wine waiting market these days?

fb.
 
to add a little context into the mix, how many growers do you think david ridgway had to "deal with" a week.

time was, the wine guy added something more than dumping teh schnook shit on teh sales reps.

fb.
 
originally posted by SFJoe:
But this does raise another question for me. If you consolidated the portfolios of 100 of those importer/distributors into 5 big companies, would that work better? It would still be the same number of wines in front of the same buyers, though they would not have to go to the trouble of establishing a relationship with each seller, which would surely count for something. Is there an opportunity for the artisanal investment banker here? Probably not. But 200 different identities requires some pretty heavy lifting on the social network/marketing side, does it not? How does number 201 get in the door? Hookers and cocaine? Seems expensive until the business is well established.

One of the biggest highlights of my winery job is meeting and developing relationships with like-minded people who love good wine and enjoy putting that wine in the hands of their customers. I would say all number 201 needs is an honest product that he or she truly feels passionate about. Also it doesn't hurt if it is realistically priced. You may not move a freighter load of wine but you probably will get in the door.

Consolidation would certainly turn our beloved hippy wine into a numbers game and a fast race to the bottom. This is what happened to publishing, for instance, and is ultimately why I had to get out. You might as well be working for a bank.
 
originally posted by Jason Malumed:
In fact, if you know what you are doing, you can find some cool wines at good prices in the PLCB state stores every once in a blue moon.

I am remembering seeing about 8 or 10 cases of '98 Soldera available, recently, for around (maybe under?) $100/bottle, for example. I failed to act quickly enough, though.
 
originally posted by Michael Lewis:
I am remembering seeing about 8 or 10 cases of '98 Soldera available, recently, for around (maybe under?) $100/bottle, for example. I failed to act quickly enough, though.
Yup, '98 Soldera for $100 existed, as did '01 Le Pergole Torte for $35 that I bought a few years back. The great thing is, once the wine hits the store, the price is the price. The state cannot adjust it up. So, if you do some digging in the cold rooms of some of the better stores, you can usually find some forgotten about stuff at a good price.
 
originally posted by fatboy:


isn't it the oldest story in history that it all looks done and said to the closed mind?

If you have a binary cast of mind, probably.

But ten more guys going to the Dive probably aren't going to turn up 10 more Guy Bossards. And I bet there aren't undiscovered Chaves in Hermitage with hundreds of years of history.

The returns have diminished to zip in some regions. So people have to look elsewhere, at least you hope so. Alternatively, people bring in crappy producers from the same old places. You can find some pretty bad wine from the Jura in NY these days without looking too hard.

But I still wonder how many reps someone with a small program wants to see in a month.
 
You guys. I thought Gordon Gekko, I mean SFJoe, told you not to get emotional about wine.

So SFJoe, I am going to turn this around and ask you - will consolidation in the pharma industry, its obvious advantages notwithstanding, keep us from getting better, cutting edge drugs? Or at least getting them sooner than later.

And if the answer is yes, then is continued discovery by start-up companies, followed by inevitable consolidation ( for better resources, clinical trials, time to market, hookers & cocaine budget, etc. ) the way to go? And if this is also true in the parallel wine universe, then why isn't this an opportunity for the artisanal banker? :-)

You could argue that a difficult-to-establish relationship with the 201st guy is often a relationship with the wine. In a best case scenario, a large company would continue to operate as an umbrella over smaller portfolios, with concentrated areas of expertise and relationships with growers/clients rich in subject matter. But I am skeptical. Size matters IME. (Don't quote that out of context). Consolidation has a tendency of finding its way into unwanted territory. I do not believe the product itself, or the choice of product remains unaffected indefinitely. To be a little extreme, how do you feel when a large Beaune negociant, no matter how excellent, buys out an artisanal Pouilly-Fuisse producer?
 
originally posted by Kay Bixler:


Consolidation would certainly turn our beloved hippy wine into a numbers game and a fast race to the bottom.

Well, at some point, sure. But one pallet of wine won't feed the sales rep, either (unless she is also the producer, perhaps?). So there is probably some optimal scale for the 3-tier market and small producers, where the reps have a few things to talk about, give enough attention to each wine, but still move enough stuff to pay the rent. I wouldn't send CRB to Southern.

But maybe I just don't understand how it all works.
 
It does help that there are so many hipster buyers now locally to help support all the hipster wine importers. I was talking to someone itb recently who mentioned they knew an account that worked with over 60 suppliers. Personally, I think that buyer should have their head examined.
 
originally posted by .sasha:

So SFJoe, I am going to turn this around and ask you - will consolidation in the pharma industry, its obvious advantages notwithstanding, keep us from getting better, cutting edge drugs? Or at least getting them sooner than later.
Oh, the big consolidations there have been a castastrophe in many ways. The big organizations can't innovate their way out of a paper bag. Some of them keep their internal R&D going so they have someone to evaluate the external stuff that they have to buy because the internal guys can't come up with anything.

So--everything sold by One Big Company would be an obvious disaster. And one tiny company for every wine is probably too inefficient to work. In between, there is a scale that could give proper attention to the next [favorite small producer from unsung region], get excited, get in the door. But I wonder what that scale is. And do they need one sake2me to pay the bills? Or not? And how many of those companies are there? Maybe each restaurant/retail shop just talks to 20 of the tiny ones and we shouldn't expect as much overlap in stock from place to place. That could be pretty cool.

Finding good stuff to sell is a slightly different problem, I probably shouldn't have conflated it with the distribution question. But I suspect the pile of new importers I see prospecting at each Dive Bouteille are not all going to come away with great new wines.

This could just reflect my ignorance, I'll just turn up the volume on This Week in Virology and go back to the cellar.
 
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