Zev Rovine, a Brooklyn-based importer of natural wines, politely holds back when discussing the recent $810 million acquisition between E. & J. Gallo, the world’s largest winery, and beverage giant Constellation Brands.

These companies are in a very different world than the one I work in, says Rovine. They exist in their own world with their own distributors who sell to supermarkets and restaurant chains.

Zev Rovine Selections’ wines are sold primarily in bars, restaurants and independent bottlers, while Gallo’s portfolio includes top commercial Apothic and Barefoot dogs.

Chris Root hasn’t bought any wine from us yet, says Rovin of the steakhouse chain. You’re still not buying us wine. This agreement does not change that.

Yet a major takeover by the largest player in a sector has a knock-on effect. Consolidation does not preclude an independent business, but it can lead to a reduction in resources, production and distribution under the attention and access of consumers. How are these companies shaping American wine culture?

 

Gallo Winery Founded in 1933 in Modesto, California, E. and J. Gallo is the largest winery in the world / Courtesy of E. and J. Gallo.

The wine trade in the United States is evolving into a situation where a few companies are gaining significant market power, says Karl Storchmann, professor of clinical economics at New York University and editor of Wine Economics. The transfer of the Constellation brands to Gallo will increase Gallo’s market share by 4-5% to over 30%. This will strengthen Gallo’s monopoly position, especially in the low price segment.

Suffice it to say that the Federal Trade Commission of the 22. December forced Gallo to sell some of the brands he wanted to buy from Constellation, eliminating several low-cost wines from the acquisition and reducing the supply by $1.7 billion.

In addition to monopolization, each player in the wine market must navigate a maze of laws to reach consumers. Every alcoholic beverage sold in a bar, restaurant, supermarket or bottle shop goes through three stages: First, producers sell their wine to wholesalers or distributors, who then sell it to retailers or restaurants, where it can eventually be sold to consumers.

As a result, distributors have a major influence on which wines are sold where, to whom and at what price.

A major acquisition by the largest player in a sector has a domino effect. Consolidation does not preclude a stand-alone business, but it can lead to a reduction in resources.

TJ Douglas is the founder of The Urban Grape wine store in Boston and previously worked for a distributor in Massachusetts. He recalled how large wineries can offer commissions or additional benefits, such as business trips, to encourage retailers and traders to promote their wines.

Salespeople can walk into a store and say: Hey, there are programmable dollars behind it, but you have to buy 50 boxes. You have to sell it at that price, and it has to be on the cap, Douglas says, referring to the leading position on the store shelf. The merchant probably doesn’t drink wine because it’s probably not even a liquor store. So they look at the dollar amount they get for free and decide to sell and promote the wine.

Meanwhile, small wineries and independent shops are struggling to stay competitive.

The field is not level. It’s a matter of quantity, says Brian Duncan, founder of Down to Earth Wine Concepts, a hotel consulting firm. Once distributors negotiate arbitrary discounts for chain stores or large supermarkets, they eliminate price competition in the market, he says.

TJ Douglas Urban Grape TJ Douglas Founder of the Urban Grape Wine Shop in Boston/Photo by OJ Slaughter and Philip Keith

Distributors have been consolidating for decades, even as wine production and consumption in the United States has increased over the past 25 years. According to a study by Wines & Vines, there were 1,800 wineries and 3,000 distributors in the United States in 1995. In 2017, there were more than 9,200 basements and about 1,200 distributors.

The big distributors want to do business with the big wineries. Big retailers want to do business with the big distributors, says John Aguirre, president of the California Grape Growers Association. I don’t think the real problem is Gallo’s success. In this way, we promote other wineries and small wine houses so that they can successfully market their products.

Of course, the benefits of a diversified market are not just economic. Some wine professionals fear that consolidation will reduce creativity and innovation in wineries and change consumer expectations and behavior.

The background implications are so great, says Elizabeth Schneider, author and host of the Wine for Normal People podcast. Companies are taking agricultural uncertainty out of their wine, she says.

Every time you get a Coke, it tastes exactly the same. Every time you eat Barefoot, it tastes exactly the same. There’s no sense of place or vintage, but the wine is perfectly healthy and there’s nothing wrong with that. It’s soda.

Soda fans can hear this and think this: That’s it! I love my lemonade! And casual wine drinkers may only want to buy what they know they will like. Consistency and familiarity can increase consumer comfort, which can lead to curiosity about the category.

From the manufacturer’s point of view, Gallo’s commitment to research is quite exceptional. – John Aguirre, California Grape Growers Association.

But for those who see wine as sensitive and capable of expressing huge environmental, historical and socio-cultural factors, this commercial approach based on culinary prowess is fatal.

It’s a shame that the people who damaged the industry don’t love wine and its place in our lives and culture. If they did, they couldn’t do it that way, Duncan says. I want to give my voice to people who work with their hands in the ground and build something really special.

These workers who have dirt under their nails benefit from regular production and ongoing research funded by successful companies like Gallo, Aguirre says. He cites Gallo’s work on mechanization, which is particularly valuable in California, where Aguirre estimates that 80% of grapes are harvested by machine.

From a manufacturer’s perspective, Gallo’s commitment to research is quite exceptional, he says.

According to Schneider, however, it is problematic for private companies to control research because they might intentionally avoid certain topics to protect their own interests.

Why do some wines give you a headache? Why do some sparkling wines flatter than others… ? It’s something consumers really want to know, but it doesn’t make sense for Gallo, Constellation or The Wine Group to research them because the answers could hurt their brands, Schneider says.

Elizabeth Schneider Elizabeth Schneider is the author and host of the podcast Wine for Normal People / Photo courtesy of Elizabeth Schneider.

Deeply consolidated companies can be a positive influence for pragmatic wine professionals.

There’s no doubt that businesses have a significant impact on wine tourism in California – businesses have an impact on every industry, for that matter, says Cathy Bundschu, vice president of sales and marketing for Gundlach Bundschu, based in the Sonoma Valley. Once sensitized, they can be a powerful marketing lever for the region and a steward of the land.

All players in the industry want to support the company and bring wine into the hearts, minds and hard-earned money of consumers. While everyone agrees that it is important to make bottles accessible to curious drinkers, some are concerned about the consolidation of the lift market.

Speaking of empowering blacks and browns in the wine industry, where does it begin? says Douglas. If you go to a developing area where mostly brown and black people live, chances are their liquor store won’t carry $35 worth of Central Coast wine. But it’s filled with barefoot magnums and a sparkling Andre.

This prevents people in this environment from having a full understanding of what wine really is. It’s not disrespectful at all. Wine is not only Andre.

 

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