Consolidation in the wine industry: have we barely even started?
Opinion piece by William Long, Long Wines
With the largest wine distributor in the USA, Southern Wine and Spirits signing a merger agreement with Glazer’s, another heavy hitter in the sector in 2016, it’s evident that the wine industry is undergoing a major process of consolidation. But how far along the chain are we? I would argue that we haven’t even seen 30% of the mergers that will occur.
If you want to see how far things could go, look to the UK market, where trends in wine are often set. With off-trade sales falling by 10% over the last few years many traditional agents have fallen by the wayside and the market is increasingly dominated by a few big names. Even so, at the last Wines of Spain tasting in London it was evident that there aren’t enough clients to go around.
By far the biggest merger in recent years started back in 2014, when PLB and Bibendum combined and last year, the group was purchased by Conviviality Retail, the owner of Bargain Booze, having already bought the drinks wholesaler Matthew Clark in 2015. This means Conviviality now has 17% of all listings in the UK, serving 23,000 outlets.
In a Drinks Business article back in 2015, Michael Saunders, CEO of Bibendum PLB was quoted as saying that further consolidation of both producers and distributors was “necessary” as there is still not enough business or profit to sustain them all. “There is a space for thriving quality niche operators, but it is an area of concern if you are too big to be small but too small to be big,”
I thought of the British example when I was in Belgium earlier this year, where a similar process is underway. In Belgium it is the on-trade that is suffering with a fall of 10% in sales. This, added to rising taxes, which mean that many shoppers go to buy wine in neighbouring Holland, means that many merchants have folded or merged in recent years. However, in some ways this is an opportunity for those that remain, as there is less competition.
In fact, the CEO of Binny’s Beverage Depot is actually quoted as saying that the number of boutique wholesalers in the US is “growing” in a recent article in Wine Spectator. Small independent restaurants and specialist retailers often prefer to do business with small, family merchants that often specialize in one sector.
And what about pricing? Although larger companies should mean increased efficiencies and lower costs, often this doesn’t translate down to the consumer level, with the additional funds being spent on marketing.
Whatever the costs and benefits of consolidation, one thing is for certain; it will be affecting the wine industry for years to come.