Except for the few top brands, most smaller and mid-size
wineries are being locked out of the current three-tier distribution system. But
how do the major producers like E&J Gallo, Constellation Brands, and The
Wine Group feel about the three-tier system? In class we spoke about the clear
benefits of cutting out the middle-man – lower prices for the consumer and
higher margins for the producer. From that lens, it seems obvious that the
high-volume wineries would be in favor of cutting out the middleman. However, I
wonder if they would be losing a key aspect of their competitive advantage if
the 70% of volume no longer passed through a single distributor. Because the major
producers account for such a high percentage volume, Southern likely pushes
their products and the small batch wines are never shown to the buyer. If other
producers can start selling direct to retailer, the retail buyer may be faced
with more choices and the major producers will have to market their products
more aggressively. However, despite the potential for increased competitive
pressure, the top producers have achieved such scale and have deep enough pockets
that the benefits of removing the middle man far outweigh the costs.
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