The biggest controversy in the wine business (aside from direct shipping) is probably wine sales in grocery stores in the 19 states where it’s illegal. New York gets the most attention, not surprisingly, but it has also been an issue in Oklahoma, Tennessee, and Maryland.
The question seems straightforward: This is the 21st century, so why can’t consumers buy a bottle of wine at the supermarket? The answer, of course, is much more complicated, involving the competing interests among the different parts of the three-tier system; what’s often portrayed as a battle for survival between local, neighborhood wine shops and soulless, money-grubbing multi-national grocery chains; and each state ‘s particular politics and liquor regulations.
Hence the Wine Curmudgeon’s calm, moderating approach. The world will not end for small retailers if wine is sold in grocery stores, and wine in grocery stores is not the panacea that the supermarkets think it is.
For this, we can look at the pet business, which went through a similar shakeout some dozen years ago. That’s when Proctor & Gamble, then widely regarded by independent pet retailers as a soulless, money-grubbing multi-national out to destroy their businesses, bought a dog food brand called Iams. Iams was the leading dog food sold by independent retailers, and was only available in pet stores. The independents were convinced that they would all go out of business the minute P&G started selling Iams in supermarkets, which happened shortly after it bought the brand.
The result? There were about 10,000 pet stores in the U.S. in 2000, when P&G bought Iams, according to the editors of Pet Age magazine, and there are about 10,000 today. And P&G got so disgusted with pet food that it sold Iams 15 years later for more or less what it paid for it, resulting in a loss allowing for inflation and money invested in the brand.
I’m not the only one who sees the parallel between dog food and wine (which occurred to me because I wrote for Pet Age, and covered the Iams switch). Frank Frattini, who owns a very successful New Jersey pet retail operation called The Hungry Puppy, sees it, too. And he should know, because he was one of those retailers selling Iams (and a wine drinker).
“Did we want that to happen? No,” says Frattini. “I understand exactly what the liquor stores are saying. They built up those wine brands, just like we built up Iams. And then someone wants to come and take the brands away after they did all the work to make them successful, just like what happened to us.”
Dog food is the key to profitability for most pet retailers, accounting for as much as one-quarter of sales. Plus, consumers who come in to buy pet food often leave with other items, like toys and treats, that carry higher margins. So, in the short term, says Frattini, the Iams move to grocery stores cost him a lot of money, as his customers bought their food at the supermarket instead of his store.
In the long term, though, the Iams switch actually helped his business — really, he says.
Frattini learned how to be a better retailer. He didn’t have the Iams cushion to depend on, so he had to do a better job in other areas — marketing, inventory management, and the like. That made him money he would not have made if Iams had not switched. In this, he says, he came to the realization that business will always change over time, whether he wants it to or not. So one had better learn how to adapt.
Second, retailers like Frattini discovered they had an advantage that grocers didn’t have, despite Iams. “It was convenience and knowledge,” he says. “When’s the last time anyone could answer a pet food question at a grocery store? And isn’t it easier to stop at a pet store to buy food than to go to the grocery store?”
Which should be good news for any wine retailer terrified about what will happen if his or her state allows supermarket sales. Yes, the short-term shock will be hard, but good retailers will be able to survive that. After all, when is the last time anyone could answer a wine question at a grocery store?