Business Expansion

Zev Rovine, a Brooklyn-based importer who specializes in natural wine, politely hesitates to comment on a recent $810 million acquisition between E. & J. Gallo, the world’s largest winery, and fellow drinks giant Constellation Brands. “Those companies are in a whole different world than the one I work in,” Rovine demurs. “They exist in their own world with their own distributors that sell to the grocery stores and the chain restaurants.” Zev Rovine Selections’ wines are primarily sold in independent bars, restaurants and bottle shops, whereas Gallo’s portfolio includes commercial juggernauts Apothic and Barefoot. “Ruth’s Chris wasn’t buying wine from us before,” says Rovine of the steakhouse chain. “They’re still not going to buy wine from us. This deal doesn’t change that.” Still, a big acquisition by the largest player of any industry has ripple effects. Consolidation doesn’t eliminate independent businesses, but it can make resources scarcer, from production and distribution to consumer attention and access. How do these types of deals shape American wine culture? The U.S. wine business is “moving towards a situation where a few firms acquire significant market power,” says Karl Storchmann, a clinical professor of economics at New York University and the editor of the Journal of Wine Economics. “The transfer of brands from Constellation to Gallo will boost Gallo’s market share by between 4–5%, to well above 30%. This will increase Gallo’s monopoly power, particularly in the low-price segment.” It’s enough of an issue that, on December 22, the Federal Trade Commission made Gallo divest some of the brands it had wanted to acquire from Constellation, eliminating a few low-priced wines from the acquisition and bringing the deal down from its proposed $1.7 billion. Any player in the wine market has to navigate a labyrinthine set of laws to reach consumers. Every alcoholic beverage sold in a bar, restaurant, supermarket or bottle shop travels through three tiers: first producers sell their wine to wholesalers or distributors, who then sell it to retailers or restaurants, where it can then finally be sold to consumers. As a result, distributors have enormous influence over which wines are sold where, to whom and at what price. A big acquisition by the largest player of any industry has ripple effects. Consolidation doesn’t eliminate independent businesses, but it can make resources scarcer. TJ Douglas is the founder of The Urban Grape wine shop in Boston, and previously worked for a distributor in Massachusetts. He recalls how big wine companies could provide extra commissions or perks like travel, incentivizing sellers and retailers to prioritize their wines. “The sales reps can go into a store and say, ‘Hey, there's programming dollars behind this, but you need to buy 50 cases. You need to sell it at this price point and it needs to be on your end cap,’ ” says Douglas, referring to the premier position on a store’s shelf. “The retailer maybe doesn’t drink wine, because it’s maybe not even a wine shop. So, they just look at the dollar amount they’re getting ‘for free,’ and that’s how they decide to sell and promote the wine.” Meanwhile, small wineries and independent shops scramble to remain competitive. “The field is not level. It's an issue of volume,” says Brian Duncan, founder of Down to Earth Wine Concepts, a hospitality consulting firm. After distributors negotiate case discounts for high-volume chain stores or supermarkets, those retailers “eliminate any kind of price competition in the market,” he says. Distributors have been consolidating for decades, even as U.S. wine production and consumption has grown over the last 25 years. According to a study in Wines & Vines, in 1995 there were 1,800 wineries and 3,000 distributors in the U.S. By 2017, the country had 9,200-plus wineries and approximately 1,200 distributors. “Big distributors want to deal with big wineries. Big retailers want to deal with big distributors,” says John Aguirre, president, California Association of Winegrape Growers. “The real issue in my mind isn’t Gallo’s success. It’s how do we promote other wineries and smaller wineries to be successful in getting their product to distribution.” Of course, the benefits of a diversified market aren’t just economic. Some wine professionals worry consolidation decreases creativity and innovation from wineries, and shifts consumer expectations and behaviors. “The repercussions on the back end are so mega,” says Elizabeth Schneider, author and host of the podcast Wine for Normal People. Commercial companies remove the agricultural uncertainty from their wine, she says. “Every time you get a Coke it tastes exactly the same. Every time you have Barefoot it tastes exactly the same. There’s no sense of place or vintage, but the wine is completely sound and there’s nothing wrong with it. It’s soda.” Soda fans might hear this and think, “Great! I love my consistently satisfying soda!” And, casual wine drinkers may simply want to buy what they know they’ll like. Consistency and familiarity can boost consumer comfort, which can then encourage curiosity about the category. “From a grower perspective, Gallo’s commitment to research is pretty extraordinary.”—John Aguirre, California Association of Winegrape Growers But, for those who consider wine sensitive to and capable of expressing vast environmental, historic and sociocultural factors, this commercially driven, cookie-cutter approach is devastating. “It's too bad that the people doing damage to the industry don't love wine and its place in our lives and our culture. If they did, they couldn't treat it like this,” says Duncan. “I want to bring my voice to the people who work with their hands in the soil, building something really special.” Those workers with dirt beneath their fingernails benefit from the steady production needs and ongoing scientific studies funded by successful companies like Gallo, counters Aguirre. He cites Gallo’s work with mechanization, particularly valuable in California, where Aguirre estimates 80% of wine grapes are mechanically harvested. “From a grower perspective, Gallo’s commitment to research is pretty extraordinary,” he says. Schneider believes it’s problematic for private companies to direct scientific research, though, because they might intentionally avoid certain subjects to preserve their own interests. “Why do some wines give you headaches? Why do some sparkling wines go flatter more quickly than others?... These are things that would be really interesting for consumers to know, but it does not make sense for Gallo or Constellation or The Wine Group to study them, because the answers could damage their brands,” says Schneider. Deep-pocketed consolidated companies can exert their influence in positive ways, too, say pragmatic wine professionals. “There’s no doubt that corporations have a significant impact on wine tourism in California—corporations, for that matter, have an impact on every industry,” says Katie Bundschu, vice president of sales and marketing for Gundlach Bundschu in Sonoma Valley. “If done mindfully, they can be a strong marketing arm for a region and steward of the land.” Every member of the industry wants to sustain the business, and bring consumers’ hearts, minds and hard-earned dollars to wine. While all can agree that making bottles available to curious drinkers is crucial, some worry that consolidation silos the market. “As we’re talking about amplifying Black and brown people in the wine industry, where does it start?” says Douglas. “If you go to a developing neighborhood that's mostly brown and Black people, chances are they don't have any $35 wine from the Central Coast in their liquor store. But it's filled with Barefoot magnums and André sparkling. “That doesn't allow the people in that environment to have full exposure to what wine really is. This isn't coming from a place of disrespect at all. It's just, there's more to wine than André.”