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September 2017 WINES&VINES 37 DISTRIBUTOR MARKET 2017 struggling, and they can get that moving quickly and introduce it through those existing marketing and distribution relationships." He said DtC is really the best option to enter the market, and that there hasn't been any significant breakthrough alternative to the three-tier system. "You will start to see new models evolve, but I'm not sure if anyone has cracked the code yet." (See related story by Ben Narasin on page 52.) There are boutique wholesalers who focus on new brands, and Carroll mentioned other firms that provide the logistical services of distributor- ship cheaper because they leave it up to wineries to do the sales and marketing. He added that some of the larger retailers have been pushing to open up the three-tier system, too. "There are some major companies out there that are putting some pressure on the traditional laws," he said. "I think you're going to see a lot of challenges." Consumers are also waking up to the chal- lenges of the three-tier system. As they con- tinue to demand more choices when it comes to wine, they are increasingly frustrated when they can't find those brands in their state. "That's a market force that will apply pressure on the system," he said. 'Bigger, bigger and bigger' Since launching the Napa, Calif.-based sales and marketing, import and distribution com- pany Quintessential Wines with his father in 2002, Dennis Kreps said the consolidating wholesale market has compelled his company to expand its sales team nationwide. "Because of the consolidation of wholesalers— they get bigger, bigger and bigger—they want to do a good job for everybody, so we have to have people in the marketplace working closely with them and helping to drive the business, or execution just doesn't happen," he said. "They have too many brands in their portfolios, too many priorities. That's our strength in the man- power of our sales force around the country." Most of the wines Quintessential represents are imports, but Kreps said domestic wineries are "the biggest opportunity for growth for us," and his sales team of nearly 60 is the founda- tion for that growth because they can do all the routine sales work of calling on accounts and meeting with buyers. "Twenty years ago wholesalers did all that because there were a lot of wholesalers and they had smaller port- folios, but you can't really expect them to do it now," he said. "We believe in salespeople in the streets building our brands." Consolidation has "snowballed" in recent years because of major deals like Southern Glazer's and the creation of Breakthru Bever- age in 2016 through a merger of Charmer Sunbelt Group and Wirtz Beverage Group. Kreps said he expects it to continue. "It's made it more and more difficult for the independent distributor to be successful," he said. "But that has allowed us to be more successful because of our manpower." Build the brand for success John Jordan, owner and CEO of Sonoma Coun- ty's Jordan Vineyard & Winery, which produces around 90,000 cases per year, said consolida- tion has been "a fact of life for a couple of decades" and long before he joined the wine industry. He said the wholesale market is a competitive business driven by tight margins, and so wholesalers need to be assured that a brand will sell through each quarter. Jordan wines are distributed in all 50 states and by many of the largest wholesalers. Jordan said that's because his family invested heavily in building that brand through public relations, digital media content and a strong sales team. "The responsibility is on the supplier to build that brand equity, because a wholesaler won't do it for you," he said. "You need to build that brand." Such brand work is also vital to convince consumers as well. Jordan said the typical U.S. wine consumer is not a wine cognoscenti, and rather than wanting to discover something new they typically just want a trusted brand. "That's a battle you have to win when a consumer is looking at the retail shelf or wine list," he said. And if the consumer does stick with the trusted brand, it's often better for the retailer and wholesaler. "Access to the three-tier market is getting ever more restrictive because there's just so many brands out there," Jordan said. "Wholesalers don't want the inventory of ob- scure brands that in turn may have a hard time selling through retail accounts." When asked if had any advice for a new winery seeking to grow through the three-tier system, Jordan conceded it would be very tough. "I'm not sure it could be done," he said. "You have to convince the wholesaler their margins will be really high and they'll sell through. Frankly there's just so much noise out there it's very tough to do." For distributors, the situation is reversed. They need to be even more selective about who they choose to represent. "I can't comment on the specifics, but the pro- portion of brands we accept compared to those presented is getting smaller with each passing day. We are very disciplined with regard to which brands we elect to represent, and the choices feel virtually endless," said Erle Martin, executive vice president-wholesale west for The Winebow Group. Martin said consolidation is the No. 1 factor in the wholesale environment in the United States, and with that comes additional competitive pres- sure. That squeeze is also leading to innovations in technology to better understand sales patterns and manage multiple brands effectively. Just like many other industries, Martin said consolidation is driven by companies looking to expand their business volume and enter new markets through acquiring competitors or smaller entities. Greater scale also brings more opportunity for efficiencies in operations and other costs, which are a huge factor in the wholesale market where margins are tighter. With every major merger, other distributors feel more pressure to find their own deals to stay competitive. "There's a bit of a domino effect," Martin said. Martin also readily admits wineries face a challenge when trying to secure distribution. "It is tough. You've got these two trends moving in opposite directions," he said. He also pointed out that it's not just whole- salers consolidating but retailers as well. CONSOLIDATION OF U.S. WHOLESALERS 1995 2017 1,800 wineries 1,200 wine distributors 3,000 wine distributors 9,200 wineries Source: Distributor sources and Wines Vines Analytics.