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40 WINES&VINES September 2017 DISTRIBUTOR MARKET 2017 A s CEO of the Wine & Spirits Wholesalers of America, Craig Wolf manages day-to-day opera- tions of the influential trade association based in Washington, D.C., with the help of an annual budget of $11 million, a staff of 23 and a political action committee. Wolf was trained as a lawyer and served as the WSWA's general counsel for seven years before taking over the organization's top spot in 2006. Pre-WSWA, Wolf served as counsel to the U.S. Senate Judi- ciary Committee as a trial attorney in the Criminal Division of the Department of Justice and for five years worked as an as- sistant state's attorney for Allegany County, Md. He is a major in the U.S. Army Reserve. Founded in 1943, WSWA advocates for wholesalers' interests with state and federal elected officials, the media, regulators and the law-enforcement community. Membership includes 372 wine and spirits wholesalers and brokers operating in all 50 states and the District of Columbia. Wolf estimated that WSWA members handle 80% to 85% of wine and spirits volume in the United States. Q Distributor and wholesaler consolidation ranks as a top concern for wineries. Can you reassure small to medium sized wineries that distributors still care about their success? Craig Wolf: First of all, consolidation's been happening for the past 20 years in a serious way. Yet if you look at what's available on the shelves, and available to the consumer, the SKUs have only gone up in our time despite the consolidation. What's going to hurt small win- eries, what's going to hurt the craft movement, the innovation, is not the wholesaler consolida- tion. Wholesalers are going to maintain their SKU level of 15,000 to 30,000 SKUs. What's going to hurt the brand owners is the retail playing field, and the big box retailers, and the private labels. What you're going to see is the squeeze on the shelf space. A lot of big-box guys like Costco, they have minimal SKUs to begin with, and they're looking for the high volume. Now they'll throw in a couple local brands to sort of make the portfolio a little broader. Let's face it, when you're talking with Costco, you're talking 150 to 200 SKUs, that's it. Now you've got some bigger guys like Total Wine that have a huge selection. But if you look at their goals, their goals are private labels. Q What's so bad about chain retailers developing their own private wine brands? Wolf: Look, we don't have a problem with anybody who enters the regulated marketplace. But a lot of these large retailers want to change the marketplace. If you look at what happened in Washington state, that has not had a net benefit necessarily for the consumer. That was an initiative drafted by Costco. If you look at what actually results when they get their way, and if you look at what they were trying to do in Oregon with trying to privatize Oregon—and Kroger's is behind that—it wouldn't have been to the benefit of the consumer in the long run. What would happen most is the private labels would be the biggest beneficiary of that, not brands. The big brands, they're going to still go through traditional wholesalers. The private labels were getting an economic advantage going direct. In the end, the consumer would have more space lost at the local grocery store or liquor store. A lot of these retailers are about volume sales. That's what they want. They're not looking to have the expanded SKUs that a consumer—especially a wine consumer—is looking for. Now if I'm supplier, if I'm a Gallo, I can't go to a retailer and say, "I'll pay you money to get the prime end cap here for this month." It's illegal. But a retailer who owns a private label and financially benefits from that private label can slot it anywhere they want to. Is that fair? It presents a real legal issue, from my perspective, as to what their status is and whether the rules apply to them fairly, as they do across the board for wholesalers and suppliers. Q Why should wineries w a n t t h e t r a d i t i o n a l three-tier system to remain intact? Wolf: If you think about day-to-day sales, what do you have? You have hun- dreds of thousands of suppliers from around the world trying to deliver their product to hun- A CONVERSATION WITH Craig Wolf WSWA chief addresses consolidation and the growing influence of mega retailers By Jim Gordon