Food & Power: After Latest Merger, Two Companies Control Majority of Wine and Spirits Distribution

On November 20, wine and spirits distributors Breakthru Beverage and Republic National Distributing Company (RNDC) announced that they plan to merge. The two companies are the second- and third-largest distributors, and would together have nearly a 60% market share. Experts say continued consolidation in distribution means less leverage for small retailers, and an uphill struggle for small wineries seeking distribution contracts.

This merger is the latest in a spate of mergers in the distribution and wholesaling sector. In 2016, the then-first- and fourth-largest wine and spirits distributors combined to create Southern Glazer’s Wine and Spirits, today the sector’s largest player. In 2015, Chicago’s Wirtz Beverage Group and New York’s Charmer Sunbelt Group merged to create Breakthru.

Emily Pennington, managing editor at Wine & Spirits Daily, says that the distribution sector has “hit a tipping point for consolidation.” She notes that as the biggest distribution companies have grown, many mid-size competitors have been bought or shuttered, leading to a bifurcated sector populated by a few giants and a large number of smaller, craft-oriented companies.

The alcohol sector is regulated in the states by a “three-tier” system, which separates the production, distribution, and retail of alcohol. These post-Prohibition laws are meant to uphold competition in the sector and to prevent any one company from rolling up control over multiple tiers of the industry. The laws require that wineries and spirits producers contract with distributors in order to sell to retailers.

Tom Wark, executive director of the National Association of Wine Retailers, says that consolidation in the distribution sector has had negative effects across the supply chain. “As wholesalers gain more and more power through consolidation,” he says, “it makes it more and more difficult for small wineries to have any leverage.” Wark and other industry observers note that wineries are increasingly turning to direct-to-consumer marketing through taprooms and online sales, rather than struggling to find distributor representation.

Wark also says that retailers are offered fewer and less unique wine brands as the remaining distributors favor their large-scale clients at the expense of smaller ones. Mom-and-pop wine and liquor stores will be “screwed” by this latest merger, he says, while grocery and box stores will benefit.

Breakthru has nearly $6 billion in annual revenue, markets in 16 states, and 7,000 employees. RNDC has about $6.5 billion in annual revenue, markets in 20 states and the District of Columbia, and about 9,500 employees. The combined company would have operations in 27 states, many of them in regions where Breakthru and RNDC currently compete.

The number of wineries in the U.S. has grown substantially over the past twenty years, from 1,800 in 1995 to over 9,200 today. But those wineries are increasingly partnered with one of the few most powerful distributors. According to analysis by Wines Vines Analytics, over 35% of American wineries were represented by just the top four wine distributors before the Breakthru/RNDC merger. There are over 1,100 wine distributors in the U.S. today, down from 3,000 in 1995.

As distributors have become larger, they’ve also become powerful political donors. According to data from Follow the Money, Breakthru contributed over $127,000 to political candidates and committee in 2016 and 2017. Since 2005, RNDC has contributed over $1.1 million to political candidates and committees.

The largest distributors have faced some scandal as they’ve grown in size and power. Southern Glazer’s has faced several lawsuits in recent years for allegedly charging clients for products they didn’t buy. One California lawsuit alleges the distribution giant charges different prices for different clients. A restauranteur in Albany, New York alleged in his lawsuit that Southern Glazer’s charged him more than $40,000 for liquor he didn’t order.

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