A very telling article written by Alfonso Cevola, who worked as the Italian Wine Director for Southern Glazer Wine & Spirits (Southern) for nearly 30 years, demonstrates how the wholesale tier changed their practices to worsen the bottleneck crisis for small wineries. Yes, the same tier that lobbies to take away market opportunities for small producers, changed their business model to make it exceedingly harder for small wineries to grab market share.

According to the article, one of the dominant players in the wholesaler tier changed the compensation system from the traditional commission model to a pay for performance model. Under the traditional commission model, the wholesaler salesman had an incentive to know their accounts well and got rewarded for selling unfamiliar wineries to retailers. Because the sales reps had incentives to sell these products, unfamiliar wines had a route to market.

The major wholesaler he is referring to, changed to a pay for performance model that “replaced that alignment with predetermined goals tied to specific SKUs, funded by supplier contributions to bonus pools. Large suppliers bought their way into the performance metrics.”

The sales goal switched to cherry picking the highest paying goals and deemphasizing the small unknown producers.

The suppliers funded the bonus for pay for performance, and small producers without the budget to participate were frozen out. Additionally, sales bonuses from the supplier pools started flowing up to senior management. Who started getting rewarded for the changed system.

The industry needs a day of reckoning, and maybe that day will come from the federal court system. We hear how people are drinking less; and there is the threat of Hemp derived beverages amongst many challenges.

Maybe the real enemy is within our own alcohol system. The system which on its best days has a major bottleneck problem of too many suppliers and not enough wholesalers (With many states mandating a winery utilize a wholesaler to sell in-state, there is no good alternative available for the winery.) Now faces another problem of a major wholesaler intentionally skewing the market against the upstarts and collecting bonuses to rig the system.

When it all shakes out, we are going to discover C-suite executives had to sign off on these maneuvers.

As someone who was in the government side of things, I can tell you that the liquor wholesaler lobby is powerful in the legislative and executive branch, and state regulators trying to make change face great resistance and political pressure. Maybe its time the political class in the state legislatures starts looking at the corruption in the industry and remedy the marketplace, or maybe the corruption hits too close to home!