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Treasury Announces its Move to Direct Distribution

Napa kingpin acquires Diageo and changes its wholesale route to market in select states
by Liza B. Zimmerman
February 05, 2018

News Analysis: Treasury Wine Estates (TWE)—the Napa-based marketer of iconic brands such as Beaulieu, Beringer and Stags’ Leap—which acquired the majority of Diageo’s wine business for $600 million two years ago, announced that intends to pursue a more direct route to market in some states. 

“As a next step within the Americas region, this is part of TWE’s overall strategy to fix, grow and accelerate our portfolio in the US.,” said a TWE spokesperson. In states where it is legal, such as California and Washington, TWE will directly distribute to key retailers on a national and regional level. In others, such as Florida, it will employ a hybrid model by managing relationships with key retailers and collaborating with the newly appointed Breakthru Beverage Group.

In other states, noted the spokesperson, “TWE has appointed new, full-service distributor partners that it considers best placed to grow its brand portfolio. These include Breakthru Beverage Group in Illinois, Colorado, South Carolina and Minnesota; Johnson Brothers in Indiana, Hawaii, Iowa, West Virginia, North Dakota and South Dakota; and Vehrs Distributing in Oregon and Specialty Imports in Alaska.”

Treasury was previously with Southern Glazers in California. 

Throughout the country, the company “will work with a logistics partner as we do in other regions to manage the distribution. The transition is underway, with a switch-over anticipated by end of March, and the full implementation completed by the end of our financial year,” on June 30th of this year, he added.

Investment and Savings

“Producers, especially those with their own national sales forces, have long been wondering why they are paying large commissions to wholesalers to basically just deliver product, even though the larger producers have negotiated discounted commissions and customized services. They want more control, especially of the customer relationship, and lower costs,” said Barbara Insel, the president and CEO of the St. Helena-based Stonebridge Research.

This move, by a major national supplier, could represent a huge decrease in business for major wholesalers such as Southern Glazer’s, who would be losing TWE as a client in key states such as California and Florida.

“In Florida, with TWE taking on the large accounts directly, accounts with whom its sales that suggests it will rely on Breakthru's sales force and logistics to reach the thousands of individual smaller accounts, both on and off-premise. Those are more expensive for a distributor service but then again, Breakthru is getting some large volume products. TWE probably obtained some pretty attractive terms from Breakthru for the move,” added Insel. She continued that, “The key for wholesalers is always economy of scale and larger suppliers are almost always more profitable to service. It costs as much to deliver a pallet of wine as a case.”

Direct distribution is a model that has been practiced by Gallo with its own distributors selling to the off-premise market and by Kendall-Jackson through its Regal Wine Co. division. According to Jon Moramarco, the Napa-based editor and partner in number crunching firm Gomberg & Fredrikson, depending on the scale of the operation, some may only distribute only their supplier’s wines while others also work with other brands. He says that it is a decision that depends on whether a company can be more effective on its own or working in tandem with a large wholesaler and do a better job for the same amount or less money.

Not everyone is on the same page as to if this is a good move for the corporate supplier. “There are a lot of experienced people at TWE so they should understand what they are taking on,” shared Insel.

Although she cautions that, “Most producers, especially the larger ones, find doing their own distribution: organizing the logistics and relationships with the hundreds and even thousands of accounts to be prohibitively complex and expensive. Of course TWE does already have a national sales force with many existing relationships but still day-in-day-out warehousing and delivery, managing re-orders etc. on a daily basis is another set of tasks.”

She adds that they would be taking “a lot of complex activities,” but shifting to distribute more directly is a move the company has been quietly making for years.

The TWE spokesperson would not elaborate on the additional logistic responsibilities the company would be taking on, but noted that with this sales move, “We anticipate that the shorter value chain, particularly in states where we will now sell directly to key retailers, will result in a more efficient route-to-market and once fully embedded, support further margin accretion for the Americas business.”

A California wine executive, who declined to be identified, said that executives at TWE must “be frustrated with the effects of consolidation.” He added that this new distribution structure represents a “more rational use of resources and better margins.”

He added that the savings should be significant although it might take them a few years to catch up on their wholesaler margins. “This says that they understand the new reality of the US market. It’s a good move.”

Another California winery executive cautioned that it took Kendall-Jackson a decade to make the same margins on a direct-sales model as they did previously working with wholesalers. He speculated that if TWE succeeds the new model could “cause problems with other big brand owners.” He concluded that TWE leadership 'tends to think they are smarter than other players,' but expressed concern that they may not yet fully understand some of the subtleties of the market.

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