Proposed legislation threatens the industry's distribution system and profit margins
Los Angeles, CA (PRWEB) November 06, 2013
The Wine and Spirits Wholesaling industry is a key part of the supply chain for wine and spirits that is protected by the federal three-tier distribution system for alcohol. The three-tier system requires that producers sell alcoholic beverages to distributors, who can then sell them to retailers; only retailers may sell directly to consumers. This structure has prevented wholesale bypass, a practice by which retailers integrate their supply chains and operate their own warehousing, stock management, transportation and relationships with producers. Retailers account for 91.0% of industry sales, however, and wholesalers must have good relations with downstream retail industries.
According to IBISWorld Industry Analyst Vanessa Giraldo, “The recession caused many consumers to lower spending by substituting premium alcohol for value-priced products.” This shift in consumption triggered high-volume sales of lower-margin goods, resulting in declining profit for the Wine and Spirits Wholesaling industry.
“Although sales of wine and spirits at the retail level held up during the recession, wholesalers were less fortunate because many retailers liquidated,” says Giraldo. Consequently, wholesaling revenue grew a modest 1.7% per year on average during the five years to 2013. However, revenue is expected to rebound 2.3% to $76.7 billion in 2013 as consumers spend more and opt for higher-priced products.
Revenue for the Wine and Spirits Wholesaling industry is forecast to increase gradually during the five years to 2018. Players will continue to merge in response to producer and retailer consolidation, with the number of companies projected to contract. As producers and retailers grow in size, product prices will face further downward pressure, causing profit to fall.
The three-tier distribution system that protects profit for wine and spirits wholesalers is increasingly scrutinized. Congressional hearings on the subject of direct-to-consumer and online sales of alcohol indicate the long-standing structure may be subject to change in the coming years. Online alcohol sales are already a growing source of external competition. In response, industry companies are adding services like tasting seminars and promotional events to their business models to retain their positions in the supply chain, but this trend foreshadows future shifts in company structures and the industry as a whole.
The Wineries in the US industry has a medium level of industry concentration. Over the past five years, industry concentration has been on the rise, primarily as a result of larger corporations acquiring independent wineries and vineyards. This trend is expected to continue moving forward as the economic climate continues to improve allowing established companies to invest in more acquisitions to expand their portfolios.
For more information, visit IBISWorld’s Convenience Stores in the US industry report page.
Follow IBISWorld on Twitter: https://twitter.com/#!/IBISWorld
Friend IBISWorld on Facebook: http://www.facebook.com/pages/IBISWorld/121347533189
IBISWorld industry Report Key Topics
The Wine and Spirits Wholesaling industry primarily buys and resells wine, distilled alcoholic beverages and ethyl alcohol used in blended wines and distilled liquors.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
About IBISWorld Inc.
Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.