Here’s a recent article I wrote for wrote for trade magazine Harpers Wine & Spirit on commercial wine buying.

When it comes to developing your wine range, there are many different sourcing channels to consider. It’s important to understand the pros and cons of each before choosing the right mix for your business. In the first of this two-part investigation, I take a look at wholesalers, agents and buying direct.

Choosing what to stock and who to buy from will be a deciding factor when it comes to the success or otherwise of your business. If you want to develop and improve your wine range, moving closer to the source is one way of accessing higher quality, better prices and a unique range. Most buyers will look to using one, two or all three of the following channels: wholesalers, UK agents, or direct to producer. Each has potential advantages and drawbacks.

Buying from wholesalers

When it comes to simplicity, cash & carry is hard to beat. Once registered, just jump in the car and load up. Ranges differ of course, but you can at least expect to see recognisable brands at keen prices. You’ll have to hit a minimum order and pay cash: don’t expect credit. It takes little expertise to use a cash & carry, but you’ll be buying blind if you aren’t familiar with the wines. And you’ll be lucky to find staff to advise you. It is the easy but no-frills option.

Larger wholesalers offer wider ranges, delivery and credit terms. Some, such as Amathus and LWC, offer thousands of different lines, which is enough for some businesses to conveniently stock their entire BWS range. Buying solely from a wholesaler, however, is unlikely to give you a strongly differentiated offering. But if a low cost of transaction is of greater importance, the efficiency savings can make them the right option.

Mike Grantham, owner of Grantham’s Fine Food & Wine, a family-run grocer in Cheshire used them for many years. “We used to pick up wine from wholesalers and cash & carries. But while they’re quite competitive, you can find the wines virtually anywhere. So over the last few years we’ve relied less and less on them, and more and more on agents.”

Working with agents

Going direct to agents should take you closer to the producer, cutting out any other middlemen thus ensuring good prices but avoiding the additional work required when going direct. For Grantham it was a natural progression; buying from a wholesaler “wasn’t very stimulating… whereas with an agent, I get excited… there’s always a story behind the wines. It’s evolved over the last eight years; you start to build up your reputation. Now we’ve got bottles on the shelf for £100 from iconic Italian producers.”

It tends to be a producer with confidence in their product who is willing to invest in a market by employing an agent; as such, they are often the source of quality wines. Agents usually offer the same practical benefits as wholesalers such as regular small deliveries at short notice, consistent availability and credit terms, but usually offer a range of other services.

Oddbins Buyer Ana Sapungiu confirms you can “expert more support in selling the wine.” This support includes samples, staff training, funding promotions and help with events. They are also keen to create consumer demand for their wines through PR and marketing.

David Round MW, Purchasing Director of London independent merchant Jascots points out that working with agencies can be an efficient way of sourcing wines: “they’ve done the work in terms of finding the best wines they can: research, travelling, they’ve invested the time… they can also have a role in smoothing over any potential problems.”

Although less ubiquitous than many famous brands, wines sourced through agents will be available elsewhere in the market. For businesses who don’t want to stock wines found in multiple distribution, this can cause problems if agents are vague or inconsistent in their distribution policy. Kate Goodman of Manchester independent merchant Reserve Wines admits “the biggest problem is the lack of transparency of channels” though of late “there has been an improvement”. Sapungiu from Oddbins advises “be clear what sort of channels the wine is going to be in… and what their plans are for that product in the future.”

Going direct to producer

For businesses that can commit to larger quantities, buying direct can be a rewarding if challenging option. By cutting out all middlemen you should be getting the very best price. Round of Jascots underlines another benefit: “a direct relationship with the producer – therefore more control”. Sapungiu agrees buying direct can mean “more of a say in the style of the wine and the packaging”.

Direct communication with the producer gives you the best chance of getting accurate information. Language barriers can create problems however. Round confirms that when working direct with a producer “communication is the key. Make sure they understand your exact requirements. Labelling, continuity of stock… assume nothing.”

For Goodman at Reserve Wines, although “agencies are the staple”, being able to source exclusive wines by going direct is a major plus: “we’re able to offer wines which aren’t widely seen… it’s that side we’re excited about”.

Exclusivity not only means you can offer something unique, but you also have more flexibility with margins. Goodman says she “can offer more competitive prices for our wholesale clients… We can offer our clients a wine that we think is good value and we’re all still making good margins on it… Everyone can win, the producer’s happy, we’re happy and the person that’s getting the good quality wine at the end is happy with his margin as well.”

Some businesses buy exclusively direct from source. For Tony Stones, Managing Director of Champagne Warehouse in Leeds “exclusivity is very important to us”. He visits Champagne at least once a month for two days or more: “it does take time and effort but it does pay off.”

Certain producers whose wines are in strong demand only sell direct – and on allocation. Kent private client company A&B Vintners secure theirs by taking a long-term view and trusting their instinct regarding young or unestablished producers. Buyer Simon Davies explains “They weren’t always household names… We invest in people and believe they’ll become future stars. But things are always changing, there’s always someone new to find.”

Goodman admits there are downsides: longer lead times, delays, more paperwork and problems caused by currency fluctuations: “a good way of protecting yourself is buying currency in advance to protect your margins.” There is also the additional time and expense involved with research, shipping and warehousing. Overall, “it’s a bit more complicated… you have to be more organised”.

Getting the right mix

Sourcing wine can be more complex than beer or spirits: fragmented production, huge proliferation of global producers from the very small to the very large, variety of styles, range of prices and differing local alcohol legislation. That some of it benefits from age adds another dimension. It has led to a multiplicity of available channels. For Sapungiu this is a positive: “we are spoilt for choice… all you need to do is find a way of engaging with customers.” And an extensive choice of suppliers means scope for leveraging volume and assertive buying practices.

Choosing the best wine sourcing channels for your business derives from understanding your market. If all your customers want are recognisable brands at reasonable prices the extra transaction costs involved in working with multiple agents or going direct are best avoided. The fewer suppliers you can get away with and the more automated the process can be, the better.

Conversely, if you have the scope to sell fine and rare wines, you’d be mad to ignore the opportunity, even if it means taking the time and effort required in developing your supply chain. But with a greater number and variety of sources comes increased complexity of operation and associated expense and time commitments. And there are more channels to consider than just these three.

In Part 2 tomorrow, we explore five further sources for buying wine: supplementary channels for wine specialists who want the strongest ranges possible.

Pros and cons

Wholesale

+ Ease of use, especially cash & carry

+ Little wine knowledge or expertise required

+ Recognisable, popular brands

– Ubiquity of many products

– Rarely the most exciting wines

– Credit terms not always available

 

Agents

+ Support with samples, training, events, POS, etc.

+ Regular small drops and credit terms – good for cash flow

+ Can be a source of quality wines, sometimes with exclusivity

– Some agents lack clarity in their distribution strategy

– Limited margin expectations due to market price comparison

– Rarely a source of exclusive wines

 

Direct

+ Access to exclusive wines

+ Direct relationship and communication with producer

+ Best prices

+ Control over product and packaging

– Commitment to larger stock positions

– Time-consuming research required

– Increased paperwork

– Language barriers

– Wines rarely have a track record in the market

– Longer lead times

– Currency fluctuations

 

Buying groups: strength in numbers

For businesses that can’t always commit to the quantities required when going direct, one option is a buying group. They give members access to better prices through greater buying power and access to wines that are not widely available. Kate Goodman, owner of Reserve Wines, is a member of Vindependents, a growing UK-wide group set up in 2010 consisting of 10 independents. She says there are other less obvious benefits: “We share information from credit card charges to where you get your plastic bags, what tasting events have worked well… It’s not just about buying, it’s about information sharing.”

 

Using wine brokers

The broker or courtier doesn’t sell wine or hold stock, but acts as a low-key matchmaker between producer and buyer. Specialising in a single region, they develop and sustain up-to-date knowledge of a large variety of producers. Charles & Philippa Sydney fulfil this role in the Loire and make it their business “to know what’s going on in the cellars”. Although they are effectively middlemen, Sydney says this doesn’t mean higher prices: “given our relationships with the major actors on the UK and other markets and the level of security offered, growers are happy for us to offer prices that are the same (or lower) than those they offer en direct.”

 

First published in Harpers Wine & Spirit (but this is a longer version).