Reversing The Three-Tier System
The three-tier American wine and spirits industry has long worked as such:
The national importer purchases the product from the distiller or winemaker
The local state distributor purchases from the national importer
The retailer or restaurant/bar purchases from the distributor
The customer purchases from the retailer or restaurant bar
Between the producer and the consumer there are three different tiers (or middlemen) taking a cut of the profit. Hence, if a bottle costs $10 from the winemaker in France, it will likely cost $40+ by the time it hits the shelf here in the U.S.
Even if the product is produced in America, you still have the producer, the distributor, and the retailer/restaurant each taking their cut before the consumer touches the bottle.
The three-tier system of wine and spirits distribution has also long functioned as a marketing funnel, as producers of alcohol rely on each tier to help spread the word about their products:
The importer learns about the product from the producer
The distribution sales team is trained by the importer/producer
The retail buyer/bartender is trained by the distribution sales team
The consumers are trained by the retail staff/bartender
For most of my career as a retail buyer, everything I learned about alcohol came from the producers, importers, and distributors whose products I sold to the public. My customers relied on me to give them all the juicy details about new arrivals, exciting releases, and undiscovered gems. It was my job to simply translate.
But just as the new DTC (direct-to-consumer) market for wine and spirits is upending the distribution channel that is the American three-tier system, the new social media-based, direct-to-influencer strategy has completely reversed the three-tier marketing funnel. Rather than allow a product to trickle down through the inner-workings of the outdated booze machine, modern brands and producers have found success in reverse engineering.
Having spoken with dozens of colleagues in the retail and restaurant world over the last few months, the phenomenon only seems to be gaining more momentum.
The COVID pandemic created a new spawn of super hobbyists—people with extra time and income on their hands and nowhere to spend it. They began diving into the details of mechanical watches, cars, knives, guns, sports cards, and alcohol, spreading their passion on social media and often times outworking the professionals in the field. As a result of their dedication and energy, they formed relationships in the supply chain and with the brands themselves, as they hunted down their new obsessions and completely changed the way our system works.
It now looks like this:
Producers announce a new product on social media
Influencers and brand devotees repost and create buzz
Customers ask retailers about the new product
Retailers ask their distributors if they can get it
Distributors ask the importer/producer when the product is coming
While I was catching up with a friend in the industry this past week, the subject of new brands came up during the conversation. I asked him if there were any hot or interesting products on his radar, to which he responded: “I don’t need to look for new brands anymore. The customers tell me when something new is out; I’m just an errand boy at this point.”
With so many new hobbyists on the hunt, the market for wine and spirits is continuing to boom, even with minimal effort from the three-tiers of the system. There’s seemingly no end to the COVID bump, as Rolexs, Champagne, aged Bourbons, ammunition, and car parts are in short supply and selling for increased prices. With direct access to consumers, brands are using their customer base as a way to reverse the funnel.
At some point, these producers are going to start asking themselves: if consumers are going to do all the work for us, what do we need these other guys in the middle for?
-David Driscoll