Tustin-based alcoholic beverage wholesaler Young’s Market Co. is the fifth-largest in the U.S. Sixty percent of its business is wine, moving about 15 million cases a year valued at $3 billion.
Leading strategy for the Underwood family-owned business is Dan Grunbeck, 54. Founded in 1888, the company has 3,500 employees in 10 Western states, except Nevada because of franchise laws. The company is a full distributor in California, Arizona, Washington, Oregon, Alaska and Hawaii and has brokerage arrangements in Wyoming, Montana and Utah.
Grunbeck is set to be on the “How to Stand Out in a Crowded Market” panel at the Business Journal’s Wine Industry Conference on April 24. He spoke with the Journal about the level of competition in the middle distribution tier of the wine business and how wineries and Young’s Market are responding.
How crowded is the wine market?: It’s very crowded. There are about 8,000 wineries in North America. We have roughly 700 suppliers and over 3,500 brands. That’s just us. Probably, Southern Wine & Spirits is 40 percent larger than us, and add up all little guys and all the direct [sales].
The best visual for the market is like an hourglass with all brands and suppliers trying to get through a narrow piece, which is the distributor tier, to get to all those customers.
It’s particularly the case with wine, compared to spirits. You could probably name the top five or six vodkas. Now, figure out how many chardonnays there are. It’s an interesting time for the business. Consolidation has continued to put pressure on the distribution tier, because a few of largest wineries have so much of supply volume.
And there’s been consolidation in distribution. I think, 30 years ago there were over 30 distributors in California, and now it’s down to about two, with Southern and Young’ Market.
How has the market for wine been changing?: Wine is definitely undergoing significant change. Things under $6 a bottle are very difficult. Things are moving to premium. Over $10 and certainly over $20, things are doing well. It’s happening in spirits too. Wine sales by value are up close to 6 percent and by volume, under 2 percent.
What are the drivers for growth?: Retailers are becoming more open to expanding stores with more availability of wine. Millennials are moving to more-character wines, so that is over $10. Imports are coming on strong, and regions such as New Zealand are exporting wines over $10. Rosé from France is hot, and that’s over $10. The fastest-moving brands are $10 and above.
What’s the approach to cementing brand loyalty?: The brand owners’ job is to do those things. Our job is to work with accounts and to match wine-list selection to match what is happening in the marketplace. For example, instead of a case display of under-$4.99 wine, we’re looking to have 10-case display for over $10.
Retailers have gotten more aggressive. The specials of buy six bottles for 30 percent off promotes buying up [higher-priced wines]. A brand that was $5, then with 30 percent off is not as attractive as a $10 or $20 wine at 30 percent off. The retailers themselves are driving consumers to more premium brands.
How are wholesalers trying to change the route to market?: Instead of a federally mandated and state-regulated tier of the industry, we’re trying to add value. We’re redesigning the way we go to market. We’re not just people in trucks, salespeople and warehouses. We’re organizing ourselves around our capabilities.
We want to be able to work with suppliers. We should know our customers and have intelligence in the marketplace and enable you to tailor a marketing plan going forward. Traditionally, we wholesalers buy stuff from the supplier and market it as best we can.
I will have a staff of 10 people providing concierge and business-support services to our suppliers, who we want to call “clients.” We need to provide client services. Also we will have a commercial services team that understands what the consumer is doing and understands clubs and the store channel.
The third part will be a customer team, and in Western states it will work with big grocery and hotel chains. In the past, we asked suppliers to deal with the myriad of people and many touch points for those accounts. We want to streamline that. We want to have one voice for the customer.
In a grocery store, the wine section is the most profitable. We have not been good at understanding Safeway on achieving corporate goals versus just selling more cases.
The whole goal of this is to free up 3,500 people from those activities to work with customers and spend more time there. It’s a different model. This is the way Procter & Gamble and FritoLay have been doing this for 30 to 50 years. It’s a new model for distribution in the U.S. for Young’s Market.