11.27.2015  
 

How to Remarket Unsold Wines

Winery remainders find a market at Grocery Outlet

 
by Jane Firstenfeld
 
grocery outlet
 
The majority of wines sold at Grocery Outlet are priced between $3.99 and $6.99.
Emeryville, Calif.—Come holiday season, most consumers have preferences for leftovers: turkey sandwich, roast beef hash, ham and eggs.

As hard as it may be to imagine “leftover wine,” unsold wines are a reality for wine producers. Perhaps wineries have rebranded or redesigned their packaging; maybe they’ve got a newer vintage cramming the warehouse or the tanks; maybe producers tried something new that didn’t resonate with club members or normal distribution channels.

Chains like Trader Joe’s and big box retailers commission private labels in oceanic quantities, but wineries with a few hundred (or thousands of) cases in bottle don’t necessarily have or desire that option.

Dumping wine down the drain and swallowing the loss is one possibility, but it is not without its challenges. Wendell Lee, legal counsel for the Wine Institute, shared TTB regulations:

General: Wine on bonded wine premises may be destroyed on or off wine premises by the proprietor without payment of tax. A proprietor who wants to destroy wine on or off winery premises must file with the appropriate TTB officer an application stating the kind, alcohol content and approximate volume of wine to be destroyed, where the wine is to be destroyed and the reason for destruction. Wine to be destroyed must be inspected, and the destruction supervised, by an appropriate TTB officer unless the appropriate TTB officer authorizes the proprietor to destroy the wine without inspection and supervision. The wine must not be destroyed until the proprietor has received authority from the appropriate TTB officer.

Record of destruction: The proprietor shall maintain a record of the volume destroyed and include the quantity on the TTB F 5120.17, Report of Bonded Wine Premises Operations. If part of the volume of the material destroyed is not wine, the volume destroyed will be reported on the basis of actual wine content of the material, excluding any dilution by water or other substance.

• Other provisions allow for wine dumped to bulk or destroyed because of casualty events (such as the Napa earthquake). In every instance, records need to be kept to ensure that the proper taxes are paid.

Lee also cautioned, “TTB regulations do not regulate environmental impact, but federal, state and local environmental rules apply that can make it difficult to destroy wine.”

A market for remarketing
If a winery would like to collect something better than nothing for its investment and hard work, “remarketing” may provide a solution. Grocery Outlet (GO), now headquartered in Emeryville, Calif., has been selling fresh and packaged foods for more than 65 years and now has more than 225 stores in the western United States and Pennsylvania.

On its website, GO offers: “Do you have surplus inventory you’d like to move without interrupting your normal retail channels? Let us help you.

“Even if you’ve got product with only a few month’s code, we may be able to help you keep your inventory turning.”

Wines aren’t normally labeled with expiration dates; nevertheless, GO maintains an ever-growing department for wines, beers and, in some Texas stores, spirits. (None of these are—yet—available in Pennsylvania, which retains its “control state” status.)

Cameron Wilson, wine and beer director for GO, explained how he and his team work. Some wineries have seen the chain’s ads on TV or in local newspaper Wednesday supplements, and approach them. The GO team also actively samples wines at industry tastings and tastes wines frequently at its East Bay base.

GO markets are family-owned. “Each store is individually owned and operated and shares in the profits of the store. It’s not a franchise, but sharing: We buy, they sell. We are looking to expand quickly, adding 20 new stores this year and more next year,” Wilson told Wines & Vines. Most stores employ a wine specialist.

Many retailers require a minimum case lot for purchase; GO, on the other hand, prefers smaller lots. “Occasionally someone has 10,000 cases, but it’s more typically 500-1,500 cases. Those are easy to accept,” Wilson said “We can chip on that. Larger amounts take time to work through.” He recalled a producer that offered some 15,000 cases of sparking Moscato. “We didn’t buy it all at once.” White wines are of course especially sensitive to sell-through deadlines.

After they’ve tasted sample wines to determine if they are a fit, GO executives negotiate a price with the producer or distributor. Most wines on its shelves are sold at $3.99 to $4.99, with an occasional $6.99 slipping in. The buyers evaluate taste, condition and what consumers currently want. After negotiating a price, wineries deliver their wares to GO’s Sacramento warehouse; from there, cases are distributed throughout California. “First-time sellers should look in a store and see what else is on the shelves,” Wilson advised. GO generally pays under net-30 days contracts, he said.

Going bold
“It depends on the size of enterprise: larger enterprises have bean counters who reason, ‘If we sell it, it’s off our books. It’s a cost of doing biz,’” Wilson said. Smaller companies perhaps can’t reduce their inventory because of bank terms or lines of credit. “Some just love a particular wine and would rather keep it—they won’t give it up.”

But if it eventually reaches the retail shelves, a wine might find a thirsty audience. GO, Wilson said, “is a handy outlet. Maybe the winery has tried it then moved one or two vintages down the road. Their choice is to throw it away or sell it. If you own a winery or a distributorship, it may be now or never. Some part of it has to be an exit strategy for something that didn’t work.

“If we’re selling something for $5, it’s not a profit center for the winery. It’s a matter of getting something or losing it all, or paying something to destroy it. You can’t just pour it down the drain,” Wilson pointed out.

The Seattle Post Intelligencer recently reported one-on-one pricing comparisons pricing in “big chains” (as reprinted on sfgate.com). In a wine match-up vs. Washington-based WinCo, it said “Nobody beats the Grocery Outlet on wine, except maybe ‘Three-Buck Chuck’ at Trader Joe's.”

For opinionated and knowledgeable wine shoppers, GO presents a fine adventure. On several recent visits to a new store in Vallejo, Calif., we saw bottles on the shelves from numerous familiar wineries as well as many that we’d never heard of.

Chris Nelson is co-owner of Nelson Vineyards in Ukiah, Calif., which produces 1,000 cases and farms 180 acres in Mendocino County. Most of the wine is sold direct to consumer in the tasting room; with no distributor, the rest is hand-sold to local restaurants.

Nelson told Wines & Vines, “We bottled the 2013 Nilsson Chardonnay specifically for Grocery Outlet. This was our first time doing business with GO, and they purchased 2,400 cases.

“As winegrowers, we found ourselves with a large amount of excess Chardonnay after the huge crop of 2013. As bulk wine inventories swelled, buyers of 2013 bulk Chardonnay were few and far between. As we searched for alternative sales channels, we found a home for a portion of the excess inventory at Grocery Outlet,” Nelson said.

The family had been approached by what Nelson termed “bottom feeders” looking for super-cheap bulk wine, but after making a deal with GO, Nelson and a friend quickly devised a new label for “Nillson Chardonnay” (the original family name).

Nelson’s review of the Grocery Outlet experience: “They have been professional and pleasant to deal with, and given the same circumstance we would do the project again.”

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LATEST READER COMMENTS
 
 
Posted on 12.01.2015 - 10:00:05 PST
 
I'm not sure why the issue of brand value destruction isn't addressed here. When a winery invests years building a brand based on a $15 retail wine, finding that at a GO shelf (or an advertisement) for $4 can destroy a huge amount of value very quickly. Why buy your wine at Safeway for full price when I can wait a few months and buy it for 1/3 at GO?
 
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Posted on 11.30.2015 - 21:31:24 PST
 
Great points here. Getting the wine in the hands of consumers is key...especially if the producer feels it showcases their brand well.

At the same time, the producer must be beware of diluting the brand and 'training' consumers that their wines can be had at steep discounts. This is the downside of the 'flash sale' sites.

WineSavage.com offers a happy medium...we run corporate wine clubs, including some very large tech giants, and markets mixed 6-packs as "wine club pricing, without being beholden to a single winery". While we don't move the volume a GO will move, we do put the product in the hands of wine enthusiasts without showing them per-unit pricing. They only know the bundle price for the mixed six pack.

It's a happy middle ground for the producer, as the wine gets in the hands of legitimate enthusiasts even though it needed to be steeply discounted to sell. But the buyers understand it's a 'one time deal' to get introduced to the producer's product.
 
Dave Shefferman
 
 
 
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