Distribution for the Small Winery

September 1, 2017

Cheryl Murphy Durzy has had a lot of time to consider how conventional interstate wine distribution could be more practical and efficient for small wine producers. For most of her adult life, she has worked for her family’s Santa Cruz Mountain winery, Clos LaChance.

Clos LaChance was founded by Bill Murphy, a 30-year marketing veteran at Hewlett-Packard, who semi-retired into wine production and dragged his kids into it with him. The frustrations of small wineries working with big distributors are myriad, but a complex web of state alcohol laws, coupled with the distribution prowess of major interstate distributors, have made the conventional three-tiered distribution system a tough nut to crack.

The problem of figuring out how small wineries could get the attention they deserve was left to Bill’s daughter, Cheryl Murphy Durzy.

She might be onto something with her start-up distribution company, Liberation Distribution, a sleek, lightweight distribution platform that aims to connect small wine producers with small retail and restaurant accounts through cheap shipping and technological engagement.

Major distributors are designed to deliver large quantities of popular brands of wine or beer to hundreds or thousands of accounts every day. The machinery required to accomplish that, the warehouses, trucks, drivers and sales force calling on every account weekly, is formidable.

Small wineries’ sales volume doesn’t really fund that machinery nor do small wineries benefit from it. Large distributors are largely beholden to their biggest suppliers, and small wineries’ products are often shuffled to the back of the catalog. That’s where Cheryl Murphy Durzy found a seam in mainstream distribution.

Durzy’s new distribution company, called Liberation Distribution (or LibDib for short), envisions an efficient way to connect small wineries with adventurous on- and off-premise accounts looking for boutique products that will distinguish their offerings from their competitors.

Liberation Distribution acts as the licensed distributor and takes orders either online or through a phone app. Most of the orders will be small—there is no minimum order. Then the winery ships directly to the buyer, taking advantage of the same modern advances in shipping logistics that have helped companies like Amazon grow so rapidly.

Wineries do so much direct-to-consumer business today that they have become quite adept at shipping wine, whether they handle that duty themselves or sub-contract it out to a third-party logistics (3PL) warehouse that manages shipments. Moving product around the country is more efficient than it has ever been. Golden State Overnight (GSO) is capable of delivering a case of wine in one day to California, Oregon or Washington at a very reasonable price. Shipments from California to New York will be more expensive through a different carrier, like FedEx or UPS, but for high-end product, a low-overhead distributor like LibDib proposes a reasonable profit margin, especially when you subtract all of the other expenses you might have with a conventional New York distributor, like bill-backs for samples and placements. “When I was working for my family winery, I felt like we weren’t even making money off of it because I was being billed-back all the time,” said Durzy.

LibDib takes a 15 percent mark-up that is significantly less than the 25 to 30 percent mark-up that a broker or major distributor would take. The lower mark-up helps to subsidize the shipping costs. LibDib invoices the buyer, collects payments, deducts its cut and distributes the net to the suppliers. LibDib also stores marketing collateral, like tech sheets, shelf-talkers, informational videos and product photos for suppliers but doesn’t over-promise when it comes to marketing.

“When (suppliers) are in town visiting us or working the market, they can come into our office, and we can take pictures of products. We set up a little studio here. One of my engineers is a former video production guy, and we have the gear to shoot and edit a 30-second video for their use,” said Durzy.

The San Jose-based start-up launched its distribution program in California in late March and spent the first month-and-a-half on-boarding makers of wine, spirits and craft brews. LibDib now represents some 80 companies creating 120 brands and 450 products. At present, any product that makes its way into a California warehouse is eligible for participation in the platform, whether it is an imported or domestic product.

The company just launched distribution in New York on June 1 of this year. Durzy said there has been a great interest in the LibDib platform. “We have a lot of people in the pipeline. I’ve talked to people from Italy, from Argentina and from Australia. I had the State Department call me about Georgian wines the other day. It’s really fascinating how quickly the news travels, and that has really validated the need in the marketplace.

“Any company anywhere in the world that wants distribution can have it,” added Durzy. “That’s kind of a revolutionary thought. Right now you have five to six gatekeepers in (California); and if they don’t want to carry your wines, you’re out. You can’t sell it.”

While large distributors are beholden to their largest suppliers and spend a lot of time pushing their core products, LibDib pledges to even the playing field by treating every supplier equally, regardless of size.

“That’s super important to me. My business ultimately is designed to help other small businesses, which are a huge part of this industry, but it’s not where the distributors are making the bulk of their money. They make most of their money delivering large amounts of big production wine to large accounts. They aren’t oriented to deliver one case here or one case there to an independent retailer or restaurant. That’s where I hope that we can provide value, and it’s super important to me that we treat everybody the same. We don’t take money for advertising. That’s not what I’m about. If someone organically searches for Cabernet Sauvignon at a certain price point, what comes up first [at LibDib] isn’t going to be because of advertising. It may be based on an algorithm based on what they’ve purchased before, or it might be random, but it won’t be something that a winery can pay for,” explained Durzy.

Suppliers are still expected to create their own demand and pull-through, whether that comes through long-range relationships that already exist or the creation of new relationships. Presently, LibDib does have some boots on the ground in California and New York to promote the platform and to teach potential accounts how the app and platform work.

One early adopter and one of LibDib’s biggest clients is Hood River, Oregon-based Naked Winery headed by David Barringer. Naked produces about 50,000 cases of wine a year.

“I went and signed up immediately. I needed distribution in California and New York, and that’s where they were. It’s difficult if you’re not large, and already established, to find a distributor. This way I could enter those markets and begin selling with my own sales team, and their sales team could also support me,” Barringer stated.

The relationship is still in its infancy, but Barringer thinks there is great potential. “We’re getting all of our materials uploaded; now we need our team to go out and sell. I think that the real point is that there are lots of people out there that don’t want to look at the same book. There are all these big portfolios created by the same companies. I think consumers are starting to wise up to that. You already see it happening in the beer market, but soon it’ll be in the wine trade, where people realize that there’s a difference between a family-owned winery and a mass-produced product. They’re going to look at LibDib and find that different wine, whatever it may be,” said Barringer.

Another smaller winery that has signed up with LibDib is Comartin Cellars, a small, Grenache-focused Central Coast winery that culls a lot of fruit from Santa Barbara County and produces between 1,000 and 2,000 cases per year. Most of their business is direct-to-consumer and focused in the Bay Area. “We have entertained brokers and distributors over the years, but based on our model of selling highly-rated wines at a higher price point, without a lot of inventory, it was difficult to get, and keep, the attention of a large distributor,” said founder Adam Comartin.

“Cheryl’s idea of uniting small wineries with hands-on accounts that want something unique and high-quality was the enticement for us,” Comartin noted. “Having access to accounts in Southern California and New York was a part of the motivation to sign up with LibDib.”

For Comartin Cellars and many other small wineries, distilleries and brewers, Liberation Distribution offers potential distribution to new in-state and out-of-state accounts with minimal capital investment, taking advantage of contemporary shipping efficiencies that might have made those direct shipments of single cases too expensive in the past.

“There’s so much opportunity in the Bay Area that we just started with three sales people here in Northern California. Their job is to let people know that we’re here to sign up accounts, to show them how to use the platform and just get them interested and engaged in the product,” said Durzy.

It’s too early to judge whether Liberation Distribution will be successful, but contemporary shipping efficiencies might make it a workable solution for small wineries looking to expand to states with active buyers and a taste for hard-to-find wines and spirits.

“It’s a new way of doing things. We’re doing what OpenTable did for the restaurant reservations process. Those kinds of things are happening all the time,” Durzy told me. “There’s a completely different way of getting a taxi now. We all do things differently now based on technology.” WBM

Source:

https://www.winebusiness.com/wbm/?go=getArticleSignIn&dataId=188658