Kroger's redoing alcohol sales

Was reading this article regarding Kroger moving to using Southern to manage their alcohol aisles: http://www.nasdaq.com/article/kroger-plans-to-upend-how-it-organizes-booze-in-stores-20160129-00103

It seems that this would take a lot of power away from the large conglomerates such as Constellation, but I wondered from many of the smaller wineries and winemakers on the board how this might affect them?

I wonder if Kroger has heard of the term “tied-house?”

I wonder if Kroger has heard of the term “cement shoes”?

Or “Murder, Inc”?

https://en.wikipedia.org/wiki/Murder,_Inc.

If not, then someone at Kroger needs to purchase a subscription to the Wall Street Journal archives and read about who and what “Southern” really is.

Unless maybe The System paid Rupert Murdoch to cleanse those articles from the archives, which wouldn’t surprise me in the least.

From the article:

In a rare show of agreement across the alcohol industry, trade associations representing liquor, wine and beer, and several alcohol-distributor groups all sent letters to federal regulators last month questioning the legality of the Kroger plan. Prohibition-era laws ban alcohol manufacturers from giving retailers anything of value to keep them from marketing too aggressively.

“It appears, among other things, to run afoul of the prohibitions related to providing items of value to a retailer,” wrote the Distilled Spirits Council of the United States and Wine Institute. The Alcohol and Tobacco Tax and Trade Bureau, which regulates the industry, said it is reviewing the matter.

Brewers Association Director Paul Gatza, who represents craft brewers, say it is a “pay-to-play” system. If Kroger’s plan is approved, “what stops every other grocer from doing the same thing?” he asked. “Then it costs a lot of money to get on the shelves.”

One would suspect similar inquiries at the state level.

Bruce

Or maybe Kroger is part of The System, and they know exactly what they’re doing.

In my area, Kroger owns the Ralphs grocery store chain. While “small winery” is subject to some debate over definition, my Ralphs’ stores rarely carry any wine from wineries I would consider “small.”

Bruce

My distributor in Ohio told me about this a couple of weeks ago… I have my wines in one store and it is a wine steward’s pick. It sells well because it is just around the corner from my house. Getting them in all the Krogers would probably cost me in excess of several 10k.

When producers and distributors unite on something against a retailer, it makes me think this is probably PRO-competitive.

Incidently, that version of the Dow Jones story is missing part of the third paragraph, which give the full name of Southern and explains more how this works:

The proposal would do away with a decades-old system in which the biggest alcohol producers such as Anheuser-Busch InBev NV and Diageo PLC were tapped by Kroger and other grocers to be “category captains,” dispensing advice and influence about how much shelf space and prominence to give brands ranging from Budweiser to Robert Mondavi to Smirnoff.

Instead, the plan, introduced late last year, calls for a privately-held distributor, Southern Wine & Spirits, to oversee how much display brands get in the grocery aisles of the more than 2,600 Kroger stores in 29 states.

I really don’t see how this is pro-competitive?

Southern has a terrible reputation, and being unbiased is not part of it. Kroger owns Fred Meyer in Oregon(and WA). These stores have had independent wine stewards running their wine departments for years. However, over the past year has been cutting their purchasing power considerably. As a small winery, I simply do not trust Southern.

Honestly, they are just putting into print what they have been doing for a long time.

Kroger went to central warehousing a couple of years ago that narrowed the amount of overall distributors that they work with. It’s always been a pay for play, for Kroger in our area there are certain ‘goals’ that each location has to hit( with southern, columbia) which equals so many cases each month.

People should be concerned about this but at the same time stop buying wine from a Kroger owned store and spend it at your local haunt.

Kroger is the same company that ‘resets’ their stores based on new wines that Southern and Columbia push their way.

I could go on and on about this but honestly, they mess everything up so this is just another bump along the way for the consumer, but in the long run, this seriously limits our choices and makes those distributors more powerful.

I understand the hostility to Southern, but when the producers and suppliers unite against the retailer, I get suspicious.

Moreover, the current arrangement, with AB InBev and Diageo advising Kroger’s, can’t be good for competition, or good for people like you.

I don’t think this is about producers uniting against retailers, but more about retailers and wholesalers consolidating power over producers. In theory wholesalers are supposed to be impartial middle men. Take a minute to stop laughing… Ok, this new arrangement is the exact opposite of impartial wholesalers competing against each other to benefit consumers through a retailer.

I’m not saying it’s a good arrangement. But is it any worse than AB InBev and Diageo calling the shots?

And when were wholesalers impartial? In the liquor business, they push only the products they represent.

Does this really matter to small wineries ?

I would think that you need at least 10,000 cases a year to be even practical for a large distributor like Southern to put you on shelves across a wide area. i cant really see anyone expecting Black Cat, Becklyn, Tercero etc to appear on a supermarket shelf. This integration model of passing supply to one entity is becoming the norm, it allows Kruger to focus on their core activities i dont think its anything more than that. The small wineries have always and will always depend on direct, smaller wine shops and restaurant sales for the bulk of their business. Dont foget if you go in any store in the US that the big Lays chip display you see has been paid for in some way by Pespsi Co, nothing is free when it comes to display space

Again, using my experiences at my local Ralphs, there really aren’t any “small” wineries represented on their shelves. But there is some variation by store and location. If you go to a Kroger-owned store up in Northern California in or around wine country, there is a better chance that some medium-sized local wines will be represented on the shelves. If you go to Albertson’s (they own Safeway) in Paso Robles, they have an extensive wine department with an excellent selection of local Central Coast wines. But that Albertson’s is certainly an exception; most Albertson’s wine sections tend to be a bit generic.

Bruce

My experience at the local grocery stores here in San Diego echo much of what is said above. There is one VONS in Liberty Station that has a nice wine section, including a premium area that is behind a locked door. However, this is very much the exception. I’m curious if these exceptions will be allowed to continue should this change move beyond Kroger to other supermarket chains.

Different states have different alcohol laws, but I am amazed that this SWS deal is even legal (let alone a good idea for the retailer).

The old Journal article about SWS is eye-opening, well worth reading.

The Kroger wine selection by me is godawful. It is one of the many reasons I don’t shop there. Luckily we have a great Texas based chain, HEB that has an excellent wine dept that carries a lot of excellent wine, including some smaller producers. I don’t see how this change will make Kroger worse.

Tony - that Vons has some OK values too, particularly when they mark down the wines that haven’t moved. I got to know the new manager and he’s trying to get in some higher-end products. We got locked in there last summer when the power went out and the electric door stopped working.

As far as Southern - obviously they’re going to push their own products and they’ll not help anyone else. But as someone else mentioned, it’s exactly like Pepsi or General Mills. The aisles of a chain grocery store are not stocked with items from small artisanal producers. For those things, you have to go to specialty food stores. So as John says, it’s not all that much different whether you outsource to Southern or to Diageo. And the producers have to make enough product to fill the shelves across hundreds of stores.

Best case, they would at least let the local manager have some discretion and leeway.

Of course, states could all become like New York, where grocery stores can’t sell wine. This provides a MUCH better result for customers while also preventing alcohol abuse by minors.

Why would anyone buy wine in supermarkets anyway? Smaller stores are the way to go.