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Wine 101: How Grocery Outlet Buys Wine

It’s not a stretch to say that Grocery Outlet has the best deals on wine in town.  Our process for sourcing fantastic wines at incredible deals is a little out of the ordinary, so we’d like to shed a little light on it for you.

The 3-Tier System

99% of total wine sold in the U.S. is moved through a 3-tier system, and wineries are the first tier.  While wineries put their heart and soul into the wines they make, they do not have the ability to sell all of their wine direct to the consumers, so they work with importers and distributors to market, sell, warehouse and deliver their product to the local wine shops, restaurants and liquor stores that sell most of the wine in America.

The second tier in the 3-tier system is made up of the importers and in-state distributors.  Importers and distributors choose the wineries they represent, and develop a ‘Book of Brands’.  Most large importers and distributors will offer all varietals from the most famous wine growing regions of the world.  Smaller distributors are usually more specialized in what they offer, sometimes only selling wines from a specific country or region.  

All importers and distributors bring wine into their warehouse and have salespeople that visit the wine buyers at the local wine shops, restaurants and liquor stores.  These salespeople take samples to the wine buyers, who taste the current vintages available for sale.  Wine buyers try to pick and choose wines that fit their customers’ taste or flavor profile.  The only wines offered are those represented by the importers and distributors.  As a result, buyers only have access to wines represented by importers and distributors within this system.

The third tier in the 3-tier system is the retailer or restaurant that sells the wine to the consumer.  There are many different reasons why wine buyers chose one wine over another, but most are knowledgeable about wine, their customer base, and what they can sell.  This is why you see a large difference between a grocery store selection and a fine wine shop, from a Steak House wine list to an Italian restaurant.  

How does Grocery Outlet come in?

The 3-tier system is very inefficient: there’s a lag from when the winery releases the wine to when the importer and distributor have the wine available to show and sell, so sometimes they miss the window of opportunity.  Also, importers and distributors sometimes buy wines and find they cannot sell the wine at a certain price or in a specific market.  All of these inefficiencies create opportunities for non-traditional retailers like Grocery Outlet.

The industry average is 90-95% efficiency.  In most years, importers, distributors and wineries will sell most of their wines, but almost always there’s some wine remaining.  If a winery produces 10,000 cases and is 95% effective as selling their wines, they have 500 cases at the end of the year; if a winery produces 5,000,000 they have 50,000 cases.

These overstocks are most of what Grocery Outlet buys.  The wine can be from the winery, importer or distributor.  Past vintages are opportunistic buys, because once a vintage has been replaced by a newer vintage, the salespeople stop showing the older vintage.  Older vintages become a storage expense, not a sales opportunity.  Wineries, importers and distributors have money tied up in this stock.   To quickly move through non-performing inventory, wineries, importers, and distributors will sell the wine at cost or even a loss.

This is why Grocery Outlet can offer wines that were sold 6 months ago at 20-35% of regular retail.  This is the first of several postings that will help you understand who we are and how we find you such great deals.

Cheers,
Doug

Wine Buyer for Grocery Outlet

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