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Thursday
Aug122010

The Importance of Independents/Independence Part III

Purchasing single malt casks through a distributor has proven to be a win/win situation for just about everyone.  If the buyer does their job right and selects a top-notch whisky, then the customers go home with an exclusive bottling, the retail store has a product with a fixed in profit margin, and the distributor gets a big sale with cash up front.  However, at the moment, there are close to zero options for privately bottled single malts through the main channels of distribution, directly from the distillery,  Bruichladdich is the only one I'm currently aware of that does a barrel program, but unfortunately their pricing isn't very affordable.  I can understand, however, why no one is interested in changing the format and rocking the boat here.  For some people, this industry seems to be very profitable the way it is at the moment.

Luckily for single malt consumers there are other channels available for purchasing their favorite whiskies.  Bottlers like A.D. Rattray, Signatory, and Chieftain's have been very successful as of late in tracking down some amazing barrels and bottling them at affordable prices.  They see the logic in working with retailers on pricing, as well as refusing to undercut smaller stores in favor of deals with big chains.  They are also distributed by small independents who don't view them as just another product in a gigantic catalog.  The true value of independent bottlers comes not only in their affordability, but also in their ability to check the big players - offering their own products in better expressions and at better prices.  For example, Diageo offers the Port Ellen 30 Year distillery bottling at over $400 a bottle, but you can buy the Chieftain's bottling of Port Ellen (which in my mind is a superior whisky) for $260.  At this point, most consumers haven't yet grasped how to navigate the independent bottlings, always prefering the distillery bottled malts, but it's only a matter of time before they get priced out of their favorite dram.

When I was at dinner the other evening, I was sitting with the head of an independent distributor in California and the chief of an independent whisky bottler.  When asked about making deals with large wholesalers, the distributor replied, "Costco will never get a better deal than K&L or any other smaller store we deal with because we care about our relationships with each customer equally, plus we don't have the inventory to ever become a permanent product there.  They would drop us after eight weeks and then we'd be back to where we started.  Plus, we would have damaged our steady pricing in the overall retail market."

The scenario he described actually happened to us with a small tequila vendor.  We were working with them closely to help build their brand and at the same time they were going to Costco to try and get a big deal.  They worked out such a big arrangement that Costco could afford to sell the tequila for less than we were buying it.  It would have been cheaper for me to walk over there, buy it off the shelf, and resell it here (if such a thing were legal)!  I only found out about it because I recommended the tequila to a customer and he said, "Yeah it's good, but I can get it at Costco for much cheaper."  I about fainted.  When I called the vendor about this, they admitted to me that they were indeed selling to Costco, but why should I expect a similar price when I wasn't buying nearly as much?  I asked them how they expected me to buy their tequila for more than Costco was selling it, but they didn't seem to understand.  Once a product sells for $39.99 at Costco, that becomes the value of the bottle in the consumer's mind - anything above that price is simply too much.  They were destroying the possible value of their tequila before they had truly established it.  "But you have Patron and Costco sells it for less than you," they replied.  "Do you think you're Patron?" I asked before ending the conversation.

Some products are going to sell no matter how big the discrepency, which is why the big players can keep raising their prices.  In certain situations customers come in looking for a big name product and will buy it at whatever price because of convenience - they're late for a party or we were in walking distance, etc.  These are brands that are sold on name, not on value.  That's why there are liquor stores on every corner selling the exact same products at various prices.  However, if no one knows how good your product is then you need help selling it.  Specialty stores like K&L, D&M, Cask, and Beltramos have staff members with the expertise to do so.  Hence, the symbiotic relationships we form with independent distributors and producers.

To be continued....

-David Driscoll

Reader Comments (2)

On a roll, David. I have lots of thoughts with which I'll craft a response soon. But thanks for giving all your time to this.

August 12, 2010 | Unregistered CommenterStrongLikeCask

I'm happy someone wants to read it!

August 12, 2010 | Unregistered CommenterDavid D

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