The US wine industry challenges and what to do about them

Over the past couple of weeks, I’ve been checking in with clients and industry insiders, and one topic dominates: distributor destocking. While I naively thought this was a problem of the past, it’s clear the issue is still very much alive. Retailers are also pulling back on inventory, compounding the problem. This reduction in stock across the board is having a ripple effect, resulting in a massive revenue hit across the beverage alcohol industry.

But this isn’t the only challenge. Distributor consolidation, the low-alc/no-alc movement, and inflation are all creating headwinds. Plenty of digital ink has already been spilled on these topics (see Headwinds resources), so I’ll focus on how your company can emerge stronger and more efficient.

Suffice it to say that selling wine (and other BevAlc products) is more challenging than ever before. So, what can you do to overcome these obstacles and win? Let’s dive in.

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Retailers and distributors are destocking

Retailers and distributors cutting down on inventory. This presents two immediate pains:

Pain 1: The drop in revenue

Distributors' destocking means fewer orders. For many companies, this results in a sharp decline in shipments, translating into a significant revenue hit per distributor. Of course, retailers' destocking exasperates the situation.

Pain 2: Higher stockout frequency

With less inventory across the entire supply chain, there’s a much lower buffer to counteract demand variability from retailer to supplier. This lack of safety stock heightens the risk of stocking out if forecasts miss the mark.

Now, more than ever, poor forecasting means greater risks of low customer service to your distributor, retailer and, ultimately, the consumer. All of this makes concentrating on building accurate demand forecasts essential.

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Your brands aren’t getting enough attention

Let's pile on here. There’s another pain: distributor consolidation. As distributors swallow up other distributors, a distributor's portfolio expands, and your brand must compete even more fiercely for their attention. Moreover, the distributors are stretched thin, so how do you ensure your wines stand out?

Here are the “must-haves”:

• Have a fantastic brand. What does your brand stand for? What is the story of your brand?
• Provide great deals to your distributor. Competitiveness in pricing, discounts, and rebates is essential.
• Stay in stock. Nothing hurts a supplier-customer relationship more than not having your stock available.
  

Now for the differentiator: provide better supply chain services to your distributor partners. You'll gain an edge by making it easier to do business with you. Here’s how:

• Track depletions. Stay on top of what’s selling and where. You also need to have a solid take on where depletions are going. Don't just focus on a rolling average as your forecast; think about how that strategy helps forecast OND (October, November & December).
• Monitor distributor inventory days on hand. Is there not enough inventory in their warehouses to satisfy your depletion forecasts? Is there too much inventory?
• Be proactive. If you have a good depletion forecast and a good handle on the right number of days of inventory the distributor should have, then you have what you need to suggest when the distributor should order. Tell them. They'll appreciate it, and you'll get the sales.

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How to implement these solutions

Before we get too far into implementing solutions or processes, I want to take a moment to call out a very important step: you need to dedicate resources to manage these processes and tools I'm about to review. Don’t try to piecemeal it across your team. You’ll need a person or team to oversee these strategies and ensure everything runs smoothly. Just as you have a sales team to execute your sales, you need one or more supply chain resources to ensure proper execution.

Okay, now onto the "how":

1. Get a solid depletion forecast NOW!

It’s tempting to lean on spreadsheets, but that won’t cut it. Tools like Claret’s Sales Collaboration platform are designed specifically for the beverage alcohol industry and can have you up and running in a week or less.

Start a quarterly (or ideally monthly) process to refine these numbers. Here are some helpful resources:

• S&OP Guide
• Engaging Your Sales and Marketing Teams in S&OP
  

2. Dial in your shipment forecast

Monitor your distributors’ inventory against your depletion forecast. Make sure they’re ordering based on the optimal days-on-hand inventory levels. Tools like Inventory Workbench are perfect for automating this process. You could try to handle it with spreadsheets, but why risk human error when integrated tools exist to streamline your forecasting?

3. Right-size your own inventory

Forecast errors happen, and you need to plan for them by maintaining the right amount of finished goods in your warehouse. Calculate your safety stock accurately to protect against demand fluctuations. Learn how to do that here: Strategic Safety Stock Calculation.

These three steps are just the beginning, but they will provide a valuable foundation to help weather the current and future challenges we face.

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Conclusion: Navigating the challenges to come out stronger

The US wine industry is facing some tough challenges, but that doesn’t mean there aren’t opportunities to strengthen your business. By addressing the immediate pains of destocking, improving your forecasting processes, and enhancing your supply chain services, you can not only mitigate the current issues but also position your company for long-term success.

This is a time when focus and accuracy matte more than ever. Getting your depletion and shipment forecasts dialed in, keeping a close eye on inventory levels, and staying proactive with your distributor relationships will set you apart from the competition. The companies that come out on top will be those that streamline operations, focus on efficiency, and make it easier for partners to do business with them.