Brian Rosen argues on his blog that “Private label wines matters more and more” .

I think not.

There was a time, circa 2005, when distributors and large chains figured out that they could get wine MUCH cheaper and with more consistent quality if they were willing to commit to private labeling programs. The smartest of these players developed considerable programs which included the whole supply chain, all the way back to grape contracts and well-cemented winemaker relationships, moving beyond the normal (and very expensive) What-You-See-Is-What-You-Get model.

WineSmith got in bed with a couple hundred restaurants and a dozen savvy distributors and cranked out a substantial business in the early 2000s, comprising in its heyday two thirds of our production. There were predictions that this was the wave of the future that would comprise 25% of California production.

Then it all went down the drain. Despite its impressive advantages, private labeling is greatly out of sync with the short term and risk averse distribution psyche. Dominate the supply chain, make no commitments. If the consumer is willing to eat higher prices and competition can be stifled, why should distributors and retailers invest in value? It’s a toxic situation, but it’s the way it is right now.

Admittedly, distributors in the heyday over-invested in captive brands. A highly respected Colorado independent had thirty top salespeople pushing a thousand SKUs. Suddenly, they tried maybe 25 house brands. The best salespeople ran for cover, and the enterprise tanked within a year. My point: private labels should be a profitable sideline, not a central focus.

The crash of 2007 caused all distributors to reduce inventory. Staff was diverted from promoting top-selling brands to taking out the trash. This went on for years. What emerged was a three-tier system dominated by million-case brands selling standard styles. Want variety? Buy European.

California grape supply goes in cycles of about eight years which disrupt loyalties. When grapes are over-planted, growers suffer, prices drop, and domestic market share increases. Then plantings stop keeping pace with demand (especially when the market is growing) until the growers get back on top, demanding higher prices. Wineries scramble to find grapes, prices rise, and distributors have to start being nice to any supply that will work with them, domestic or foreign.

In Europe, a longer term perspective exists as it does here for other products. Markups of 6%, like Cheerios in Safeway, are the norm for wine also. Wine is understood, standardized and cheap. No sane Frenchman plans to spend more or less than 3.5 euros on his family’s daily quaff. There is practically no private labeling. It simply doesn’t make sense. Get this: wine is not SOLD in Europe, just as, back in the U.S., the latest batch of Cheerios is not presented to Safeway for approval. We make them, we put them on the shelf. That’s the whole deal. Very efficient, very cheap.

The American three-tier system consists of wineries selling to distributors, who mark up 40 to 60%, then pushing products onto retailers, who also mark up 40-60%. The result is that a wine which costs $4 to make costs the consumer $20. For no reason. No value is added. All that cash supports warfare within the distribution system.

The three-tier system is a dinosaur. The future belongs to new models like Cost-Co’s low markup two-tier system which eliminate the middle man.

Any distributor or retailer who wants to man up to the prospect of investing in long term marriages with winemakers and growers has a place in this future. All winemakers dedicate their lives to doing exactly this.

I have yet to meet an American distributor or retailer with this kind of courage and wisdom.

No, I take that back.  The Hitching Post is at least one example of doing it right.  Man up, retail America!