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The Challenge With Wine Brokers

April 9, 2021by Alexander Pagon0
The Challenge With Wine Brokers

Good brokers understand they work for the winery, and behave accordingly. Bad brokers work for themselves without regard to the winery’s needs.

Wine broker is an age old profession that provides a much needed solution for wineries in the form of sales. In an instance where you find yourself with excess inventory that you’d like to convert back into cash, we’ve experienced a more predatory type of broker. The one that is most interested in their commission and less about your brand equity.

In this article, we aim to provide guidance on how to find and hire the right wine broker for your situation.

Seek and provide transparency. Good wine brokers understand they work for the winery, and behave accordingly. Bad wine brokers work for themselves without regard to the winery’s needs.

The following are a few simple questions to assess if your broker is working for you or working you:

Do I know where my wine is ultimately going?

A good wine broker will explain the entire chain of custody of your wine, and the pricing at each stage. You should understand who the ultimate customer is, what will be the final pricing to the consumer, and how visible will that price be. Any broker not willing to share this information means they may be trying to buy low and sell high, shoveling your wine into a channel or state where you don’t want your wine sold.

Too often clients have come to us only after getting burned by an unscrupulous broker that sold their wine around an existing distributor to a high-profile online retailer at a deep discount.

The winery was left to clean up a mess on many levels – unhappy distributor, angry club members wondering why they paid full price, and other trade customers asking for the same discount. You must ask where your wine is going to be sold and at what price before allowing it to leave your warehouse. (Of course, your broker needs to trust that you are not going to go around them. Trust and transparency are mutual.)

Are our interests aligned? There are two business models in the wine broker world:

1) buy low and sell high and

2) take a commission.

In the first, the wine broker is seeking to maximize their profit margin on one sale because they aren’t confident in building a long-term relationship. Usually, this is because one party is not trust-worthy and they expect it to be a one-time game, rather than a continuous game that requires reciprocity and fairness.

In the second, the parties are confident in their commitment to working together over the long-term, so the broker understands that maximizing long-term profit requires aligning their interests with the winery. Typically, a commission structure is the cleanest and simplest way to align interests – the broker receives compensation directly tied to the winery’s revenue. Thus, the wine broker is incentivized to negotiate the best possible price for the winery in the given circumstances.

As a corollary, if the broker won’t tell you where your wine is going and at what price, your interests are probably not aligned.

Your brand is on the label, so please make sure your wine broker will answer the two questions above for you release any wine. It is much harder to clean up a brand-sullying mess than to avoid one in the first place.

Third Leaf Trading can help you broker your wines while maintaining your reputation and hard fought brand equity. Our position is to develop a long term relationship with the winery by building a plan with you through an immersive and consultative approach. We want you to understand how we are thinking and provide you a clear strategy that we both agree upon.

by Alexander Pagon

Alex Pagon is a Founding and Managing Partner of Third Leaf Partners. He leads Third Leaf’s beverage practice, which oversaw the successful turnaround of Evening Land, launched ENTER.Sake in the US and Europe as a category leader in the premium sake segment, and helped grow several other brands, including Empire Estate, Lingua Franca, Antica Terra, and OOLA. He currently advises premium wineries, breweries, and distilleries in five states and six countries. Alex also serves on the board of WineBid, the world’s largest online wine auctioneer, and is a founder and director of Protea Financial, which provides accounting and bookkeeping services to small- and medium-sized businesses.

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