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Rabobank vp Bourcard Nesin has penned one of the most thoughtful and provocative pieces yet assessing what happened during the radical evolution of wine and spirits distribution after RNDC's implosion. He sees both crisis and opportunity in a situation that suppliers largely brought upon themselves with a push for "national alignment" and consolidation. Bourcard nails the reasons why the "value proposition" of this push proved so appealing for suppliers: "easier operations, preferential margins, prioritization with national accounts&hellip; and most importantly, upfront payments and performance guarantees." Those "upfront payments" and guarantees played a big role in RNDC's unraveling, according to numerous sources. But post-RNDC, "a 'new' approach has taken the industry by storm," which Bourcard calls "a more fragmented 'best athlete' strategy," choosing distribs mkt-by-mkt, "based on state-level fit, execution and economics." What happened to RNDC "forced a sudden realization" that "wholesalers are vulnerable. Wine & spirits suppliers now feel compelled to spread exposure and reduce the risk of becoming collateral damage if another large distributor fails," Bourcard added.This new approach is "upending US alcohol distribution" and means suppliers will have to do more for themselves, according to Bourcard. "The cushy contracts, guarantees, and dedicated divisions of the national alignment era enabled suppliers to neglect their own sales and execution capabilities," he wrote. Now they will have to build those capabilities, instead of relying on distribs to pay for them. Bourcard restates his "core thesis": "If suppliers want to move to a more fragmented network, they will need to reinvest in their own sales and marketing infrastructure to replace what national agreements once provided 'for free.'" All the "recent shifts in the wholesale tier point in one direction: Brands need to take more responsibility for their own performance.""Most Dramatic Collapse" Post-Prohibition; Sazerac "Model" This new "best athlete" strategy should perhaps be called the "Sazerac model," opines Bourcard. Why? "Not only because the company was an early mover away from national alignment, but also because its shift to a more fragmented network was a major driver of RNDC's collapse."Then too, RNDC's "exit from California&hellip; left hundreds of brands scrambling for a new wholesaler in the country's largest market and foreshadowed the most dramatic collapse the post-prohibition alcohol industry has seen." RNDC is "now in the process of liquidating its business" more broadly. "For brands exiting a national relationship with RNDC - or watching their distribution rights sold to the highest bidder - a more fragmented wholesaler network is less a deliberate strategy than the default outcome."That's exacerbated as "virtually all traditional wine and spirits wholesalers are reducing staff, cutting divisions and neglecting all but the biggest brands in their portfolios." And the largest player, Southern Glazer's Wine and Spirits, "is making major moves into beer distribution." Yet while the loss of RNDC "fundamentally changed the negotiating dynamics" for wine & spirits suppliers, the emergence of new distribution competitors - often in the form of beer wholesalers - may enable suppliers to "claw back some of that leverage." In a fragmented market, "suppliers can address underperformance directly with credible threats," notes Bourcard. They can move business to a competitor, refuse to integrate newly acquired brands, or dangle new territory as an incentive for improvement." And increasingly, brand owners are negotiating contracts that "allow RTD innovation to move through a separate wholesaler network, resulting in further fragmentation."

New, More Fragmented Era in Wine and Spirits Distribution; Suppliers Must Do More, Sez Bourcard

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