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Restaurant Sales Collapsing for Small Wineries–SVB

Rob McMillan, executive vice president and founder of Silicon Valley Bank’s Wine Division, deals in numbers and the numbers are not looking good for small wineries.

“Every credible measure that I see regarding restaurant sales is trending negative for the small family run wineries,” McMillan wrote on Monday. “Wine for the restaurant trade is still an important part of success, but sales opportunities to restaurants are collapsing for small wineries.”

McMillan, who notes that at the high point in the ‘90s, family owned wineries were able to get about 30 percent of total sales from restaurants. In 1995, there were 2,600 wineries and 3,000 distributors in the United States. By 2016, SVB figures show, there were 8,000 wineries and only 700 distributors.

In the ensuing 20 years, distributors realized they had a customer base of large buyers who wanted more uniform offerings. There were “too many wineries and too few distributors, so something had to give,” McMillan says.

Distributors stopped calling on small wineries and stopped taking their calls.

Supreme Court Decision Only a Partial Solution

McMillan credits the U.S. Supreme Court’s 2005 Granholm Decision with giving winery producers a way to the market. “If they were kicked out of a distributor’s book, they could go direct to consumer. But Granholm didn’t solve getting into chain restaurant placements.

“That part of restaurant sales was essentially closed off for most wineries starting in the early 2000s,” McMillan says.

Also, post-recession millennials found an alternative to paying twice the markup or more for the same bottle they could find in a shop or grocery store by pre-partying before going out to eat, he says. Once at the restaurant, they could have just a glass of wine or water with dinner.

Even as national restaurant chains experience continued sagging sales, Americans are favoring locally owned eateries, Bloomberg reported in May.

Annual revenue for independents will increase about 5 percent through 2020, while the growth for chains will be about 3 percent, according to Pentallect Inc., an industry researcher in Chicago.

The trend of consumers embracing the independent restaurant “plays right into the wheelhouse of the small producer,” McMillan says. “That’s where relationships can be built between wineries and the restaurateurs themselves. That’s where discussions can start about fair markups…”

There’s only one major problem: getting independent restaurants and small wineries to find each other.

Perhaps a dating-like site where the parties can find each other and determine if they are a good fit.