Wholesaling wine presents retailers with a valuable additional income stream, but it also creates challenges. The high street may be tough just now, but things are even bleaker in the on-trade and independents need to think carefully before exposing themselves to the volatility of this market.
Peter Graham Wines began life in 1997 as a wine retailer. Within a year a wholesaling division had been established and a year after that wholesaling became its prime focus. Retailing now accounts for just 5% of sales.
Director Louisa Turner says business is tough as the restaurant trade is down between 15% and 20%. She adds: "The sale price is also down because everyone is drinking house wines. Sales of Sancerre and Chablis are virtually non-existent."
Peter Graham anticipated the downturn, unlike some of its competitors, and made cost savings. "We didn't print the wine list in January as we normally do, which saved £6,000, and we've got our stock levels right down, so we're fine," explains Turner.
All prices are quoted exclusive of VAT, which has also made life easier in recent weeks.
one of the biggest problems for wine wholesalers is getting paid. This year her company has accumulated £30,000 of bad debt and is preparing a legal case against one customer. "There can be couples running a pub as tenants and they are responsible for paying your bills," she says. "You often find that they do a runner and the new tenants have no idea where they've gone.
"We're now asking for cash on delivery with most pubs - we've had to get very tight on credit. In fact, alarm bells ring when we get a new customer enquiry because you wonder why they aren't still dealing with their old supplier."
Turner says would-be wholesalers can run into cashflow problems because of the amount of stock they need to carry. "I remember when we first started as a shop and started branching out, the bank manager told us we were over-trading. But to get bigger you have to over-trade. You can't run out of stock - that's the golden rule.
"A lot of customers take 60 days to pay, so cashflow is the biggest nightmare for a retailer wanting to wholesale. Not only that,
there are also
delivery costs to consider: you've got to have a van and someone on standby to go out delivering."
Another consideration for retailers looking to expand into wholesaling is the thorny issue of on-trade mark-ups.
While some diners like the reassurance of seeing familiar brands on a pub or restaurant list, others are alarmed by seeing elevated prices for brands they know sell for a fraction of that amount in a supermarket or off-licence.
Peter Graham gets around that problem by importing most of its own wines and giving them bespoke labels. Customers who buy retail are not offered the same discounts as wholesale customers and must buy by the case.
"In retail, people pay you money when they buy but you have huge ups and downs," says Turner. "Christmas is really busy but January and February are really slow.
put in an order every week all year round, so you
avoid the highs and lows."
Light wine sales
12 months to Oct 10 2008
Off-trade: +4% On-trade: -1%
Light wine volumes
12 months to Oct 10 2008
Off-trade: +0% On trade: -4%