Academic journal article Agricultural and Resource Economics Review

Distribution Channel Choices of Wineries in Emerging Cool Climate Regions

Academic journal article Agricultural and Resource Economics Review

Distribution Channel Choices of Wineries in Emerging Cool Climate Regions

Article excerpt

The number of wineries in nontraditional regions has increased dramatically in the past decade (Wine Institute 2013), Most of these new wineries produce small wine volumes;1 for example, more than 80 percent of the wineries established in New York State after 2000 had average annual production of between 1,000 and 2,000 gallons (Ropel, Smith, and Reuber 2009), Contributors to this trend include grape growers who have decided to vertically integrate into winemaking and nonfarmer investor-entrepreneurs who have opted for a rural lifestyle. The surge in small wineries is also a response to a need to diversify farm businesses and complement crop and livestock production with value-added processing and retail enterprises. This recent development of wineries in cool climate regions is well represented in Michigan, Missouri, and New York. Table 1 indicates that the number of wineries in those states increased threefold between 1998 and 2010. These emerging wine regions are playing a prominent role in rural economic development in those states. As noted in Table Î, in 2010 alone, the wineries involved more than 2,500 grape growers, about 15,000 acres planted to grapes, and 437 wineries thatproduced about 31 million gallons of wine (Table 1).

In this study, we develop a conceptual framework to examine factors that influence the distribution channel choices made by operators of wineries in emerging regions, including winery characteristics, elements of their marketing strategies, and their degree of vertical and horizontal integration. Subsequently, we employ data from a survey of wineries in Michigan, Missouri, and New York to develop econometric models that allow us to test hypotheses regarding distribution channel choices.

Emerging wine regions have the potential to become economic vectors of rural development because they foster the growth of related industries such as tourism and hospitality (Carlsen 2004, Hall etal. 2000). Northern Michigan, for example, was ranked third on a list of the best "undiscovered" wine destination regions in the world by Wine Enthusiast in 2011 (Wyatt 2011). Most cool climate wineries, however, are relatively new (less than ten years old), small (wine production of between 1,000 and 3,000 cases), and geographically dispersed over a wide area, and their operators are relatively inexperienced. The success of these wineries will likely depend on demand for their products and a regional reputation (Schamel 2009), but they face a formidable task in attracting customers and developing relationships with distributors.

A major marketing challenge for wineries in emerging regions is the selection of distribution channels for wine sales. These wineries often have small marketing budgets that impede participation in intermediated channels. In addition, many of the non-vinifera grape varieties that are well-adapted to cool climates (e.g., Norton and Marquette grapes) are not well known to consumers, who have previously established preferences for vinifera wines. Vintners who want to expand the geographic distribution of their wines also must often work within a complex three-tier distribution system that can limit their ability to access nonlocal markets.2 It can be particularly difficult in a nontraditional region to develop relationships with wholesalers and manage alternative distribution channels.

The difficulties associated with distribution channels are not unique to wineries in nontraditional regions; regional food producers in general find it difficult to connect to mainstream supermarket distribution systems. King, Gómez, and DiGiacomo (2010) posited that the problem arises because supermarkets tend to favor large suppliers and, consequently, long-distance movement of products for a variety of reasons, including reliability of supply and lower prices for goods from large operations. Martinez etal. (2010) further identified barriers that prevent local food producers from entering the market and expanding distribution, including producers' limited training in marketing, lack of a distribution infrastructure, and uncertainties regarding regulation. …

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