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TriFactor Home > TriFactor Learning Center > White Papers > Wine & Spirits Industry Outlook

Wine And Spirits Analysis

Wine & Spirits Industry Outlook

By John T. Phelan, Jr.

With more mergers, rising operating costs, an increased number of global suppliers and a proliferation of brands and SKUs, distribution issues are a high priority for companies in the wine and spirits industry.

In a recent edition of the Wine & Spirits Daily blog, the moderator asked readers to comment on trends they see on the horizon. Among the posted responses, two seemed to capture the sentiment:

  • "Innovative use of technology to better customize retail selection, better inform distribution and supply. Consumer blogging will have huge and unexpected impact."
  • "Organic/biodynamic/environmentally friendly products will receive more interest, and the super fresh herbal/aromatic cocktail craze will continue to grow."

Whatever the future may bring, it's clear consumer demands and expectations are putting enormous pressure on the industry's search for more efficient, cost reducing and faster distribution solutions.

One industry leader, Harry Masi, Corporate Director of Logistics of Premier Beverage Company, an affiliate of the Charmer Sunbelt Group, one of the largest wine and spirits distributors in the US, is thoughtful but clear about where he sees the future of distribution. He says it all starts with technology.

"There is no question as to the role technology plays in moving us forward, particularly the software," Masi notes. "Warehouse Management Systems, with their capabilities for real-time replenishment and label picking, are a major step forward. It helps us to keep a better balance between accumulation, picking and loading."

Technology's role in the industry is not exclusive to just the large companies. For Johnson Brothers Liquors, a wine and spirits distributor, serving both off-premise and on-premise customers across the country, technology is crucial to meeting customer needs and controlling costs.

"The technology always has to be on the cutting edge," says John Mannion, Operations Manager for Johnson Brothers Liquors' Tampa, Fla. distribution center. "The biggest challenge is handling the increase in the different varieties of products, which makes the process of selection and scanning so important.

He points out, "This growth is perhaps biggest in the wine industry, which has grown approximately 25 to 30 percent in the past five years. In just the last year, we've already added many different SKUs, as people's tastes change and the number of worldwide locations producing wine has increased."

New Technologies Catch On

The move in the industry to embrace technology is relatively new, according to Richard Gillespie, Engineering Manager for Lakeland, Fla.-based TriFactor, LLC, a material handling systems integrator which has installed systems at wine and spirits distribution centers throughout Florida, including Premier Beverage Company, Johnson Brothers Liquors, Southern Wine & Spirits, and others.

The industry has been somewhat reluctant to try new distribution technologies," says Gillespie. "Most wine and spirits companies have been using manual operations, with a simple conveyor system bringing the product to a person who manually merges multiple lines together, which are then conveyed to shipping where the cases are loaded on a truck. It wasn't until the early-2000s that most distributors started to make the move to automated sortation by using a shoe-sorter; a rectangular puck that pushes the boxes along a conveyor."

The results have been significant. "With automated sorting, they have now improved their accuracy because the manual merger operator has been eliminated," he says. "Some companies are now able to sort up to 200 cartons er minute."

Headquartered in Orlando, Fla., ABC Fine Wine & Spirits, which distributes to its 150 stores in Florida, recently worked with TriFactor to solve a space problem it was experiencing at its facility. "We were only picking on one level of our distribution center," says Jess D. Bailes, Executive Vice President of ABC Fine Wine & Spirits.

With the system that TriFactor designed and installed, we are now picking on all three levels-it's fantastic," he reports. "The system works flawlessly and this improvement alone has enormous cost-saving consequences since it allows us to remain indefinitely in our present facility."

Bailes makes an important point regarding the need to work within an existing distribution center, or at the very least have the ability to expand it, especially when construction costs can be exorbitant.

Distribution centers are getting bigger and more costly," says Masi. "This means we are designing and building facilities that are more flexible and expandable. Instead of looking for just a few years, we think a decade or more ahead." Masi adds that by making both his buildings and conveyor systems more expandable, Premier Beverage has been able to add both accumulation and picking modules.

Johnson Brothers' Mannion agrees on the importance of building it right, the first time. "I would design for future growth and maximum output," he says. "It's my belief that you design a building that's set up for 10 years down the road, but will last for 20."

For the beer industry, building bigger facilities isn't always an option. "The biggest distribution challenge I see in my industry is with the technology," says Chad Cain, Operations Manager for Thies Distributing, a multi-brand beer and alternative beverage distributor based in Palm Beach Gardens, Fla. "The beer industry is behind in the picking technology we are seeing in the wine and spirits industry, because we tend to be smaller houses and it's difficult to invest in huge facilities."

Distribution Challenges

As the size of distribution centers continues to grow-some already topping the 500,000 square foot range, with talk about a possible one million square foot facility on the horizon-and more and more product going out the door at a faster pace, a number of challenges have arisen in the wine and spirits industry. At the top of the list is fuel costs since virtually all orders--to and from distribution centers--are by truck.

"Without a doubt the major distribution challenge facing the wine and spirits industry is fuel costs," says Premier Beverage's Masi. "It impacts us in two ways; in terms of the product being delivered to us, and then the product we deliver to our customers."

Mannion of Johnson Brothers Liquors says that dealing with the high cost of fuel begins at home, with his own employees. "We urge our workers not to drive the forklift around the warehouse unless it's for a specific task," says Mr. Mannion. "And if you're filling out paperwork or doing other company business, don't do it in the truck while the engine is idling. Go to a McDonalds or Dunkin' Donuts, have a cup of coffee and do it there. That's what helps. It all starts with the employees."

In an industry dominated by glass products, all subject to interaction with fast-moving conveyors, forklifts and human error, it's no wonder that breakage has always been a concern. Masi explains, "Advances have been made in this important area. Due to technological improvements in material handling systems, cases now ride better on conveyors, particularly with the ability to control carton spacing helping to reduce breakage."

At times, however, the problem isn't the conveyor, but what's being placed on it. "The lightweight and rather flimsy cartons we see today from imports in many instances contribute to breakage," Masi offers. "High humidity in some parts of the country can cause these cartons to expand just enough so the bottles move too much."

For ABC Fine Wine & Spirits, breakage wasn't so much the conveyor but the route the conveyor was taking. Says TriFactor's Gillespie, "ABC was experiencing a lot of breakage with the conveyor coming out of the wine room at its distribution center because the product was getting stuck in the turns and there was too much back pressure on the cartons. We replaced the minimum pressure conveyor with a zero pressure conveyor and replaced the skatewheel curves with powered curves. Problem solved."

Has ABC noticed a drop in breakage since the new system became operational? "We are definitely seeing a benefit," says Bailes. "Breakage in dollars is flat but the amount of product we handle is way up."

As technology advances and challenges are met and, hopefully, overcome, the wine and spirits industry looks to find more cost-effective ways to distribute its products. "The handling of cartons is getting more expensive," says Bailes. "The issue now is who handles cartons and at what cost. Cartons can be handled at least five or six times, and as many as eight times, before the product gets to the store shelf."  

Masi agrees. "Distribution in our industry is labor intensive; we are always looking for ways to reduce labor costs, improve picking accuracy and increase throughput. But the question remains: at what cost? The ROI must be reasonable."

This brings us full circle to the question of technology and the importance of having the right material handling system in place to accomplish your goals.

"We do a lot of work in the wine and spirits industry," says Gillespie of TriFactor. "We know what they are trying to accomplish, and what picking methods work. We work closely with them to solve any problems. We share their pain and learn from each other."
When dealing with wines and spirits, a $90 billion a year industry, it's important that the learning exceeds the pain.

"We are always looking for ways to move the entire process forward," states Premier's Masi, "in ways that maintain a proper balance, while getting products to our customers when and where they want it as a top priority."

John T. Phelan, Jr., P.E. is Chief Operating Officer of TriFactor, LLC, a material handling systems integrator based in Lakeland, Fla. He can be contacted at 863/577-2243 or jjphelan@trifactor.com. For more information visit http://www.trifactor.com/