by Rebecca Mino
May 2012

Michigan Wine Industry
The wine industry is important to the state of Michigan. In 2005, the wine industry in Michigan added $286 million to the state’s economy (2). The state is the ninth largest producer of wine grapes in the country and the fourteenth largest producer of wine (1). The number of wineries in Michigan, as well as the total acreage of wine grapes has steadily increased since the 1970s (1). Michigan wines are increasingly known both nationally and internationally (2). These facts and figures indicate that the future of wine production in Michigan is bright.

However, there are also several challenges to the continued growth of the state’s wine industry that were described by a 2006 publication by the Michigan Grape and Wine Industry Council, part of the Michigan Department of Agriculture and Rural Development. While production is growing there is more demand for Michigan wine than there is new land being cultivated for increased production (1). Another major obstacle identified were barriers that producers faced when selling their products to consumers. These barriers were a result of a combination of liquor control regulations, local zoning ordinances, and the power of wholesalers in wine distribution (1).

Sales of Michigan wine contributed $42,965,000 of the total economic contribution of the wine industry to the state (2). Of these wine sales a large proportion of those sales occur direct to consumers at tasting rooms totaling $33,529,000 compared to a value of only $9,436,000 sold through retail locations and restaurants (2). In addition, Michigan wines make up only a small proportion of total wine sold in the state that rate figure has grown from 3% in 1996 to 4.6% in 2005 (1). While larger wineries depend more heavily on sales through retailers than smaller wineries both medium and larger producers in Michigan sell through retail channels (2). Michigan wines can be found at many retailers including major supermarket chains, specialty wine stores, big box stores, and restaurants (2).

Photo: Jeff Greenberg

Purpose
The purpose of this study was to examine the availability of Michigan-produced wine at retailers in Southern Michigan. Specifically it seeks to determine if there are differences in the proportion of Michigan wines sold between two different categorizations of retailers.

The research questions addressed are:

1. Do Michigan-based retailers offer a larger percentage of Michigan-produced wines for sale than retailers serving a larger geographic region?
2. Is there a difference in the percentage of Michigan-produced wines available between super centers; beer, wine and liquor stores; and convenience stores?

Methods
An inventory was created of all grape-based, non-fortified wines available at a sample of retailers in southern Michigan (n=19) including supermarkets, large non-grocery retailers, convenience stores, health food stores, and other retailers. Retailers were located primarily in the Lansing, East Lansing, Detroit, and Ann Arbor areas. This study was a component of a larger study of wine availability.

Photo: Steve Sadler
Data for the first research question were analyzed by dividing the sampled retailers into two separate categories: 1) retailers with locations only in the state of Michigan and 2) retailers with locations covering a regional or nationwide geographic region. This information was obtained from the retailers’ websites. Eight retailers fell into the first category and eleven the second category. The breakdown in retailers is as follows:

Michigan-Only Retailers (n=8)
one local convenience store chain
two local wine shops
two local supermarkets
three local natural food stores

Regional or Nationwide Retailers (n=11)
Cost Plus World Market
CVS
Kroger
Meijer
Rite Aid
Sam’s Club
Target
Trader Joe’s
Walgreens
Walmart
Whole Foods

To analyze data for the second research question the same 19 retail locations were divided into four categories. Categories were based on the North American Industry Classification System (NAICS) and are as follows (3):
1) Supermarkets and other grocery stores (NAICS 45110)- retailers that carry a general line food (excluding convenience stores)
2) Warehouse clubs and supercenters (NAICS 45291)- retailers that carry both food and general merchandise without one category predominating
3) Convenience stores (NAICS 445120)- retailers that carry a limited line of food goods
4) Beer, wine, and liquor stores (NAICS 445310)- retailers selling predominantly alcoholic beverages

The breakdown in retailers is as follows:

Supermarkets and Other Grocery Stores (n=8)
two local supermarkets
three natural food stores
Kroger
Trader Joe’s
Whole Foods

Beer, Wine, and Liquor Stores (n=2)
two local wine stores

Warehouse Clubs and Supercenters (n=5)
Cost Plus World Market
Meijer
Sam’s Club
Target
Walmart

Convenience Stores (n=4)
one local convenience store chain
CVS
Rite Aid
Walgreens

Data were analyzed using SAS 9.3 software and the Glimmix Procedure. A general linear model was used for data analysis with specifications for a binomial distribution, a logit link function, and over-dispersion of data.*

Results and Discussion
Analysis for research question one showed a statistically significant difference between the percentage of Michigan-produced wine available at retailers only located in Michigan and retailers located either regionally or nationally (p = 0.0039).

This study shows that Michigan-produced wine is available in greater percentage at Southern Michigan retailers that only have retail locations in Michigan. An average of 11.52% of the wines available in the eight retailers with locations only in the state of Michigan were Michigan-produced wine (Figure 1). Michigan-produced wine accounted for only 2.6% of the wine available at the eleven regional or national retailers (Figure 2).

Figure 1. Wine Available at Michigan-Only Retailers in Southern Michigan by
Geographic Origin

Figure 2. Wine Available at Regional and National Retailers in Southern Michigan
by Geographic Origin

The large difference seen between the two types of retailers have implications for wine consumers and winemakers. Consumers who are interested in purchasing wine produced in the state of Michigan are more likely to find Michigan-produced wine at retailers only found in Michigan. Winemakers are likely to have more local competition for their products when consumers are looking to purchase a Michigan-produced wine. However, a potential benefit to winemakers is for customers interested in Michigan wine to become aware of their product when seeking out Michigan wine at Michigan-based retailers.

While this study did not attempt to determine why the difference between retailers exists there are a number of possible explanations. First, retailers based in Michigan may be more willing to support other Michigan-based businesses by selling their product. Second, these retailers may have more control over the products selected for sale at their stores compared to regional or national chains that could have less flexibility because of company regulations or hierarchy. Another possibility is that more Michigan-only retailers are approached by Michigan winemakers and/or distributors to sell their products because it is easier, or perceived to be easier, or it is more cost efficient. Previously research has shown that a large portion of Michigan-produced wine is sold direct to consumer instead of through retail locations because it is cost-prohibitive for winemakers to work with a distributor, especially for small winemakers (2). Further research is necessary to determine which, if any, of these reasons are accurate for the larger percentage of Michigan-produced wine available at Michigan-only retailers.

For research question two statistical analysis did not demonstrate a statistically significant difference in the percentage of Michigan-produced wine sold between the four categories of retailers in question (p = 0.2851). The percentage of Michigan-produced wine did vary between supermarkets and other grocery stores (8.9%), warehouse clubs and superstores (3.5%), convenience stores (1.8%), and beer, wine, and liquor stores (10.2%) in Southern Michigan (Table 3), but the differences are likely due to chance. For consumers this means that they are as likely to be able to purchase Michigan wine at the grocery stores as the convenience store. Because of the small number of retailers in each of these four retail categories further research with a larger sample size would be beneficial to support the findings of this study.

Figure 3. Percentage of Michigan-produced Wine Sold by Retail Category

Conclusions
This study shows that Michigan-produced wines are available in greater percentage at retailers located only in Michigan, but that the type of retailer based on the goods they sell does not make a difference in availability. For consumers looking to purchase Michigan wine you will have the best availability by seeking out a Michigan-based retailer, whether it’s a liquor store or a warehouse club. For winemakers seeking to increase the visibility of their product among other Michigan-produced wines getting their product in a regionally or nationally based retailer could be beneficial. However, they will face increased competition from wines produced in other areas of the country and world. Overall the average percentage of Michigan-produced wines available at all of the retailers in this study was small at 8.4%. This small percentage could be a result of the cost restrictions, regulatory issues, and distributor power previously identified (1). However, this also represents a great opportunity for Michigan winemakers to expand sales of their products to meet growing consumer demand. Efforts should be made to reduce the burdens on Michigan winemakers, especially small and medium winemakers, and facilitate their efforts to sell products in retail locations to aid this potential for growth.

References
1. James, Linda. (2006, October). Growth of the Michigan Wine Industry. Michigan Department of Agriculture. Retrieved April 15, 2012 fromhttp://www.michiganwines.com/docs/Industry/growth_of_mi_wine_oct06.pdf
2. MFK Research LLC. (2006). Economic Impact of Michigan Grapes and Wine 2005. Retrieved April 15, 2012 fromhttp://www.michiganwines.com/docs/Industry/micheconimpact.pdf
3. North American Industry Classification System (NAICS) Retrieved May 8, 2012 from http://www.naicscode.com/search/MoreNAICSDetail.asp?N=45211
*A special thanks to Pablo Reeb from the Statistical Consulting Center at MSU for his help with the data analysis.

Photos from the Michigan Grape and Wine Industry Council. Photo featured at the top by Jeff Greenberg.