“[The gray market is] a market employing irregular but not illegal methods; especially: a market that legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer.”

— Merriam-Webster Dictionary

The expression “gray market” calls to mind a “black market” which is the illegal trafficking of goods. Let me be the first to admit I have purchased quite a lot of wine from the gray market for my employers over the years, and though it has the connotation of being something suspicious, in certain markets it’s a perfectly legal means from which to acquire wines for our programs. What’s more, the best of the gray marketers are highly reputable businesses that take care to do everything in their power to transport and deliver the wine in good condition and are astute and serious about what they offer. So why might a sommelier want to avoid dabbling in the gray market?

Caveat Emptor. Let the buyer beware that you might not — and most likely will not — have recourse for flawed, damaged or fake wines, and the chances of a wine being damaged or even fake increases exponentially on the gray market. One gray marketer I have worked with ships, stores and delivers in refrigeration, but that does not alleviate risk of poor storage conditions prior to the importer taking possession. Gray marketers are highly unlikely to reveal their point of supply and sources can be as varied as a cash-strapped restaurant in Paris or a wine shop without air-conditioning in Hong Kong. Some gray marketers might argue that they ship in even better conditions than the registered importer (and that’s a legitimate point) but the fact remains that there’s simply no telling how many times the wine has changed hands and how its previous owners handled the wines.

Even worse, the gray market is the source of almost all of the fraudulent wines that circulate in the United States. Proponents of the gray market will contest their ability to locate old and rare or highly-allocated wines as one of their strengths, but it’s all for naught if what’s in the bottle is inauthentic. I’m certainly no expert at identifying fakes, but French wines with green French tax stamps on their capsules and labels with the EU pregnancy warning [] are indicators that the wine was originally intended for the European market. That doesn’t mean that the wine’s necessarily a fake or that it has been transported in poor condition, and it certainly doesn’t mean that all gray marketers are out to deceive the buyer. It’s simply a risk, a risk without recourse, one which some wine buyers are willing to take for a multitude of reasons.

There is a long-standing theory that certain American bottlings from certain famous Burgundy domaines are not the same as those sold in Europe. In one well-known case, it is a matter of élevage (the American importer (allegedly) requests a shorter aging period from the domaine) and therefore the European bottling is either more or less desirable (depending on your point of view) than the American bottling, and nothing on the label indicates a special cuvée. If you believe that to be true, or know something that I don’t know, then it might be one of the very best reasons to purchase a wine from the gray market (provenance and damaged relationships with official suppliers notwithstanding). Incidentally, I’ve asked the producers in question directly and was assured the American and European bottlings are identical, and I personally can’t taste the difference.

Price and availability are other reasons to entertain the gray market, although as retailer Jon Rimmerman succinctly puts it while addressing the gray market on his website, price is the most overrated reason to purchase wine. While I agree with the statement, the market generally does not, and the pressure from our employers to find increasingly more margin is the reality. Because the gray market is circumventing the three-tier system there are fewer layers and therefore one would expect a cost savings to the end buyer. That savings may or may not be passed on to you but one thing is to be sure: if the price seems too good to be true it probably is.

The gray market also impacts our industry at the value level of distribution. On the surface, you might not feel much empathy for a multi-million dollar supplier and the most commercial of wine brands, but usually a wine company’s ability to absorb inventory of small-production wines (so we don’t have to) is built upon a strong and sustainable business of value priced brands. In at least one case, the importer may have a new tool to fight against gray marketing albeit in the crafty lawyer sort of way. While it might be legal for the gray marketer to circumvent official channels of distribution to sell the contents of the bottle, they might be violating a trademark because it was labeled differently (the difference being the back label, I’m guessing) and was not “subject to the same quality-control standards as the authorized wine.”

Availability (or lack thereof) is perhaps a more justifiable reason to purchase from the gray market. The availability issue isn’t just limited to highly-allocated wines unavailable through regular channels. As a buyer who’s worked in both major and minor wine markets, I can attest to the frustration of not receiving an allocation or even not having access to certain wines. The gray market might seem like a quick fix in a market where an importer does not have representation through a distributor and might very well be the only option of immediate procurement. In this instance, purchasing from the gray market is obviously an easier and quicker approach than developing a relationship with the official importer, assisting them in finding a local distributor and negotiating an allocation of the desired wine. It might be easier, but this brings me to my final and most important point.

More than any of the concerns stated above are how purchasing from the gray market affects my relationships with suppliers. Much of my career has been devoted to doing business with, and consequently developing, long-lasting and trusting relationships with suppliers like Kermit Lynch, Neal Rosenthal, Leonardo LoCascio and Becky Wasserman (just to name a few). These are all people I admire greatly and respect now more than ever the work they’ve done. Importers risk an enormous amount of capital to deliver their producer’s wines to the market and when the producer is new and unknown there can be a an extended and costly period of “brand building” before there is any real movement of the wines in the marketplace. It’s disruptive to the business plans of both the supplier and the producer, and impacts the long-term viability of the producer’s relationship with the importer and ultimately the importer’s relationship with you.

Perhaps the following sentiment sums it up best:

“Most of my competitors are honorable people. One dude has been paying heavy court to a number of estates in my portfolio.  When he can’t get the wines he sometimes graymarkets them. I’m tempted to call such behavior evil, but it isn’t. It’s just pathetic. Still, the man has taste! That said, it’s disingenuous to ‘sell’ gray-marketing as some sort of consumerist populism. What it actually is, is adolescent pique that someone else already got to the wines you want. The system of exclusivity isn’t based on the profit motive. It’s based on a sustainable model for mutual loyalty between grower and importer. Even the 3-tier system, almost universally despised, nonetheless endures because no coherent alternative has been found.”

—Terry Theise, 2002 Germany Catalog