When Giants Fight

Posted by Tom Wark on Apr 11, 2005

I tend to worry when to giants battle each other for the chance to be the savior of the little guy.

That’s the spin that comes out of the Wholesaler and Big Retailer camps in a terrific Los Angeles Times article about the future of wholesaling and retailing wine.

The article details the desire of retailing giant Costco to overturn law in Washington State that prohibits it from purchasing wine directly from the producers. Instead, it is forced to buy from Wholesalers. Furthermore, wholesalers are, by law, forced to sell wine to all retailers at he same price and no credit may be extended.. This means, of course, that Costco can’t get a discount on its wholesale purchases even though it tends to buy wine by the palate. They are challenging the Washington State laws saying they violate the Sherman Anti Trust Act.

Costco claims consumers are being screwed because they are forced to charge higher prices due to the laws. The wholesalers like the monopoly on sales just the way it is because, well, because who wouldn’t like to have a monopoly on the sale of any product.

In fighting their now decade long battle to prevent any form of direct shipping of wine to consumers, the Wholesalers have always claimed that wineries just want to tear down the "three tier system" that is in place for getting wine from the producer, to the wholesaler, to the retailer, to the consumer. But the direct shipping movement has always been instigated by small, family-owned wineries and wine geeks who just want a more efficient way to do business together. If direct shipping were allowed everywhere tomorrow, the Wholesalers would lose business, but they’d still be among the most profitable entities in the wine business since most wineries would still use them to move the majority of the wine they sell, including the smaller vintners.

But Costco’s fight: That is INDEED about tearing down the legally enforced Wholesaler Monopoly known as the three tier system…make no mistake.

Oddly, the official response to this attack on wholesaling is remarkably pitiful. Juanita Duggan, that chameleon of truth who is the Executive Director of the Wine & Spirits Wholesalers Association defended the work of the wholesaler this way:

"Alcohol has to be treated as a special product because when it is misused it causes devastating social consequences,"

Whatever.

A far better defense of the wholesale system comes from Wayne Chaplin, president of Southern Wine & Spirits and clearly someone who is able to say what he means and mean what he says rather than spout nonsense n a robotic, inane way:

"It is expensive to ship wine. It has to be stored properly, and there is a lot
of cost savings by consolidating shipments and sending them in bulk."

He’s right.

Both sides of the battle claim their victory will be good for wineries and producers. I’m not so sure. We’ve seen how power corrupts the wholesaling segment of the business. Just look at who they’ve decided they had to hire for their executive director to defend them during the direct shipping battle. On the other hand, putting so  much power in the hands of the big box retailers is something I’m not so sure is a good thing either.