How the wine wholesaler brain works

Wine wholesalers have been given a state-mandated monopoly over wine sales for so long that now the wholesalers are starting to believe that their monopoly on sales is written into the U.S. Constitution.

According to a group of wholesalers who signed onto an article written in a Virginia newspaper:

"The U.S. Supreme Court decreed that the three-tier system of beverage
alcohol distribution as written in the 21st Amendment of the
Constitution does not interfere with the Commerce Clause, Article One
of the Constitution. We exist to perform a function of control and tax
collection for the commonwealth."

If you look closely at the Constitution and particularly the 21st Amendment, I don’t think you’ll find any reference to the "Three Tier System of Distribution". For those of you who are unaware of this system, it is the structure that underlies most alcohol distribution across the country: Producers sell to distributors who sell to retailers who sell to you. Most states have mandated this system of alcohol distribution. However, in some states local wineries have been granted an exception that allows them to bypass the distributor/wholesale tier and sell directly to retailers and restaurants. This exception usually means the winery can make more profit selling their wine and retailers can purchase it at a lower price than they would if they procured the wine through a wholesaler.

What’s striking is how this group of wholesalers in Virginia, where they are trying to revoke the wineries’ "self distribution privilege, could come to believe that the U.S. Constitution speaks to the three tier system. This is a perfect example of how monopoly leads to corruption and corruption leads to ass-backward thinking.

If anyone needed a reason to not trust wholesalers when it comes to advocating policy, all they have to do is read further down in this article:

"Lawmakers know that if the wholesale tier is eliminated, so is
the three-tier system mandated by the 21st Amendment. Also gone would
be the state’s ability to collect approximately $25 million in excise

In this short sentence the wholesalers’ representatives lie three times. That’s impressive.

1) No one in Virginia was advocating the elimination the three tier system, only that it not be mandated by the state. 2) The Three Tier System is not "mandated by the 21st Amendment. 3) And the state could, and has, easily and efficiently collected taxes on sales made directly from the winery to the retailer.

Perhaps I shouldn’t be so quick to label the above lies. The fact is I think these and other members of the wine wholesale trade actually BELIEVE the U.S. Constitution mandates the use of the three tier system. When you operate inside a system that prohibits competition, as the three tier system does for the wholesalers, you begin to think differently from the rest of us who live and work within a competitive environment. Clearly the wholesaler brain works differently from a normal person’s brain.



Posted In: Wine Business


3 Responses

  1. Mark - February 10, 2006

    Most people attribute any lower prices of goods at an airport duty free shop to the “duty free” aspect of the shop. They’re not. The duty on goods now days is pretty minimal and the airport’s high rent more that eats that up. It’s the fact the duty free stores are usually allowed to buy from the European manufacturer directly, by passing the U.S. distributor. That’s where the savings (if any) is.

  2. Outdoorgrrl - February 10, 2006

    This is a hot issue in Washington right now, as our state senate just passed a measure allowing out-of-state wineries (and breweries) to sell directly to retailers. Previously only in-state wineries could do this.
    The Liquor Control Board and the Washington Beer & Wine Wholesalers Association, a trade group for distributors, are naturally up in arms about this. Their argument? “Markups help reduce alcohol consumption.”
    If the House approves the bill next we’ll finally have a little parity. Of course, whether there actually will be savings to wine and beer drinkers is something that is hard to tell.

  3. Zinman - February 11, 2006

    Basically Distributors lost the Washington showdown. If the law is passed as is stands by the house, domestic wine producers can sell directly to licensed accounts in Washington, regardless of size.
    The 10% markup law makes no difference to Distributors becuase they can’t sruvive on that anyway. They argue for it to keep the idea of a mandated mark up alive, hoping that in the future they can get a law that mandates a 25% or 33% markup.
    If a producer uses the services of a Distributor to sell product, 21 to 24% margin (different than markup) is the actual amount that will be required.
    This is a small victory for local wineries but an important one. In the larger scheme of things not much will change because of this law, but that was exactly what the small wineries wanted.
    The changes that will be significant are ones the judge has not ruled on; Price posting, quantitiy discount and credit.
    Stay tuned, and pass the popcorn, the fun is just beginning.

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