Institutionalized Power in the Wine Industry

Posted by Tom Wark on Apr 18, 2007

How could it be that nearly every alcohol-related law and regulation across America favors the interests of a small number of middlemen called "Wholesalers" or "Distributors?

Consider for example the various laws across the country that attempt to restrict consumers from purchasing and have shipped to them wine except from smaller wineries that produce only small amount of wine and in effect forcing medium and large wineries to sell to a middleman in order to get their wines to market in those states. Clearly this does not benefit the consumer as it severely limits their choice. It doesn’t help the state because it restricts trade and lowers potential tax revenues. However, it does help the middleman wholesaler preserve their already obscenely huge profits by forcing the largest wineries to only sell wine to the middlemen who then take a 33% mark up.

This sort of law and many others like it are very simply a state-sanctioned gift to middlemen.

How could such lopsided policy ever come into being? How could such blatantly protectionist laws ever be passes?

Answer: Money…and lots of it.

Today at the Mark Fisher’s "Uncorked" Blog out of Dayton Ohio there is a post commenting on a Common Cause Report (PDF) that details the influence that Ohio’s wine distributors wield based on enormous amounts of political payoffs Campaign Contributions.

According to the recently issued Common Cause report on Ohio wholesalers’ "giving":

"From 2003 to 2006 the Association’s political action committee and its executives have contributed over $861,870 to state candidates and party committees. In 2006 they reported having 13 lobbyists working on their behalf."

Now you might say, "everyone else does this, why shouldn’t Ohio’s wholesalers get in the game?" There is no game. According to FollowtheMoney.org wholesaler donations to Ohio state candidates represented 91% of all alcohol-related contributions. 91%!!

Over at Uncorked, Mark takes the high road, no doubt inspired by his status as a real journalist. I’m not a journalist.

The reason the wholesalers in Ohio and nearly every other state are able to have law after law passed that protect them from competition is because the three tier system used to structure most state’s alcohol regulatory systems has become perverted into a tool for increasing the power and wealth of a single, small class of business: wholesalers.

It’s no wonder that beyond everything else the number one goal of wholesalers in every state is to preserve the integrity of the 3-tier system in which producers are REQUIRED to sell to wholesalers who then sell at huge mark ups to retailers and restaurants who then sell to consumers.

This 70 year old state-mandated requirement that wine producers MUST sell to a wholesaler might not be so perverting of the public good if there were any measure of competition among wholesalers. However, the number of wholesalers has shrunk dramatically over the past 20 years to the point that in nearly every state no more than 4, and sometimes only 2, wholesale companies control the entire market.

This in turn has made the wholesalers wealthy even beyond the dreams of their predecessors, the bootlegging mafia of the prohibitionist era.  This is also how the wholesalers in Ohio are able to give nearly $1 Million in campaign donations without blinking an eye to politicians who write their laws for them.

This is also how the wholesalers in Ohio can look the public straight in the eye and argue that while increased alcohol taxes are not good for Ohio, it is good for the state to keep in place a "minimum markup" of 33% on wine sold by wholesalers to retailers. They have no fear of being opposed in their hypocrisy simply because their is no one with the means to oppose them.