Institutionalized Power in the Wine Industry

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 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.

7 Responses

  1. Randy - April 18, 2007

    Tom, I get so frustrated reading these posts. There has to be a way forward that doesn’t involve pitchforks.
    In reading the post over at Uncorked, it seems a grand jury has been empaneled (albeit not in Ohio, but in North Carolina) to look into what seems to be growing into a nationwide scandal. I mean, I read about this and I see the word *cartel* start to float into my consciousness.
    Do the combined powers of distributors in every state add up to a cartel? I leave this as an exercise for our favorite “direct sales” bulldog! Go get em, tiger!

  2. DS - April 18, 2007

    Oh, it gets even better in Virginia. A winery must designate a specific wholesaler to sell their wine. A winery may designate more than one wholesaler, but no more than one in a sales area. Sounds like state sanctioned monopoly to me.

  3. Tina - April 19, 2007

    Has anyone tried virtual wine tasting with I did it Saturday night. I ordered my case of six bottles of wine that were to be tasted, they were delivered to my door. Then, on Saturday evening I invited friends over and logged on to with my passcode that was included with my wine. We had our very own wine tasting party at my house by viewing the web broadcast live and interacting with the expert panel and other viewers through the chat room. It was so much fun. It took all the intimidation out of formal wine tastings because we were in a relaxed atmosphere. There was a great selection of wines, which we all had different oppinions on. It was very entertaining and educational at the same time.

  4. Bob Frapples - April 19, 2007

    Here’s another example of why the three tier system is increasingly bad for consumers. I have worked in the industry for years and took on a new position a while back that I was very excited about, representing an import line of wines that had incredibly great sales in the International market, but had yet to penetrate the US. The wines receive great press, each label has armfuls of ribbons and gold medals and yet…I can barely get anyone to even return my phone calls regarding representing them in America. No one doubts the pedigree of the wines or their cost/value ratio, but it seems that there are no medium sized wholesalers left in America. They are either super premium oriented and small, or large behemoths, who make it quite clear to me that they would like to represent my wines, but it would cause conflict with (insert your huge production winery name here) and that they can’t risk offending their partners. If you don’t believe me, ask anyone who has tried recently to get someone’s attention in a state like Florida, where the big guys, Southern, National, and Premier, especially, loom so large that there is no place for anyone to go trying to get a fair sized volume brand going in the state. No one to talk to, nowhere to go. Nothing new for consumers to look at, taste, or explore, unless it’s somethng inane from a big drinks company, like Three Blind Moose (really now!). OK, I feel better. Thanks.

  5. Cru Master - April 20, 2007
    they have overcome the distributor/middleman scenario.
    just requires wineries and their marketers to think out of the box.

  6. John Lopresti - May 9, 2007

    I suppose the following article I found is about equal to Steve Jobs’ recruiting John Scully with the challenge, ‘Do you want to make sugar water all your life?’, because instead of the journalist’s writing about wine distributors the topic of the news item is distributor competition in beverages that are nonFermentation products; but there seemed to be some parallels with the wine industry, as top heavy bottlers muscle their way through the legal systems to obtain shelf advantage. There is lots about the comparison that would be too much of a stretch, but the legal critique reminded me a lot of some negotiations in which I was involved once slightly in OH with wine tracking software the state was purchasing, and some work with distributors I researched in AZ. You are right some of those states’ statutes still sound like they were written a year after speak easies were the order of the day. In fact, some of the drafts of the OH contracts had a typeface font and spacing on the pages of hardcopy we faxed among the parties that looked a lot like some old Royal typewriter was what they used to produce the final version of the law for safekeeping in the statehouse. Hopefully we are in the process of modernizing this niche of the trade, with all the tools of the internet and secure intranets. It will help to have diplomatic skills to wade thru this time, though.
    The article from TX last week:

  7. Smithd298 - March 26, 2014

    Very nice! eccdkcfegd

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