The Story of Chateau Bob
Chateau Bob was created 3 years ago in Vineville when Bob planted his first grape vines. That’s right, it takes a good three years before you get a usable crop from a new vineyard. Yet, Bob has finally produced his first batch of wine: 200 cases of 2004 Chateau Bob “Real Red Wine”.
Down the street from Bob is his old friend Pete who owns Pete’s Restaurant. Pete’s been waiting three years for his old friend to make that wine so he could sell it to his customers while they chow down on his chicken kiev, deep fried catfish and cheeseburgers.
But Bob recently discovered he can’t sell any of his 2004 Real Red Wine to Pete. If he did he might go to jail. You see, by law Bob must sell his wine to a “distributor” who has warehouses 50 miles away.
The state says that only the distributor can sell wine to Pete. In fact, Bob can’t sell his new wine to Pete or anyone else. He can only sell it to a distributor. Bob has to ship or deliver his wine fifty miles away. Then the distributor must take it out of Bob’s truck, put it on the loading dock for 24 hours, then load it on one of their trucks and take it back to Pete’s Restaurant. By law.
Now, before they heard about this “distributor” thing Pete agreed to pay Bob $200 per case for his 2004 Real Red Wine. But, now they learn that the wholesaler has to get their cut for….well…for delivering that wine. The distributor tells Bob that in order for them to sell the wine to Pete for $200 a case, they need to buy it from Bob for $134 per case.
“But,” Bob tells the distributor, “Pete already agreed to buy the wine from me for $200 per case. And I already talked to a whole bunch of other restaurants and wine shops that will pay me $200 a case.”
“Sorry Bob,” says the wholesaler.” That’s the cost of doing business.”
Then it hits Bob.
If he doesn’t do what this wholesaler says, or what another wholesaler who MIGHT agree to sell his wine says he needs to do, then Bob can’t sell ANY of his wine. By law.
Bob’s starting to get pissed!
So, like any good American who’s getting screwed, he puts on his Sunday clothes and heads out to the State Capital.
“Gonna talk to my representative,” grumbles Bob.
“I’m sorry Mr. Bob. The three tiers system of distribution that mandates you can’t sell your wine to Pete is the only thing standing between us and alcohol anarchy,” explains Willy O’Weener, seven time-elected representative and former car salesman from Vineville.
“Why just imagine if you didn’t have to sell your wine for less and ship it 50 miles away from your customers. Who would pay the taxes on the wine? Who would make sure the wine isn’t tainted? Who would fill out all the paper work? Why it would be anarchy I tell you. Alcohol anarchy.”
Bob looked at Representative O’Weener and said, “Well, I’d be willing to pay those taxes and fill out those forms and I’m sure old Pete would too and I’m darn sure Pete wouldn’t want my wine if it were tainted.”
“You don’t understand, Bob….that’s just the way it is. Now you run on back to VineVille and sell that great homemade Real Red Wine to Ernie over at the Distributor and things will be just fine.”
“I can’t do that,” Bob tells Rep. O’Weener. “Before I came here to see you Ernie called and said he won’t distribute my wine and none of the other 2 distributors in the state will either. They say they don’t have time to sell just 200 cases of wine.”
“Well, I’m sure it will work out. The three tiers system works just great. So long, Bob.”
Between 2000 and 2006 alcohol wholesalers in America contributed over $40 million to state candidates.
The three tier system is in place in nearly every state in America.
This system was created over 70 years ago and has changed little in that time.
Howard Wolf, a respected businessman in Texas and one who has been a keen observer of the three tier system in America wrote recently:
"When laws become disconnected from the reality of social behavior and commercial activity, the inevitable, even if unintended, result is the use of public authority to advance private, rather than public, goals. The essential definition of corruption in a representative democracy is the usurpation of public authority to the advancement of private interest."
This is absolutely one of your best posts on the subject of the corruption of the unfair and unwieldy state-mandated three-tier system. If people read this excellent bit of satire and DONT GET IT, then the struggle is hopeless. Keep their feet to the fire, my friend!
We have a small shop in Mount Vernon, WA. Recently Coscto (after a nine year court battle) forced a ruling from the State Supreme Court that the Three Tiered System was unconstitutional. The state has now retaliated by creating a system of paper work so insane that it has put pressure on small state wineries to find a distributor or risk being left out of the market. One winemaker told me he was told by two of his retailers that if he didn’t go through a distributor, they would no longer buy from him. Distribution takes up to 40% of a cut for that privilege. Each time I legally by from a winery direct, I have to now fill out a ridiculous form stating what I bought, how much, all pertinent label information, and whatever other high maintenance bullshit. I have to do that separately for each winery I buy from. We have 485 and counting in Washington. If I never buy from that winery again, I still have to still file the paperwork separately each month and send it in. Yesterday, a district manager from Noble (yeah right) Wines basically threatened us saying if we didn’t start stacking our shelves with their crap wines, we will never get access to the good stuff. If I wanted to live in a Communistic fascist state, I think I would move there. But it is here, now.
Excellent post. The framing of the issue within the story really brings the corruption home. I just have one question, how is this still going on?
I think the 3-tier system is still mandated by most states because for the vast majority of th time between 1933 and now the prohibitions inherent in the system really had little impact. There was very little direct to consumer sales. That’s changed and with it there have been some cracks in the solid walls that stand between producers and retailers on the one hand and consumers on the other.
But you can clearly see why the wholesalers would use their largess to keep this system in place regardless of the demands by consumers for better access to both wineries and retailers.
Excellent post Tom. Through the use of a poignant anecdote, you cut to the heart of the matter. Small producers are basically held hostage by a ridiculously outdated and inefficient (not to mention anti-competitive) process.
And whereas I don’t think you’re shilling for bootleggers, I still hold to my opinion that you are the direct-sales pit bull. And I’m glad you’re as well informed as you are, since I like the idea of buying wine without the restrictions and markup that distribution brings to the table.
As for Mount Vernon, WA: I cry for your situation. Sadly, the Puritanical origins of this country have such profoundly deep roots in “vices” such as alcohol, it can make your head hurt. But all it takes is a good law firm willing to work Pro Bono to fight this idiocy.
OK, enough waxing prosaic. Tom’s blog posts always get my dander up about distributors…
I like being a contrarian but I can’t think of a good reason to be one as far as this post and this topic is concerned. As clear as it could be and very dander-raising indeed.
Here’s another dirty little secret associated with this conundrum…
Wanda the Wine Writer from Wisconsin comes out to California. She’s wined and dined by Bob at Chateau Bob. She l-o-v-e-s his wine, and wants to go back home to write about it, so she does.
1) She went and got her readers all jazzed. So, they all went out to their favorite wine shops, but they couldn’t find Bob “Real Red Wine” on any shelves – anywhere. Now her readers are really ticked off at Wanda (not the wholesalers) for getting them going, but not being able to find their way to the wine. (Hum!)
2) They also can’t order it on the Internet. They’re in one of those non-reciprocal states. It’s a felony. (A f-e-l-o-n-y… So’s murder… You gutta love the felony range.)
What’s really going on? Two more things:
1) If Wanda writes about a wine other than what’s in the state’s distributor warehouses, that’s going to take away from the distributor’s own sales. Can’t have that, san we, or we’ll break the monopolistic hold…
2) It’s also a way of controlling the wholesalers’ message that goes out to their neighbors; i.e., the only wine worth buying is our, because quite honestly, it’s the only wine you’re gonna to find… So, simma down now!
The message to Wanda? The only wine worth writing about is ours, so get off your high-horse, Girly, stay home, and stay on message!
Oops.. Wisconsin’s a progressive state… Let’s pick on one that’s not… How’s Alabama, Arkansas, Delaware, Indiana, Kentucky (FELONY), Maine, Maryland, Massachusetts, Mississippi, Montana, New Jersey, Oklahoma, PA, SD, TN (FELONY), UT (FELONY)
Almost libertarian ideals me thinks Tom.
Free markets rule!
A very good post/story. I think what would be of most interest here would be to get some one from the other side. Meaning, we all read Tom’s blog, we all agree (at least I think we do) with his ideas to expand the trade and make it more accessible to others both on the consumer and winery side, but what about the distributors, aside from the monopoly they carry, why do they believe this is the best way for everyone to enjoy and share wine…? I know we will all keep fighting the good fight and this system will eventually break, so go us!