Interests and Action in the American Wine Industry
In the wake of watching the Michigan Beer and Wine Wholesalers Association casually make use of their purchase of the Michigan legislature and their ownership of Nida Samona (is it legal to own another human being?), I began to ponder the political relationship between American alcohol wholesalers and the rest of the wine industry: How can it be that a key sector of the American wine industry always finds itself in a position of supporting laws and legislation that hurt the rest of the American wine industry and the American wine consumer?
WINERIES are never satisfied by the positions that wholesalers take where the politics and regulation of alcohol is concerned.
RETAILERS are never satisfied by the positions that wholesalers take where politics and regulation of alcohol is concerned.
IMPORTERS are never satisfied by the positions that wholesalers take where politics and regulation of alcohol is concerned.
CONSUMERS are never satisfied by the positions that wholesalers take where politics and regulation of alcohol is concerned.
There is an explanation for this bizarre set of circumstances:
THE AMERICAN ALCOHOL WHOLESALERS BENEFIT MOST AND THEIR INTERESTS ARE BEST SERVED WHEN THE MOST IMPORTANT INTERESTS OF WINERIES, RETAILERS, IMPORTERS AND CONSUMERS—ACCESS TO THE AMERICAN WINE MARKETPLACE—IS STYMIED.
Let me put it another way.
AMERICAN ALCOHOL WHOLESALERS BENEFIT MOST WHEN THE REST OF THE WINE INDUSTRY AND WINE CONSUMERS ARE HURT.
The reason for this is not necessarily an evil that overcomes individuals who obtain great power inside the wholesale hierarchy. It's a structural issue related to the ubiquity of the Three Tier System.
The three-tier system in place in most states demands by law that nearly all wine flow from producers and suppliers through a middle man before ending up on wine lists and store shelves. The system is a relic born of a time when only primitive transportation logistics existed in the United States and when the number of brands of wine could probably be counted on the hands and feet of a basketball team.
Back in 1933, the idea was to assure that the problems that proceeded national Prohibition—vertical integration, abusive marketing practices and the abuse of the product that flowed from these conditions—not be repeated after Repeal. The state-mandated three tier system was a creature born of the recent memory of those who built the system and born of the technology that existed at the time of its creation.
Today, the logistics of 1933 are exactly what you think they would be: 75 years old. The kind of industry abuse that brought on National Prohibition in 1933 and which informed the creators of the three-tier system simply could not take place in our age of easy regulation. And yet, both the old logistics and old problems remain the primary excuse for a system of alcohol regulation that must support an industry that has grown into something that none of the founders of three tier system could have even imagined.
But here's the interesting thing. Among the constituents of the three tier system—suppliers/producers, wholesalers, the States, retailers/restaurants and consumers—only the middle tier (the wholesalers) benefits from pretending nothing has changed since 1933.
The explosion in the number of wine brands in the American marketplace, the emergence of the American people as a wine drinking people and the remarkable, paradigm-changing evolution in the world of information delivery and hard-good logistics demands a fundamental change in the American wine industry that everyone in the industry, along with consumers, would support—except for the wholesalers since they are the only element of the three tier system that benefits from keeping the archaic mandatory three tier system in place.
As the number of brands in the American market place grow and as more and more Americans develop an interest in the diversity of products in the marketplace, both suppliers and consumers benefit by easier access to one another. With easy though regulated access to wine, consumers are satisfied. With easier access to consumers, suppliers, retailers and restaurateurs see their interests satisfied. However, easier access to brands and consumers spells financial ruin for wholesalers who seen their ranks strategically consolidated through mergers and acquisitions that have all been based on a business model that assumes little or no reform to a regulatory system that was built when FDR was was in his first term.
So with the interests of consumers, wineries, importers, restaurants and retailers arrayed against the interests of a smaller and smaller group of alcohol wholesalers, how is it that wholesalers nearly always get not just what they want, but what the rest of the wine industry and wine consumers do not want?
While it's true that the privileged place the wholesalers have been given within the three tier system serves to their advantage, this is not the answer. And while it's true that this special place in the three tier system results in unearned though extraordinary profits, this is not the answer. And while the wholesalers have been able to purchase the will of the legislatures across numerous states, this is not the answer either.
The reason importers, wineries, retailers, restaurants and consumers are regularly kicked around and defeated politically is due to their reluctance to work together for their own interests.
Direct shipment of wine and winery self distribution (selling across state lines directly to restaurants and retailers and not through wholesaler) satisfies the interests of every sector of the industry, including consumers. Both of these logistical and selling mechanism, as well as other cracks in the three tier system, produce a more fluid marketplace. They give consumers access to what they want. They give suppliers and sellers better access to markets and goods. They expand the American marketplace for wine. They deliver more tax revenue to states.
So why haven't importers, wineries, retailers, restaurants and consumers created an alliance to work together to reform what is unquestionably one of the most market suppressing system in the American economy?
The answer, I think, is that the rapid expansion of the American wine marketplace over the past 25 years has been generous enough to dull the political sensibilities of those who have benefited most from the expansion. There has been just enough lucre produced and distributed from this expansion of the American marketplace to make the participants in that expansion believe they will continue to benefit and succeed even if they know that the three tier system needs reform.
What's interesting to note, and what American wholesalers surely know, is that were there a commitment among the rest of the American wine industry to invest in a move to reform the three-tier system, that change would easily come; wholesalers would have little defense against a united first and third tier allied with consumers; that the pool of lucre available to the suppliers, retailers, importers and restaurants would increase at a rapid pace with easier access to markets; that consumers would realize the true nature of the diversity of the American wine market.
In Michigan last week, the legislature passed a law that hurt consumers, retailers, wineries, importers and state tax coffers. They restricted the flow of goods through cynical legislation based on lies, ignorance and money. They did the bidding of the state's wholesalers who used their control of the Michigan Liquor Control Commission. A few retailers spoke up against the bill. A consumer group spoke up against it. The state's wineries chose to sit on the sidelines.
Wineries and retailers in other states chose to make nary a peep when they saw their interests being slapped around.
Until wineries, importers, retailers, restaurants and consumers understand perfectly that there is no instance in which their interests align with those of the wholesalers and until wineries, importers, retailers, restaurants and consumers realize that wholesalers are precluded by their remote but privileged place in the three tier system from helping anyone but themselves, there will be no combating the stranglehold American wholesalers have on the American wine marketplace.