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.

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:


Let me put it another way.


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.


32 Responses

  1. Dylan - December 22, 2008

    There’s a major awareness issue involved with this matter. I wasn’t aware of this problem until I started following your blog a few months back, and while it would be an admirable goal to have your blog be the HQ for this movement, more touch-points are definitely required. If there was a grassroots campaign directed at millennial consumers, I think there would be a huge turn. If the consumers aren’t happy; producer, retailer, and importer are going to be agitated to take unified action until they are happy.

  2. Insider - December 22, 2008

    Tom –
    Here is what you say that I disagree with 1000%….
    “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.”
    … and here is why I disagree, and it’s painfully simple:
    Everything is based on inventory control.
    A restaurant often buys one case at a time (or in the case of some the most loved, tiny, chef-driven restaurants in the country, two or three bottles at a time). When a restaurant in Chicago needs another case of wine, what do you expect them to do? Call XYZ Winery and order a case? And how long would that take to ship? What if it’s a Thursday and they need it for the weekend? And what if it’s out of stock or the vintage changes? Or what if the restaurant staff needs a quick training on talking about Mendocino County Viognier, and the rep at the wholesaler happens to be a CWE and will enthusiastically rev up the staff?
    The services the wholesaler provides is FAR more than just passing the goods through and making money. Most notably, the wholesaler buy tens of thousands of dollars of inventory and patiently waits for their local stores and restaurants to order it. Inventory costs money, and by having one more step in the system, the cherished restaurants and retailers CAN EXIST.
    Here’s another spin for you — because of cash flow needs (more important than ever today) many of your favorite tiny wineries would fail to exist without their high quality distributors stepping up to buy chunks of their production rather than a case here and a case there. Could you possibly imagine being a winery owner, making a great wine that happens to get a bit slammed in the press (Montelena comes to mind) and you relied on DIRECT SHIPPING ONE CASE AT A TIME to Joe’s Fine Foods somewhere in BF Egypt for survival? Add to that the calendar year, and you have another harvest coming in and workers to pay. A wholesaler can step up and buy 112 cases+ (that would be two pallets) in a blink and send out their staff to sell it with passion.
    That’s the great irony in what you are preaching … If it wasn’t for the three tier system the process of distribution would be so tilted toward the big guys that you might only end up with Gallo and Yellowtail everywhere!

  3. Tom Wark - December 22, 2008

    You said:
    “Could you possibly imagine being a winery owner, making a great wine that happens to get a bit slammed in the press (Montelena comes to mind) and you relied on DIRECT SHIPPING ONE CASE AT A TIME to Joe’s Fine Foods somewhere in BF Egypt for survival?”
    Hard to see where this scenario comes up short and I understand and agree with many of your points.
    However, let me tell you what I can imagine. I imagine a winery owner HAVING THE OPTION to sell wine direct to consumers OR direct to restaurants. Whether or not that Winery Owner X benefits from having the OPTION or takes advantage of it is neither here nor there. However, HAVING THE OPTION to sell direct sure does open up a lot of intriguing marketing possibilities that are barely explored because of the archaic state mandated three tier system that remains in place primarily because some people don’t think they can live without it and other people just don’t think, period.

  4. Joel Goldberg - December 23, 2008

    Tom is absolutely correct. Insider’s assumption is the same as the wholesalers spewings (Is s/he one?): that laws granting easier access automatically spell the death-knell of the middle-tier.
    And yet, ironically, Insider’s own comment offers up a host of reasons why that won’t happen: education, inventory control, cash flow, availability, etc. etc. etc.
    As a consumer with a pretty sizable cellar, who probably purchases a lot more wine than the average Joe, I’ll assure you that any wine that’s both available and even close to fairly priced locally, I’m going to buy here in Michigan.
    But loosened laws provide me with a safety valve under several circumstances: wines (whether small-batch imports or US winery limited releases) that never come close to hitting the local retail shelves, older / rarer wines that aren’t available through retail channels, and those few circumstances where local pricing on a specific wine is totally out of whack — usually something in very limited release with high demand.
    None of these circumstances is going to put any wholesaler out of business — in fact, most of them represent a nuisance at best to the wholesaler market.
    No, what motivates the middle tier to keep up its defense of 1933 laws is much baser: greed and fear. Greed, that they’re unwilling to give up the smallest slice of their monopoly, even though it damages every other segment in the market. Fear, as expressed in Insider’s comment, that the smallest crack in the dike will spell the destruction of the entire wholesaler tier.
    Both are wrong, but — at least here in Michigan — we won’t have the opportunity to demonstrate it.

  5. 1WineDude - December 23, 2008

    Insider – look at it this way:
    Are we (not just the wine industry and consumers, but all those with a stake in the American economy as well) better off if –
    a) Every industry competes fairly in the free market system
    b) A false market is created and maintained by archaic laws in order to protect the profits of a few monopolies?
    I for one don’t think the two can reasonably co-exist.

  6. Insider - December 23, 2008

    Great points from all, and thank you. I’m starting to see where everybody is coming from.

  7. Epicuria - December 23, 2008

    One has only to look at California to see what an open market in wine sales can become. Distributors are not replaced; they thrive because they serve a very real function. But the mom and pops can load up their SUVs and bring the wines to their retail accounts if they wish. Mr. Wark has always promoted freedom of choice; the wholesalers want to impose the three tier system.

  8. SantaClos - December 23, 2008

    Anyone ever figure in the fact that retailers and restauranteurs charge more for their wine and spirits than distributors do? To honestly think that small producers (and even large producers) could manage their inventories and delivery with ease to a store or restaurant is nuts. And if a vintage gets panned by the press (or a winery thrown under the bus) what will happen then? Are there bad distributors? Sure- but there are just as many bad retail stores and restaurants. Would options be nice? Sure. But if direct shipping were allowed then how many fine wine retail stores would stay in business? And with restaurants allowing people to bring wine into their doors- how long will great wine programs last?

  9. NicoRiesling - December 23, 2008

    I think you cannot replace distributors and they perform a real service. They perform this service all over the world.
    That being said, I should have the choice of whether or not I want to use the service. We are not in a communist system…
    Also, I would really enjoy if wholesalers stop using the argument that they are in here to protect public safety and underage drinking… This is hypocrisies and really does not help the debate…

  10. Joe Dressner - December 23, 2008

    I’m a wine importer, with a distributor’s license who is totally imposed to any government regulatory power over wine. I’m also against government regulatory power over drugs, people’s sexual lifes and in general am against the government getting involved in what ought to be private matters.
    To portray any of the players as being evil is just juvenile nonsense. Mr. Wark makes a living as a PR flak fighting the three tier system as if Souther Wines has WMD hidden in one of their warehouses.
    Of course, everything is a bit more complicated. Someone needs to hold inventory and deliver goods. Someone needs to sample potential clients and get wine out there. My firm sells wine in 30+ states and I assure it would not be possible to find our wines in all sorts of odd spots if there were not distributor salespeople going out there and making placements.
    Yes, three tiers makes sense in various forms of economic activity. It is a big nation and the economic model of the producer selling direct to the consumer, let along a retail outlet, is rare.
    The abuses of the wine three-tier system are obvious. But painting it as the evil empire is just plain silliness and posturing.
    Mr. Wark is getting very tiresome. Draw the distinctions between what is abusive and should not be legislated but lets not make it seem that distribution itself is pure evil.
    I’ve recently been diagnosed as having brain cancer. Several of my distributor colleagues blame Tom Wark for my being stricken with this disease. Frankly, I also find this sort of demonization nonsensical.
    Grow up, please. All of you.
    Joe Dressner

  11. Wineboy! - December 23, 2008

    Hey Joe congratulations you are a libertarian and didn’t know it. I agree that the free market is the only way to determine the proper way to distribute a farm winery product to market and anything else is well.. fascism! I hope you can recover from your cancer and I wish you a very Merry Christmas!
    As a winemaker in New Mexico we have reems and piles of paperwork to fill out and as of yet (having tried twice) failed to find a sufficient and/or honest wholesale distributor in our own state. So now we rely on trusty family members to deliver the juice directly to the retail outlets.
    Did I say Merry Christmas?

  12. Tom Wark - December 23, 2008

    You wrote…
    ” But if direct shipping were allowed then how many fine wine retail stores would stay in business? And with restaurants allowing people to bring wine into their doors- how long will great wine programs last?”
    I don’t know…But I think we should find out.

  13. Joe Dressner - December 23, 2008

    Dear Wineboy:
    Do you also think Wark is responsible for my cancer? I’m surprised at how common this theory is on the internet! Just do a Google search on Wark Dressner and Cancer and you’ll be shocked!
    What is the name of your winery? Can’t wineries in New Mexico get a distributor’s license? They usually can in most states and can self-distribute.
    Yes, I’m a Marxist-Leninist-Libertarian. Or Libertine. I forget. Yes, it is ridiculous that at the end of prohibition each state was given taxing and administrative controls over liquor distribution.
    Of course, what is truly absurd is the “federal” character of the American union. George Bush can lose the popular vote but still be elected president, etc.
    All this dates back to our founding father and the need to maintain slavery by instituting states rights as a way to protect the slave states.
    Don’t imagine it is much better elsewhere. France doesn’t have a three tier system. So, four supermarket chains control 80% of the domestic wine market. There are no distributors, no salespeople with samples, no stock in Paris or other major cities, and it is next to impossible to find a Bordeaux in Burgundy or a Burgundy in Bordeaux.
    My notion, quaint as it is, is that something in between the French system and the American system would make lots of sense. The imbeciles who run the large wholesaler operations by spreading crocodile tears about the underage consumers who will get into fatal accidents if Southern doesn’t distribute booze.
    But guys like Wark are every bit as incendiary and irresponsible when they make it seem that distribution itself is a crime against humanity.
    Some notion of scale and some sane logic might be helpful to both sides.

  14. Joe Dressner - December 23, 2008

    Does Wark actually think that consumers have a right to bring their own bottles of wine into a restaurant?
    Is that really your argument!

  15. Morton Leslie - December 23, 2008

    “Until wineries, importers, retailers, restaurants and consumers understand perfectly that there is no instance in which their interests align with those of the wholesalers”… My God, rarely does one read such a blanket and foolish statement. Distributors are a vital link in getting the wine from the winery to the customer and the revenue to flow back to the winery. You have to have your eyes shut or never marketed wine to believe the industry can do without wholesalers.
    The problem isn’t that there are wholesalers. The problem is there are too few of them and too little competition amongst them. Consolidation and state laws interfere with what could be a perfectly compatible and aligned three tiered alliance. There is an incentive in all business to seek a less competitive environment. Wine wholesaling is no exception, just an example of a successful one.

  16. Tom Wark - December 23, 2008

    Morton wrote:
    “The problem isn’t that there are wholesalers. The problem is there are too few of them and too little competition amongst them. Consolidation and state laws interfere with what could be a perfectly compatible and aligned three tiered alliance. There is an incentive in all business to seek a less competitive environment. Wine wholesaling is no exception, just an example of a successful one.”
    The fact of consolidation is a problem. But the primary problem is that the majority of states have created a Distributor Welfare Program called the three tier system.
    I have no problem with the idea of wholesaling. It’s a critical element of distributing alcohol as well as many other products. We need to have trained truck drivers and people who can count boxes.
    But in most states it’s the LAW that wine MUST go through the wholesalers hands. However, the wholesaler tier is not required to carry any brands at all. That means that, by law, suppliers are at the mercy of the wholesaler. It also means that wholesalers are guaranteed profits, whether they earn them or not. This in turn means they are able to accumulate vast sums of money that allow them to force consolidation.
    Did you read what Chaplains plan is: “two wholesalers in every market.
    Of course with all this government-granted, unearned revenue, the wholesalers are able to buy entire legislatures, which in turn allows them to see laws passed that not only prohibit consumers from accessing the wines they want, but also diminish the vitality of the American wine market place. No one benefits when consumers are prevented from purchasing the wines they want…except the state-protected wholesalers.

  17. JohnLopresti - December 23, 2008

    There are some additional concerns with respect to the inflexibilty of the distribution system in some obsolete situations. Consider the northcoast wine enthusiast who wonders what the wines are like at the burgeoning family wineries in, say, Virginia, or even NY State, or OH. Instead of acres of Fresno jugwine in the grocery store in coastal CA, it would be nice to sample some spice from back east, and the midwest, even the southwest. I always wonder whether the posh conference attendees at resorts in AZ actually find good local wines there; we never see those labels around coastal CA. I think the local supermarket is under pressure from the distributor to deck the halls with jugwines.
    Another more futuristic consideration would be if we are encouraged to consume locally produced food and beverage to save on carbon footprint, folks in far flung parts of the country will begin envying the locals on the northcoast who have access to some of the world’s top flight quality wines.
    I am glad Tom is addressing the distribution knot. Altering its shape could redistribute incomes, but business people can adjust. It seems some reciprocity should fit into the loosening of the old way of doing things. In economically difficult times, prolific regions like the Northcoast could benefit from hastening that sort of relaxation.
    I see the officials in WA DC are enjoying west coast’s premium wines; Bush even brought a substantial number of his administration to a resort in Napa a year or so ago. I think the regulators will become more favorable to helping supply the east with some of the west’s premium wines, and those politicians of both parties need support and encouragement to hasten the dawn of that more flexible day.

  18. Thomas Pellechia - December 24, 2008

    Whenever a system is unfair, follow the money.
    Alcohol excise taxes are rising as we speak, to help pay for state revenue shortfalls.
    Maintaining a tight system ensures that the distribution network is kept under watchful tax-keeper eyes. Legislators couldn’t give one turd for the consumer’s interest, and of course, that attitude is passed along to wholesalers.
    As others have said, wholesale distribution isn’t the problem–the system under which it operates is the problem. Since it is strictly a political and constitutional animal, the system needs changing from the top down, and that would take either a state-to-state revolution or a constitutional amendment; neither seem plausible in this hypocritical culture of ours.

  19. tish - December 24, 2008

    Tom, your grasp of the overall issues and consistent efforts to keep them alive in the wine-trade community are remarkable.
    I think there are two conceptual roadblocks to progress, however:
    1) the issue is so deathly complicated (an much more so since the Granholm decision a few years back) that the average person has a hard time understanding, let alone caring.
    2) Look around: this is the Golden Age of wine; never before have so many wines been so readily available all across the U.S. In other words: problem, what problem?
    I don’t think this situation can change one bit until and unless a high-profile individual, winery or institution makes it a public, consumer-germain issue, rather than a cofusing trade issue.
    Not sure how/when that can happen, but without a true shift in the debate, I see the whole three-tier system getting more entrenched.

  20. AC - December 24, 2008

    Deregulation in other industries (automotive, banking) have contributed to the current mess we’re in.
    Pellecchia nails it though: it’s a constitutional issue.
    In this moment, changing this industry wont be a high priority.

  21. Tom Wark - December 24, 2008

    Actually, the question of the Three Tier System and the Distributor Welfare Program it creates is much more a policy question than a constitutional question. The Constitution, federal laws and court decisions all are very straightforward. They allow the creation of a state-by-state three tier system.
    However, it’s not mandatory. The constitution and court decisions tell us clearly that the state may create a three tier system. In fact, the state can do just about whatever it wants with regard to alcohol regulation. The only caveat is that whatever it do be done without preference for in-state entities over out-of-state entities.
    The new Michigan law clearly discriminates not only in effect but also in its intent. It’s unconstitutional.
    But that’s beside the point. There is no requirement in any document that a state require wholesalers be treated like indigent who can’t make a living without support from the state; there is no document that requires any state to provide welfare for wholesalers at the expense of producers, retailers, restaurants, the State and consumers. But in large part they do because the three tier system has given wholesalers the means to control the political system where policy is created.

  22. Tom Wark - December 24, 2008

    Your point about the regulations being confusing is an excellent one. Because of the confusion and complexity that has been built into the alcohol laws in every state, even most lawmakers have no idea what lies before them when they consider alcohol legislation.
    The confusion also makes them susceptible to outlandish lies told on the part of those who are supposed to know the system. For example, in Michigan the Liquor Control Commission is arguing that if out-of-state retailers are allowed to ship into the state, then they will be overwhelmed with thousands of retailers shipping ad not paying taxes.
    If you think about that argument, you have to conclude that the folks making it are either unbelievably ignorant or liars. I’m not yet sure which it is.

  23. 1WineDude - December 24, 2008

    I fully appreciate that the three-tier system, like any system, isn’t evil in and of itself. It’s how the system is used or abused that is results in fair or unfair situations for wineries, consumers, and other distributors.
    I live in PA. If anyone can explain to me why the PLCB is NOT acting like a Communist monopoly when it comes to alcohol distribution, please do so with all speed. Because from where I sit, there is NO WAY that the PLCB is playing a fair game in the free market.

  24. Thomas Pellechia - December 24, 2008

    You know that I agree with your premise, but I disagree with your conclusion.
    Wholesalers do not control the political system, they play it, and they pay for that right.
    The reason the wholesalers can do what they do is that they have legal protection.
    If you want to change the way things work you need to forget the wholesalers and go straight to the politicians, to the judges, and to the Constitution.
    By concentrating on the wholesalers you are being sucked into their diversionary tactics.

  25. Nancy - December 25, 2008

    A small point after all this expertise, but I believe the economic term for what the wholesalers do vis-a-vis state legislators is “rent-seeking.” When a small committed group knows that the costs of its behavior to society will be very much diffused — i.e., most people don’t care — it “pays to play” and it tends to win.
    (And P.S. to AC: no, deregulation in banking and auto manufacture did not contribute to the mess we’re in. Quite the opposite.)

  26. AC - December 26, 2008

    @ Nancy
    I respectfully disagree. Because deregulation in the banking and auto industry has contributed greatly to increased avarice and greed.

  27. DLT - December 27, 2008

    I am so entirely tired of wholesalers being portrayed as the evil entity.
    Many of us are importer distributors and we are directly responsible for the amazing selection of wines currently available in the market place.
    Small wineries may be open to ship wine out, but they won’t get placements in restaurants and they won’t get a market presence without the help of a wholesaler.
    Importers being kicked around? OMG, who’s telling you fibs on that one. Importers kick wholesalers around, they dictate where they want the wines sold, how sold, whether they be a restaurant wine or retail, and how much of that product the wholesaler is going to get.
    What your not telling the public is all the money wholesalers puts into the wine education of restaurant and retail staff. A majority of the fees for Court of Master Sommelier, Certified Wine Educator, WSET and Master of Wine are paid for in whole or subsidized by the wholesalers. To promote education of wine in the industry many wholesalers have inhouse education divisions headed up by Master Soms, and MW’s to educate their own staff and all their clients. Many have 2 and 3 week courses for restaurant and retail staff to be formally educated about wine and it’s free for their customers. Just to ultimately benefit the consumer.
    Some of the wine lists you peer at your favorite restaurant are paid for and made by the wholesalers. All the costs including list creation and design, printing, lamination and binding.
    The restaurant staff not just the sommeliers’s certifications is trained on wine service and education by wholesalers.
    Wine fairs, tastings, wine competitions and wine festivals are all either completely underwritten or subsidized with donations and physical support by wholesalers.
    Wine dinners at your local restaurants are subsidized by wholesalers.
    So, when you complain about the wineries not speaking up, they get a lot of work done for free by their wholesaler in the promotion of their products.
    What the free grapes movement isn’t telling you is your bottle price is going to go up not down, because someone has to pay for all these little extras involved in the distribution of the wine and if the wholesaler isn’t, the winery wont. The consumer will pay for all the extra costs the winery is going to be incurring to promote it’s products.
    Oh yea, and then there’s the problem with summer shipments. It must be overnighted and it’s quality isn’t guaranteed because of the heat. So no one is going to drink fine wine, just supermarket bulk from May through September. Hadn’t it been mentioned the wholesalers have to chuff for climate controlled shipments which is much to protect their investment? Winery’s don’t pay for the shipments to the wholesalers, the wholesalers do, as well as the cost of delivering the product directly to the restaurant or retail store. All those costs are borne on the wholesalers back. Because we can spread the cost out over the hundreds of producers we represent, the cost is tiny compared to what it would directly cost each individual winery to market and deliver it’s product.
    So, please call Fedex and find out the price of overnight shipment of 30 pounds. Depending on distance it can be upwards of $200. Whereas a wholesaler is able to reduce the cost of shipping by bringing pallets and bears the cost of the wine, the shipment and the sales staff to get the wine to the public.
    A winery can’t do all these things at the prices that are currently out there. Without wholesalers your wine price will increase by 30% or more. If the consumer even finds the winery exists. Which is why wholesalers seek out new products to bring to the market for the consumer. We create competition and that brings down the cost in the market place.
    It’s so romantic to get on the bandwagon to “free” something. But be prepared, for every action there is an equal and opposite reaction. Free the wine, better free your pocket book to higher wine prices that are currently absorbed by the EVIL wholesalers.

  28. Tom Wark - December 27, 2008

    How can I say this politely? Let me try.
    Exactly what work do wholesalers do for “Free”? Wineries sell their wines to wholesalers for 50% off their retail price. Free? Please!
    I’m not surprised you don’t address the structural elements of the wholesalers place in the system. They are granted BY LAW the right to take a cut of nearly every bottle of wine sold in their states.
    By Law!!
    Do you know what this means? It means that the wholesaler gets to determine which brands enter a market.
    I have nothing against the driving of trucks and counting of boxes that wholesalers do. We need them to do that. But do they really need to receive welfare from the state to actually make a living?
    The wholesalers are not evil, but they do systematically do everything they can to force the public to only purchase the wines they think they should purchase. They use the welfare and monopoly granted by the states to control wine related laws across the country.
    Tell me this is a good thing, DLT.

  29. DLT - December 27, 2008

    OMG, I can’t believe you are countering with BLAH BLAH BLAH. But in the same breath you still need wholesalers as lackeys to move the product around. Can’t have your cake and eat it too. We are not granted by LAW just to take a cut, we are granted by LAW to have a business that supports the local economy which supports other local economies around the world. A business is created to MAKE MONEY. To do that, you gotta take a cut off of the services you provide. We’re dealing with basic economics here.
    What I think you are forgetting is you are isolating the big giant wholesalers against all the medium and small ones who do everything to bring unique and varied products into the market. And lumping it all in to one evil entity.
    Yea we do dictate wines that go into the market because the wineries can’t do it by theirselves. And yea we buy wines that we think the PUBLIC is going to buy and we don’t ones that won’t.
    Every day we deny products to the market because we know the consumer WONT BUY IT because of some homemade label the wineries aunt twice removed made or that the quality isn’t good enough to stand up to the pressures that the CONSUMER puts on what is and what is not sold. You can’t imagine the amount of crap wine we go through to find products that fit in the markets.
    And guess what? The California market is different from the Illinois market, which is different from the New York market. Whats hot in one place isn’t in another and it’s because of the CONSUMER not what we dictate. It appears you don’t realize wine is made outside of California and not everyone likes California wines.
    Heck if I could DICTATE what the public does and doesn’t do, I’d be sitting on the beach in my own private island in the Caribbean living large.
    The public aren’t lemmings. What an insult to their intelligence. If they don’t like a wine, they don’t buy it and we find another market it fits in. Tastes are different around the country with different groups. And your going to make it so hard for them to find wine.
    So yea you can’t buy wine X in say Florida, but because it doesn’t work well in that market or the producer doesn’t make enough to bring it to that state, otherwise it would be there. DUH!
    And you honestly think wineries are going to lower their prices? Winery direct prices are currently higher than the retailers that sell their products, opening it up to all the states isn’t gonna make it cheaper.
    One winery’s products are usually with 20 or more wholesalers in as many states. Wineries like it because they have 20 distribution channels selling their stuff that they don’t have overheads for, salaries, insurance etc. Take away their distribution network and they have to create one to maintain their sales and production.
    Gosh imagine a business wanting a distribution network to sell it’s products? The HORROR!
    The only wineries you are freeing are the large ones. Your freeing the big guys to get bigger. Your creating monopolies. The small wine producer can’t compete without the support of a wholesaler.
    Many producers will go bust. And if you think I’m wrong, look at all the towns across America that lost their local shops and businesses to Wal-mart, Kroger, Safeway, Home Depot, McDonalds selling cheap Chinese made goods. It’s the same premise. Only the giant wine producers will thrive and selection and quality will go down.
    Believe me, there’s a lot of darn good juice in the market that doesn’t get sold because the CONSUMER won’t try cause it’s not popular or not attractive. Which is why we spend millions on education for industry and the public so they aren’t afraid to broaden their horizons.
    SO yea we do charge a markup, we do a lot of work to earn that money. Retailers charge anywhere from 30% to 100% for the wines you buy off the shelves. Is that fair? They charge what the market will bear whether it’s fair or not.
    We spend a lot of money promoting wine to the public and bringing wine back from where it was 30 years ago where you could ONLY buy cheap wine not even worthy of Yellow Tail standards, plus some French and Italian, that was it. Go pull a buying report from the early 80’s, it’s shocking how few wines were available. California was in it’s infancy and wholesalers got those products to the other states and helped Napa become a world class wine region.
    We buy and distribute all the cool wines from around the world so people can have a CHOICE. Good lord go to SAMS in Chicago, Wine Library in NJ or any other MAJOR retailer. It’s heaving with wine from wholesalers big and small from all over the world that the public would NEVER EVER get to drink unless they traveled.
    In Europe all you get is local wine, everything there is “free” as you want it and as a result supermarkets alone control 80% of wine sales and you want to talk about forcing the pubic to only purchase the wines they think they should purchase, how about those supermarkets forcing wineries to cut their prices to operate barely above 0 profit just so they can hold on to their land. Why do you think so many foreign producers are desperate to enter the market in the United States? Because they have a chance to make a living instead of being ruled by a monopoly. Your dream is reality in Europe.
    Wholesalers and Importers find and promote these smaller producers around the world. Continuing their living and promoting local economies. Well guess what? It costs money to do that.
    The only thing you want is the McDonaldization of the wine industry. It’s not welfare, we work very hard on the promotion of producers and their wine and are directly responsible for the success and current competition in the market today. You wouldn’t have a popular blog if it wasn’t for all the hard work wholesalers did to bring competition and selection to the public.
    The majority of our nation lives without a world class local wine production nearby and without wholesalers most of the nation would never known 99% of the wine producers in Napa ever existed.

  30. Tom Wark - December 27, 2008

    Sure you can understand why I responded to you with “Blah Blah Blah”. It’s the same response you would give if someone responded to your points by completely avoiding the key question. But I’ll grant you the liberty of that not happening in the case of my response to you.
    Why exactly should wholesalers be protected from competition…BY LAW? Simply because they “support the local economy which supports other local economies around the world.” I presume then that you believe distributors in every industry ought to have protection from competition. Are wholesalers so useless and so dimwitted that they need to be granted the right to make money off every sale?
    Tell me, why should Wine Library in New Jersey, who calls up Winery X in Oregon to contract with them for 400 cases of a special label wine that will be shipped directly to New Jersey, be forced to pay off NJ distributors who did nothing in this transaction?
    Tell me, why should a restaurant in Illinois not be able to purchase ten cases of wine directly from a winery in CA and have it placed on a truck that is consolidating other orders without having to pay a distributor in Illinois that did nothing to earn that cut?
    Why should a consumer in Michigan who can’t get a wine they want from a Michigan retailer because Michigan distributors don’t bring the wine in be barred from buying that wine from a retailer in New York that does happen to have that wine?
    Why shouldn’t a group of wineries in California be able to put their wines online, together in one place where restaurants and retailers can see and order them, and hire a truck to take the wines there without paying off a Florida Distributor who did nothing to help the sale?
    Whether or not you think any of these things are financially feasible or whether or not you think the price for the wines may be too high to make them work still doesn’t explain why they should be illegal to do.
    Who benefits from these restrictions? Wholesalers who used their government granted profits to lobby legislatures to keep the alcohol distribution system in America gamed for theirs and only their benefit.
    And if you don’t like to see small wholesalers lumped in with the giant ones that get all the attention for screwing the rest of the industry then perhaps those smaller, independent distributors ought to speak up and oppose the ridiculous shipping restrictions that are granted on behalf of wholesalers. Until the small distributors actually grow a pair and speak up in these circumstances you can expect all distributors, regardless of their value, to be lumped together.
    I’ve been in the wine business for 20 years. Do you know what the number one complaint is among the many winery clients I’ve serviced is? “MY WHOLESALER SUCKS”…Just behind it is “MY WHOLESALER NEVER PRESENTS MY WINE TO ACCOUNTS UNLESS I RIDE ALONG WITH THE SALES PERSON.” And right behind that is, “MY WHOLESALER CAN’T AND WON’T SELL MY WINE UNLESS I SHOW THEM 90 POINTS OR MORE.”
    Wholesalers used to be marketers. They used to build brands. Today they are truck drivers and box counters.
    So I’ll ask again, if wholesalers are so vital, why do they need government imposed welfare and protection? Why can’t they simply compete in the open market the way the rest of the tiers do?

  31. Joe Dressner - December 29, 2008

    Why not dismount the system. Who needs retailers? Let your producers sell directly to the consumers.
    By the why, let me assure that most retailers, like distributors, concentrate on wines that sell themselves. Either because of mass appeal (Kendall-Jackson, Yellowtail) or points from the wine press. Only the very best retailers actually make their own judgments and push and market those judgments. To think otherwise is only fooling yourself.
    So producers have to sell at a lower price to retailers who exploit Parker/Wine Spectator points. What’s the logic? Why can’t someone producing wine in Napa sell direct to someone in Massachusetts?

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