The Proposition

Consider this proposition:

Since the consumption of wine is legal in every state in the Union, and since wine travels well across long distances, any instance in which a consumer in any state can not obtain a bottle of wine when there is someone somewhere in the country willing to sell it to them means the system by which wine is distributed and sold in that state is not just broken, but a sure indication that corruption is the driving force behind the laws that govern wine distribution and sales.

This proposition implies there is a conspiracy in place to control commerce. It further implies that the conspiracy to control commerce is not one aimed at controlling it for the benefit of the consumer. It further implies that the conspiracy at hand, if not aimed at benefiting the consumer, must be aimed at benefiting someone.

I submit there is a conspiracy in most states to economically benefit wine wholesalers at the expense not just of wine consumers who are hurt by the laws that prop up unnecessary and cost laden wholesalers, but at the expense of every citizen of that state who is the victim of lost tax revenue.

At bottom, this proposition, if valid, means the three tier system, as currently formatted in most states, is or at least has become, a corrupt prop for a conspiracy to enrich a small clique of wholesalers.

So here's what I'm curious about:

1. What's wrong with the proposition.

2. If you agree with the proposition, what's wrong with it's implications

3. If you agree with the implications of the proposition and there is a conspiracy to support corruption, what's wrong with that?

4. If there is something wrong with that, what's to be done?


26 Responses

  1. dhonig - October 16, 2009

    The proposition is unsupported. It is more of an assumption than a proposition. What is the basis for the leap from ‘can’t get it’ to ‘corruption’?
    “Corruption” has several definitions, but they are all entirely negative. In this case, you are using it to mean something that is either ‘evil : depraved,’ of ‘open to bribery : dishonest.’ [Webster’s II, New Riverside Dictionary, Revised Edition]
    No, the assumption is wrong. There are certainly some cases where one party’s profits are being preferred over another’s interests. But that does not, perforce, prove either evil or dishonesty.
    Further, there are most certainly reasons other than corruption that bar wine sales in some areas, such as religiously-derived dry laws.
    The bottom line, Tom, is that the 21st Amendment has been repeatedly interpreted in ways that benefit the wholesalers and the three-tier system. It was poorly written and broadly interpreted. Were the judges corrupt? There is no reason to believe so. Are businesses, taking advantage of the law as it is written and interpreted, corrupt? No. I don’t like it, but I would not call it “corruption.” Maybe it’s the lawyer in me, but I see the potential remedies as re-writing laws or seeking a better interpretation of the 21st Amendment and its interaction with the Commerce Clause, not the incarceration of wholesalers, which is what you imply should be the remedy by assuming corruption.
    Simply stated, I wonder if hyperbole rather than education advances the cause of wine lovers, rather than putting those who oppose our individual interest in a position most easily defended.

  2. Marcia - October 16, 2009

    Tom, hmmm, is this post firing a warning shot across the bow? Sure looks that way! (Not that I don’t get completely pissed off when I can’t to get a bottle someplace else that I can’t get as easily as I can in CA.)
    As previously pointed out in the above comments, “corruption” has an assortment of negative connotations even though it can also merely mean “broken” – as in the “the system.” But since you’ve coupled its use with “conspiracy,” surely your use of both terms is meant in the modern and more legal sense: laws broken?
    In answer to your loaded questions: 1 – you’ve got to prove it; 2 – yes, but again with such a broad assumption applied across the board (or more exactly, all the states of the union), the “proposition” does not consider the religious/dry laws in local jurisdictions (also outlined above) and thus, sweeps the innocents in with the corrupt (as just one example); 3 – now you’re getting into “phraseology” that sounds like you’re chasing after the ghosts of the previous administration (not that some don’t also exist with the current one!), and I’m not going there…; and 4 – while your suppositions may be completely valid in some or many states/specific cases: How much of this quest is worth the battle vs. tilting at windmills, Tom?

  3. Thomas Pellechia - October 16, 2009

    You must understand what was behind the section of the 21st Amendment that gave states regulatory rights over alcohol and you must also understand what was behind the regulations that states contrived.
    The mealy Congress knew that some of its members were from dry areas of the country and would never be able to vote for Repeal, so they sent the amendment to the states for a vote–the only amendment to use that method of ratification.
    The states, having the power in their hands to raise new sources of revenue, not to mention the connections of the bootleggers that permeated most states, managed the ratification and also managed the dance that gave them control. We all know that many of the distribution companies after Repeal were outgrowth of the bootlegger businesses during Prohibition. With that kind of power, what would you expect but state mandates to favor the newly legit?
    Within the development of the three-tier system was an explicit desire to make access to alcohol difficult even while legal. That kind of thinking was written right into state legislation–if you don’t believe it, check the recent Costco vs. Washington case.
    Yes, Tom, there is and has been corruption going on, but it is legislatively sanctioned, which of course makes it legal and not corruption, and that makes it semantics.
    In the end, and based on past Supreme Court decisions, I will once again say to you: nothing will change without addressing the 21st Amendment head-on.

  4. Jeff - October 16, 2009

    Although I certainly don’t like the wine wholesalers–they are obviously someone inserted artificially into the supply chain and provide no perceived benefit to the consumer–I think there is a problem with the above argument. Simply put, states want to regulate alcohol and receive the tax revenue. If you’re selling to someone out of state, there’s a good chance that that revenue won’t ever be collected by the sate just as with many online purchases and sales tax. I’m not saying that’s a good thing, but for now, that’s the way it is…is that corrupt for the state to want to collect tax revenue?

  5. Phil - October 16, 2009

    I find it interesting that wine wholesalers seem to be a major issue in the conversation but I really cannot see how they relate. The fact is in if every state operated the way wine sales work in California everyone could be able to buy a favorite wine from anywhere in the US legally, wineries can sell direct to market or they can choose to sell to a wholesaler. Yes not all wholesalers operate in a manner we all like but not all wineries want to manage selling direct to market. I can tell you working within the wine fulfillment and logistics industry that not every winery that I speak with wants to pull out of a wholesaler and move to selling direct even if the legally can do that. Some wineries like the cash flow and smaller staff required by working within the three tier system. Other wineries choose to sell direct to market and consumer and I think that is fantastic! but it is not for everyone and requiring them to do is not better than requiring them to work within the three tier system. Making wine and selling wine are two very different skills and some small wineries do not have the resources for a sales team. The issue is of course money. That being said not only money in the wholesalers pocket but also the state. You can see the arguments wholesalers employ a large staff of salespeople and managers plus all of the operations creating payroll tax leasing property and trucks when you start telling the legislators that opening up state lines could hurt those companies creating tax revenue and move those dollars into another state while also eliminating the tax revenue. Well let’s just say I am not sure I would vote for it either. Is it right, no is it reality YES! Or we could just step up and open the real can of worms and say why do I have to worry about state lines why not international lines? I would much prefer to receive my rose’s earlier in the year if I could order it direct from the winery in France or Spain it would make them even fresher or some cool cult New Zealand wines. It is fun to complain when things do not work the way you want them to but each of these actions can heave serious implications hence why the gears of political change move very slowly. Sure corruption exists but is it the sole reason things do not work the way you want them to-no.

  6. David R - October 16, 2009

    I work in a specialty food company by day and am a winemaker/wine brand owner by night(call me Captain Pinot!). Specialty Foods uses distributors just as happens in the wine industry. It is not legally mandated in the food business as it is with wine and spirits, but this is how we operate anyway.
    Why? Because 75% of the products in your local supermarket sell less than one unit per month per store(think capers and clam juice). A retailer wants to have a wide variety of products on the shelf, but they can’t afford the logistics and warehousing costs of all of these items. So what do they do? Eliminate all the unique items on the shelf and risk losing customers? Spend $100 million to build a warehousing and logistics infrastracture? Nope. They find a compnay who will coordinate it all and eek out a bit of profit. TA DA A DISTRIBUTOR!
    If we eliminated 3 tier legal requirements tomorrow there would still be a 3 tier system in place because we need one. Just like in most food businesses.
    I’m all for getting rid of all of the mumbo jumbo of this ridiculous requirement, but it really is just how business is done in this and most related industries.
    Frustrating, complicated, inefficient? Yes. Corrupt? No.

  7. PA Wine Guy - October 16, 2009

    ALL amendments are sent to the states for a vote. The only way for an amendment to be ratified is a 3/4 vote from the states. The Congress holds the decision to either ratify in the states via the state legislatures, or via the broader state conventions.
    Congress (both Houses) had already voted and passed it by the required 2/3, before sending it to the states.
    In this case, they did take the unique step of using the state convention system, not to protect the Congress, but for fear that the temperance movement would be able to sway state legislators.
    As far as the “corruption” question, no way. The system is what it is, and the wholesalers have every right to lobby for the status quo. As Thomas stated, the 21st amendment gives the regulatory power to the states, and unless the amendment is changed, the system as is will remain.

  8. Thomas Pellechia - October 16, 2009

    PAWine Guy,
    Thanks for the clarification of my post. I meant to say it is the only amendment passed through state convention, but I had not had the second espresso of my day yet and lost my way. 😉
    As for the Congress, the fear was two-fold and connected: temperance was still strong in many states and in some of the Congress. By going the convention route, they saved both congressional leaders and state legislators having to face constituents–each congressional member could say, “the people voted in those other states,” and each state legislator could say, “I wasn’t for it, but those other districts were.”
    The hypocrisy of the whole situation in part helped create the system that we have.
    It would be a monumental task to overturn the first Constitutional Amendment that overturned a previous Constitutional Amendment.
    Of course, there’s nothing in the 21st Amendment that precludes Tom’s organization from lobbying individual states to loosen their regulations. But for that task to be accomplished, they will need to build quite a movement–and that kind of movement would shine a true light on the depth of the real corruption.
    Having been issued two separate licenses (one to produce and one to retail wine) and having been issued a solicitor’s licensed as a distributor rep, I can say without hesitation that there’s quite a degree of corruption connected to the alcohol licensing and regulation system, at least in the state where I was licensed.
    A few months after having to listen to a sanctimonious lecture from the then Commissioner of the ABC concerning my retail license application, I read in the newspapers the sentence that the scumbag received for taking bribes from distributors.

  9. Wine Club - October 16, 2009

    It’s a complicated question for me to answer being new in the business, but I can speak a little bit about my experience in setting up a new wine club business.
    We’re locked out of shipping to a number of states because we’re a 3rd party wine club-fine. It doesn’t make sense to me, but at least the law is consistent in those states.
    3rd tier states offer us a get-around. We pay 6% or something close to it and a company clears our wine club shipments into between 10-12 3rd tier states. Basically we’re paying a portion of our hard earned profit for this service, that is only needed because of a rather strange law that is in place.
    To me, we need to move forward and realize that an internet referral can be just as good, or bad as an in person referral for a wine at your local retailer.
    I will say the whole system in places like Pennsylvania specifically(which is the 8th most valuable state for a wine club) gets more complicated with state owned liquor stores.

  10. Charlie Olken - October 16, 2009

    I grew up in a family that owned a retail store. Relatively early in the life of that business, my father became an importer of the very merchandise he was selling. Later, he became a distributor for two larger companies whose products were then resold to retailers.
    The existence of a three-tier system is not the problem. It is the institutionalization of the three-tier system by govt that starts the problem. It is the continuance of that system now that it no longer serves the purposes for which it was instituted that runs it perilously close to corruption. Whether or not, there is actual corruption fo the type that would land someone in the pokey is less the issue here than the fact that govt is mandating a system that (A) no longer serves its originally intended purposes (B) makes the govt money by the very existence of such a system and thus makes ending the system self-defeating and (C) and here is where Tom is very close to the truth, is kept in place by the self-interest of the participants in the system regardless of the fact that the system in anti-competitive, benefits the participants artificially and at the very least requires the financial sponsorship of the govt both directly and thru taxes for its continued existence.
    There is a direct corollary here to the telephone monopoly of years past. Take away the monopoly and the system does not collapse. Take away the system, and the participants have to work harder to earn a living. Take away the system, and the consumers benefit at the expense of the artificial profits to the system participants.
    That may not be corruption as Mr. Honig defines it, but it is the next worse thing.

  11. Thomas Pellechia - October 17, 2009

    The controls in the alcohol trade might have cramped your father’s rise.
    If you own a retail outlet you are barred from owning a distribution company, too. And, in many states, you must get around laws that prevent you from owning more than one retail outlet. And, if you own more than one restaurant and you produce wine, you may be barred from offering some of that wine to all your restaurants.
    There’s one thing you posted with which I disagree:
    “…the fact that govt is mandating a system that (A) no longer serves its originally intended purposes…
    If you consider that the intent of the system after Repeal was for the states to control the flow of alcohol and to control the system for tax revenue–it works beautifully still.

  12. Charlie Olken - October 17, 2009

    The Govt taxes all kinds of things. States and/or localities have separate tax levels on cigarettes, income, hotels, taxis (another area where restaint of trade operates to the industry’s benefit–try getting a cab in SF), etc.
    Taxes are not the problem. Even the control of supply is less a problem (we still have dry counties after all–ask Jack Daniels about that). It is the three-tier system that has been spawned and is now artificially kept in place mainly for the benefit of the distribution tier that is the problem. We need distributors, but, as an economy, we need distributors who earn their keep, not who get it by entitlement.
    I accept that there can be dry counties. I even accept the awful, anti-consumer notion of state-run liquor stores. What I cannot abide, however, is the nearly corrupt (ethically, if not actually) system of forcing the three-tier system on the world artificially.
    Sure, put taxes on alcohol. Sure, set an age limit for the purchase of alcohol. Sure, get together with all the other states and force a form of universal sales tax on internet and direct order sales. But, this system of entitling the distributor level to exist articially is ethically bankrupt and economically unjustifiable.
    And, yes, my family’s business operated at both the distributor and retailer level, and that is not allowed in most government sponsored three-tier systems. Interestingly, in Massachusetts where I grew up, there are work arounds that allow individuals to control both distribution and sales. Brookline Liquor Mart and Classic Imports (I think that was its name), for example, had the same ownership.

  13. 1WineDude - October 17, 2009

    To arms!! To Arms!!!

  14. Alfonso - October 17, 2009

    why don’t you have a “Search” area on your site?

  15. Thomas Pellechia - October 17, 2009

    The system was never intended to benefit the consumer–it was in fact intended to thwart the consumer’s access as much as possible, and it works.
    As I said, look into the Costco vs Washington State case. Says it right there plain and to the point, when the Washington ABC stated that the regulations are in place to make it difficult for consumers to gain access to alcohol.
    That in a nutshell describes and explains the 3-tier system.

  16. The Wine Mule - October 17, 2009

    Tom, look around. Do you see anybody in the business capable of keeping their mouths shut? That’s what a conspiracy requires. No way.

  17. Steven Mirassou - October 18, 2009

    I’ll let the debate regarding the definition of corruption pass without further comment.
    The more important issue to me and my business is what is to be done about our current three-tier model.
    I think the simple answer is for all states to allow a winery of any size to sell directly to that state’s consumers (and to pay the taxes and fees). Let the distributor tier stay in place, too.
    The fact of the matter is that direct shipment aids the small wineries that would otherwise get 0 attention from the distributors and who cannot afford to pay for a salesperson in that state. The large wineries don’t need to worry about direct shipment as they sell more wine even through a lousy distributor than they would moving it directly.
    What I find laughable is the wholesaler tier contention that direct shipment cuts into its business (never mind, the entirely absurd, intellectually dishonest argument regarding access of alcohol to minors!). The wines that move directly would never have been sold by the distributors (believe me, my brand has NOT been sold by enough distributors for me to have direct knowledge of this) in the first place. In fact, by allowing the small brands to sell directly, the wholesaler could give up the fiction that that brand is important to it, and honestly devote the attention, that it already gives, to the large brands that exist because of the three-tier system.

  18. Tom Wark - October 18, 2009

    I would add that retailers ought tone able to ship direct. I’d add further that wineries ought to be able to sell direct to restaurants and retailers. In other words, demandate the middle tier.

  19. Thomas Pellechia - October 18, 2009

    “demandate the middle tier.”
    Great concept, but no chance without a major, revisionist constitutional force behind it–the NRA? 😉

  20. PA Wine Guy - October 18, 2009

    Sorry Thomas, but history disagrees with you. Congress (especially the Democrats) had no fear in passing the 21st amendment. Again, they had to vote first, and would have no opportunity to blame anyone else. The Democratic party actively campaigned on the issue. At the time, the momentum was on their side as European immigrants saw prohibition as an affront to their cultures. Other groups did not like the fact that all the power was in the hands of the Federal government, and lamented the loss of tax revenue.
    Congress simply stipulated the state convention route in order to ensure a popular vote on the amendment, to take away the potential influence of the temperance movement on state legislators.
    As far as the NRA goes… well, I will assume that you were joking, and not trying to make a serious point.

  21. Justin - October 18, 2009

    IF you guys get a second check out great great video wine review website.

  22. Thomas Pellechia - October 19, 2009

    Re, NRA: That’s what these things– 😉 –are for.
    Re, the history thing: no point in using Tom’s blog for a discussion, but history is filled with nuance. Prohibition sentiment, however, has never been crushed, dating back to the Rechabites.

  23. Richard - October 19, 2009

    I think you have “conspiracy” confused with “bureaucracy.” They can certainly seem a lot alike! As a current small boutique producer and former bureaucrat, I can tell you that I see miles of bureaucratic red tape and some very well-meaning but incompetent people from the state legislators to the distributors. A perfect example is that some local stores want to carry my California produced wine (I am in a three tiered state part time) but even though they have quite literally begged the distributors in one case to get my wine, the distributors won’t do it? Why? No, they are not mean-spirited or conspiring against me – my small production is simply not profitable enough for them – though they shout to high heaven if I want to ship direct. I have talked to the distributors about this dichotomy and they don’t get it? Why? They’re ignorant and insular – “it’s always been this way and it’s going to stay this way” is their attitude… So as someone famous once said (I have heard it attributed to Napoleon) “Do not attribute to malice (or conspiracy?) when ignorance will suffice…”

  24. Charlie Olken - October 19, 2009

    While there may not be a conspiracy at the “does the third tier want to distribute your wine” level of decision-making, and while the use of the terms conspiracy and corruption are indeed value-loaded, one has to wonder why the entire distributor tier seems to speak with one voice.
    The commonality of view comes damn close to conspiracy, albeit probably not illegal and thus not criminal conspiracy, and the amount of money spent by the distribution tier at State legislative levels in order to keep itself in business is close to corruption, at least ethically albeit again probably not legally.
    The larger question is not how to label the problem but how to change the rules so that folks like you can sell your products to consumers who want to buy them.

  25. colemach - October 20, 2009

    I love it as usual, Tom! Like a master chef, you stir things up just enough for the resulting conversation to be great food for thought.

  26. Richard - October 21, 2009

    Thanks, good points all! But, I will say, and perhaps this is an elitist attitude taking a superior stance (though I’m no smarter than the next guy), it seems to me there is a lot of “group think” in the three tiered system – people are simply ignorant and the attitude is “we’ve always done it this way…” There is a great fear of “change.” Any change of any kind is bad, bad, bad. I saw this type of attitude for 20 years working as a government bureaucrat (I won’t tell you where, you would be shocked) – there was no attempt at conspiracy, just a lack of creativity, refusal to accept new ideas, and the stuck in the rut of “we’ve always done it this way.”
    And of course, you are correct, the distributors spend millions (if not a billion?) “influencing” (I won’t use a nasty word like “bribing”) state legislatures and legislators – and this is out of true fear that their business will cease – it likely would not, but they can’t see this…
    But thanks, we do need a change.

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