The Big (wine) Lie

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The
lie can be maintained only for such time as the State can shield the
people from the political, economic and/or military consequences of the
lie. It thus becomes vitally important for the State to use all of its
powers to repress dissent, for the truth is the mortal enemy of the
lie, and thus by extension, the truth is the greatest enemy of the

JOSEPH GOEBBELS, Propaganda Minister Under Adolph Hitler

Collectively, American alcohol wholesalers act very much like Nazi leader Joseph Geobbels and certainly have adopted the strategy of the "Big Lie", described above as a means to deceive the people just long enough to assure that the consequences of the lie take their toll before the mortal enemy of the lie, truth, takes hold.

While the "Big Lie" that most alcohol wholesalers and many state alcohol regulators tell is that the three tier system of alcohol distribution is a great thing, the most important and damaging lies are those little ones that are more often told in support of the wholesaler monopoly.


1. The Three Tier System Prevents Vertical Monopolies in the Alcohol Industry
Whether true or not, it is believed by most that the primary purpose of creating a three tier system at the end of Prohibition was to prevent vertical integration of the industry through cross ownerships between retailer and supplier. It is believed the three tier system was put in place to prevent retailers or restaurants from being "Tied" to large suppliers that could control them by virtue of ownership or influence. Fine. The big lie however is that a state mandated three tier system whereby alcohol must flow through wholesalers before getting to retailers, is necessary to prevent vertical integration or tied house influence. Simply passing a law that prohibits supplier ownership in restaurants and retail establishments would accomplish this. One need not give wholesalers a monopoly to prevent the abuses that allegedly took place prior to Prohibition

2. The Three Tier System Has Resulted In The Best Selection of Products of Any Marketplace in the World
Though the wholesalers claim this, the fact of the matter is that nothing about have a state-mandated three tier system contributes to providing a wide variety of products to consumers. In those markets where in fact consumers are lucky enough to find a variety of wine products that comes close to representing even 1/10th of the wines available in American, the fact that they have this kind of choice has nothing to do with the existence of the three tier system. Rather it has everything to do with the ingenuity of the producers and the retailers' acute awareness of consumer demand. The only reason wholesalers provide the small amount of choice in those markets that might seem to have greater choice of products is because there exists the number of producers to provide a larger choice and a savvy retailer class that demands the ability to meet consumer choice. Wholesalers, given their desires, would see as few brands as possible being distributed in markets. What truly gives consumers in any market real choice and selection is direct shipment rights by out-of-state wineries and retailers. And these rights are EXCEPTIONS to the strict rules of the three tier system.

3. The Tier System Prevents Sale of Alcohol To Minors
Goebbels would be proud of America's alcohol wholesalers for telling this lie. There is nothing about the existence of a state mandate that retailers buy their supply from wholesalers that has anything to do with minors attempting to obtain alcohol or actually obtaining it. Were wineries allowed to sell to wholesalers or directly to retailers as a matter of their own choice, you would see no difference whatsoever in the number of minors that drink alcohol or attempt to obtain alcohol. One has nothing to do with the other.

4. The Three Tier System Prevents Corruption and Coercion the Likes of Which Prompted the Original Adoption of the Three Tier System in the 1930s.
Any retailer or supplier playing in a market that has only 1 or 2 very large wholesalers that control those markets knows this is untrue. In fact, in those many states where two wholesalers dominate the industry, they control access to wine by the retailers and restaurants and they abuse that control through corrupt practices and by the natural corruption that results from monopolies. The wholesalers, in the most corrupt way, demands that retailers and restaurants buy a lot of wines they don't want in order to get the wines they do want. In addition there are many stories of the powerful wholesalers, upon hearing that a restaurant or retailer has begun buying wine from smaller upstart wholesalers, no longer services that account, leaving them without the majority of wines they need to buy. The only way this kind of power could be wielded and this kind of corruption could exist is if use of the wholesale tier was mandated by the state and made into a monopoly.

There are more "Big Lies", but these are among the worst and most often put forward by the proponents of the state-sponsored welfare for alcohol wholesalers known as the state mandated three tier system.

23 Responses

  1. PA Wine Guy - November 17, 2009

    Kind of like saying “no offense” right before or right after you insult someone… the last paragraph does not excuse the offensive analogy you carry through the entire blog. You are better than this.
    Retailer’s big lie: “The states are losing valuable tax revenue by not allowing us to ship to consumers in other states.”

  2. Tom Wark - November 17, 2009

    PA…Kinda, but not quite.

  3. Winelush - November 17, 2009

    That was kinda like watching the Fox News wine report.

  4. Scott - November 17, 2009

    You’ve really gone around the bend this time. I implore you to seek professional help.

  5. Marcia - November 17, 2009

    Tom – While you like to stir the pot on the three-tier issue (with good reason!), using provocative analogies may backfire when the reader infers offense. Most certainly a comparison of Goebbels to a liquor wholesaler is highly dramatic and will draw in the reader. On the other hand, that same comparison may also push the reader to the brink emotionally, as any mention of Nazis – particularly drawing a current comparison, however employed as a literary device – may trigger a knee-jerk reaction of extreme anger. As a long-time student of history, I’m sure you weighed the possible negative reactions against the potentially positively motivated, to spur (hopefully) the majority of those outraged at The System into action.
    Only time (and today’s many comments) will tell if your strategy was more or less effective in achieving your goal. But personally I think use of Nazi comparisons, however “absurd” – as you noted, remains too smart (in the hurting sense) more than sixty years later for most folks.
    As noted in yesterday’s comments, Bernie Madoff – a really big, fat liar. Stalin, Mussolini – also big liars of the same period you chose but perhaps less provocative to readers. And I’ll leave out some other, current, really big liars in the news, as I don’t wish to pick a fight either….
    While I agree with your four big lies, I guess my question is: Can you make the same points as effectively without the Nazis?

  6. Thomas Pellechia - November 17, 2009

    I see that the messenger is being attacked rather than the message. Always a bad sign for the attacker.
    Can anyone dispute point by point rather than point to Tom’s real or imagined insanity?
    That would be far more informative.

  7. john hinman - November 17, 2009

    The wholesaler’s (beer and wine, but especially beer) are Orwellian in their disregard for the facts and the reality of the beer, wine and hospitality business. Another Big Lie – the reason why the US has safe products (i.e., unlike Russia and India where wine and spirits are produced unlawfully and are often poision) is because of the wholesalers. Fact: the TTB regulatory scheme is the most effective and comprehensive labeling and product approval regime in the world. The wholesalers have nothing to do with the TTB.

  8. Tom Wark - November 17, 2009

    Marcia’s point is well taken.
    That said, if we look back at the last 100 years of the history of propaganda, it’s hard to argue that the Nazi Party wasn’t among the best in the business. Consider for example the legions of countries, including many in the West, that they were able to keep at bay prior to their moves against Poland with their Propaganda.
    And it is indisputable that the concept of the “Big Lie” was best articulated by Goebbels. The very tactic that he explains in the quote provided is simply too similar to what proponents of the state-mandated three tier system do in attempting to justify it’s continued existence for reasons other than “it lines our pockets because it prevents us from having to work hard, innovate or compete.”

  9. Charlie Olken - November 17, 2009

    Note to the Toms.
    Marcia is making a point that is worth noting. The use of the term “Nazi” is so emotion-ridden that it provokes a response to the word itself and thus gets in the way of the message.
    I am no fan of a mandated three-tier system, but I don’t see how attacking it by equating it to Goebbels and Hitler is useful–because now we are spending as much time talking about the characterization of the crime as the crime itself.
    Simply calling it the Big Lie technique would be enough for us who read you regularly and who almost all agree with you.

  10. Thomas Pellechia - November 17, 2009

    Good grief!
    It would be hard to talk about the propaganda of Goebbels, which was in fact the basis for the potent quote that Tom provided, without noticing his closeness to Nazism.
    Marsha suggested Mussolini as one alternative. Would you like to know what some of my ancestors were subjected to by that “less provocative” Fascist?
    Still, I would not be offended if the quote were his and Tom used it, mainly because I am an adult, I can distinguish between a reference to a quote from an endorsement of a political party.
    More important, I can also read and Tom never accused anyone of being a Nazi.
    In fact, every reminder of Nazism should be a good thing, so that we never forget the murderous political party that came so close to exterminating both a complete ethnic group and a continent–on the basis of a BIG LIE. And so that we never forget the power of a big lie when told often enough.

  11. Ed - November 17, 2009

    I think the quote and the definition fits appropriately for this topic as you have presented it and I refuse to get my panties in a wad and be held back by a reference that has known historic sensitivies. It’s unfortunate others cannot allow themselves to do the same and focus on your message.
    Thanks for the insights into some of the bigger lies inherent in the system keeping it alive and, unfortunately, well. Are there any Representatives taking up the fight?

  12. Adam Pierson - November 17, 2009

    Per Thomas Pellechia’s comment, I’ll try and argue the other side. I don’t consider these “Big Lies” as opposed to stating the facts to support the wholesaler’s specific argument, much the same way as wineries argue the facts to fit their argument.
    1. After Prohibition, the three tier system was designed to protect retailers from domination by suppliers. Today, the market dynamics have been inverted such that, in general, retailers (specifically the largest chains, Costco, etc.) wield much greater power than suppliers. The mandated wholesaler (in individual states) prevents these suppliers from using their purchasing power and bullying smaller suppliers into offering ever cheaper prices. One need only look to the wine market of the United Kingdom which is dominated by a handful of multiple grocers (admittedly the U.S. retail channel is not as consolidated as the U.K. but it is headed in that direction). In the U.K., most wine is sold for under four pounds per bottle, often with three for ten quid specials. I would argue that the wholesalers insulate suppliers from this pressure. If Wal-Mart could use its full power, it would most likely seek similar deals to drive store traffic. Should Wal-Mart start offering significant discounts, say three for ten dollars, this would serve to erode consumers perception of wine’s value, thus hurting the entire industry.
    Thus, Tom, I will agree that if the sole point of wholesalers is to prevent vertical integration then you are correct that there are other avenues do accomplish that. However, if the purpose of the three tier system is to prevent power abuses from either supplier or retailer (I’ll deal with power abuses by wholesalers in response to point four), then the three tier system does accomplish this. Further, the wholesaler tier serves to raise the price of alcohol in the United States, preventing deep discounting and the alcohol abuse problems that are presently occurring in the U.K. An alternative to this would be to dramatically raise excise taxes and duties on wine while no longer mandating the wholesaler tier. However, Wal-Mart and the like would still exert significant downward pricing pressure.
    2. First, I do think the United States has some of the best selection of wine in retail accounts in most of the world. When one goes into an “A” grocery store in California there are upwards of 3,000 wine SKUs. I’m curious as to how large a selection a retailer should have for it to be considered an excellent selection. It’s entirely infeasible for any retailer to want to (let alone have the capacity to offer) every wine product from any geography.
    I also argue that (similar to point one) wholesalers have significantly contributed to this excellent selection. I shall again use the U.K. as an example. The U.K. has been a wine drinking culture for longer than the U.S. has (only being in the last forty years that wine has “taken off” in the States), therefore one would expect consumer demand to be similar or perhaps even greater in the U.K. Despite this, the U.K. market has moved toward commoditisation of wine while the U.S. selection has seen itself expand significantly. Part (maybe even much) of the difference is the wholesaler’s ability to push products into the retail channel thereby increasing selection. Without these efforts (and the insulation from retailers) the likes of Wal-Mart and Costco would surely be commoditising wine in the States by reducing both prices and selection. It would reduce these retailer’s overheads tremendously by not having to deal with so many SKUs (from a management perspective, inventory control, and capital requirements).
    3. Frankly, I agree that direct shipping of wine will not lead to massive online purchases to minors. However, I will attempt a rather feeble argument. If direct shipment of wine is legalised, should direct shipment of spirits be legalised as well? I am sure there are many Vodka and Tequila connoisseurs who cannot find the products they want at retailers (which is often the argument made for direct shipment of wine). Should these small and niche spirit suppliers be allowed the same privilege? If so, I think it far more likely that minors would attempt to buy spirits online (as states would likely be unable to discriminate on the price of spirits sold online) then wine. I would also tend to think that retailer employees have far more experience and training than delivery agents in spotting fake identification (though more delivery training could overcome this). At the end of the day, minors will always have access to alcohol through older friends and parents who are willing to assist.
    4. Tom, I don’t see a lot of factual arguing in this point. First, if two wholesalers dominate a market it’s an oligopoly, not a monopoly. To say the wholesaler tier is a monopoly one cannot therefore conclude that wholesalers are monopolies. By this inference the supplier tier is similarly a monopoly and thus wineries are also monopolies. Second, what does “in the most corrupt way” mean? What is the source for this statement? Because wholesalers offer steeper discounts to retailers if they (retailers) purchase a larger quantity or more diverse selection or products this is corrupt? Is it also then corrupt when Albertson’s offers 10% off to consumers if they buy six bottles of wine? Further, doesn’t this argument contradict the statement that wholesalers do not increase the selection of wines by consumers? Tom, you also make a point that restaurants or retailers get the majority of the wines they need to buy from these one or two wholesalers. This would imply one of two things: 1, wholesalers do already offer a great selection of wines that are sold into the market place; 2, wholesalers don’t sell a great selection of wines but the wines they do sell are the one’s most consumers want thus retailers gain very little from offering other wines to consumers. Therefore, the removal of the wholesaler mandate will have little to no effect on the overall wine market (aside from what I see as the wine industry’s biggest threat of even greater retail pricing pressure).

  13. Marcia - November 17, 2009

    Agreed, Tom, that the Nazi Party was the best at propaganda in the last 100 (except, perhaps, another recent government administration – but I won’t go there to open yet another can o’ worms here). And, agreed that your carefully selected Goebbels quote perfectly articulated your point about the three-tier system web of lies.
    There are many regulators and legislators who have bought the lies – hook, line and sinker – not to mention the wholesalers themselves and some consumers. Excellent examples of Tom’s points are evidenced in his recent post(s) on Michigan (ahem!) and now today’s news in Fort Wayne, IN, on Cap n’ Cork’s lawsuit challenging the state’s alcohol shipping laws as unconstitutional (Commerce Clause citation).
    As usual, providing more fodder for Mr. Wark’s blog (underscoring his Lie #3), the loudest propaganda noises in this case came from the (ahem!) wholesaler, complaining that twice he was delivered wine without a…wait for it…ID check! Horrors! (So the shipper has to be responsible for ensuring the truck driver verifies ID?! But that’s for another post, Tom….)
    I had no intent to shoot the messenger, Thomas, since I agree with his points. Charlie said it best perhaps about the historical analogy…. And, Tom, I like the inclusion of historical notes, particularly since it’s a specialty of yours. (Perhaps something on the Fall of Rome or Montgomery’s disagreements with Patton would be less volatile in dialog…?)

  14. Marcia - November 17, 2009

    Thomas, my sincerest apologies if I offended with my alternate suggestions of Stalin and Mussolini. As you so well noted, I stumbled into the same pitfall as some accuse our host of doing.
    I can only offer, again, my apologies to you and explanation that my choice of dreadful world leaders (or my dreadful choice of world leaders, whichever you prefer!) was intended to demonstrate that these men were *perceived* as being just barely, slightly, minutely less-horrid than the Nazis. (I am, of course, well-familiar that Mussolini perpetrated horrors on the citizens of Italy. Mea culpa.)

  15. The Wine Mule - November 17, 2009

    From good ol’ Wikipedia:
    Godwin’s Law (also known as Godwin’s Rule of Nazi Analogies) is a humorous observation made by Mike Godwin in 1990 which has become an Internet adage. It states: “As a Usenet discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1.” The term Godwin’s law can also refer to the tradition that whoever makes such a comparison is said to “lose” the debate.

  16. Thomas Pellechia - November 17, 2009

    My point is that I am not offended by historical references. My further point was that by replacing one villain with another, you do not necessarily lessen the power of one reference over another.
    My overall point is that thinking adults should be able to determine the difference between historical reference and endorsement plus, thinking adults should refrain from attempting to stifle debate by throwing around a barrel of red herrings.
    I thank you for rising to my challenge. You raised a number of issues and frame them well, and although I disagree with a number of things that you point out, I don’t care to get into the same debate that I’ve found myself in many times before.
    I’ll say only this: the goal of establishing the three-tier system was beyond the single one that you reference. In most states, the goal was to inhibit access to alcohol, or to at least make it cumbersome on purpose. But if the idea was in fact as you say,”…protect retailers from domination by suppliers.” Wouldn’t it have been better to break up the Prohibition era dominant suppliers and start over than to hand most of them legal territories from which to maintain their domination?
    Plus, I will ask you this: do you think it is a proper role when a state suppresses market access to a legal, commercial product? And if it is, for what purpose should a state have that right and which part of the supply chain should be targeted to suffer by the state’s action?

  17. PA Wine Guy - November 17, 2009

    1. The use of the three tier system after prohibition was an attempt to break the grip of organized crime.
    2. During my time in the wholesale segment, we were constantly on the lookout for new/interesting wines to bring to market to expand our portfolio and complete against the smaller “wine houses.” (I worked in management for the second largest wholesaler in the state.) Our small market had 15 wholesalers selling wine, all fighting for the dollars of the retailer, all offering in-stock products for next day (free) delivery.
    3. Agreed
    4. From my retail experience, this is how this often works:
    a. Wholesaler tells retailer he has to buy X to get Y.
    b. Retailer accepts Y and refuses X upon delivery.
    c. Wholesaler screams “you can’t do that”
    d. Retailer takes major product from wholesaler (say, Jack Daniels) and pulls it off the floor.
    e. Supplier (Brown Forman) wants to know why product is off the floor, and forces wholesaler to make nice with retailer.
    f. Repeat 12 times annually.
    As I have stated previously, Tom makes very good points as he lobbies on behalf of his clients, and I agree with him more often than not. Unfortunately, their hands are not clean as they scream foul whenever a state makes a move to allow other outlets such as grocery stores, convenience stores, etc… to compete with them. How is this any different than the wholesalers fighting to maintain their advantages? This is not unique to wine, and occurs in EVERY industry. (In PA, we have a very strong union that impedes any effort to privatize stores.)
    And I maintain that throwing out Nazi analogies is sophomoric at best and well beneath Tom’s talents.

  18. Thomas Pellechia - November 17, 2009

    “1. The use of the three tier system after prohibition was an attempt to break the grip of organized crime.”
    Then why did most states give the criminals or their associates licenses to do business after repeal as well as a grip on the distribution network?
    Plus, you continue to overlook the fact that in the mandate of most state liquor authorities is the call to make access to alcohol cumbersome. That is THE telling reason behind how the laws were constructed.

  19. wine club - November 18, 2009

    I’m going to stay out of the comparison game here because I don’t agree with the comparison between the Nazi’s and practically anything outside of Rwanda these days, but I do appreciate the efforts to affect change in shipping regulations.
    I know I’ve posted before, but these archaic laws only hurt people that don’t know any better. There are tons of ways around them perfectly legally, but for a restaurant it probably isn’t worth the trouble, or the average wine drinker for that matter.
    Come on politicians, protect free trade, protect the constitution and protect your constituents.

  20. wine club - November 18, 2009

    I agree on the analogy side. I think you’re completely missing the point though.
    If a consumer in PA came to Napa and wanted to ship wine home….he couldn’t without setting up a CA address and paying CA sales tax.
    Does that really make sense?

  21. Tommy - November 19, 2009

    This probably doesn’t quite tie into the conversation, but is it legal in the state of CA for a wholesaler to give money to a wine buyer for a guaranteed by the glass placement in this case $1,000 to donate for a charitable cause for the buyer? On top of that said wholesaler is giving $15 dollars back for every case the buyer picks up of the BTG wine? I work for a small family run wholesaler and I’m new too the business but is this common practice in the industry and is it legal? We don’t have much money and could never afford to do that, I’m just wondering if this is a common practice in other states?…

  22. Thomas Pellechia - November 20, 2009

    It’s not uncommon and as far as I know, it’s also not legal in any state.

  23. Tommy - November 20, 2009

    Wow I didn’t know that but doesn’t that give an unfair advantage to larger distributors with deeper pockets, so they can just essentially buy their way onto wine list. That seems unethical.

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