Where the Battle for Free Trade in Wine Stands After the Election

Washington State Initiative 1100 appears to have been defeated by a small margin. This is the initiative that would have reformed the Washington State alcohol regulatory system, getting the state out of the business of selling spirits, allowing self distribution for all forms of alcohol and reforming many of the restrictive laws that favored wholesalers.

What's clear is that the three-tier system is responsible for defeating the Washington State effort to reform the three tier system.

According to the Seattle Times, opponents of reform of the system and Initiative 1100 raised more than $9.1 million dollars to throw at the "No" campaign, far more than those supporting the measure. Those who raised the $9.1 million to defeat Initiative 1100 were primarily the beneficiaries of the three tier system, and largely from outside the state: beer and wine wholesalers who's profits are artificially enhanced by virtue of their state-mandated use as middlemen. This position they have in the three tier system allows wholesalers to accumulate vast profits that are in turn used to protect their interests.

Those interests were well protected with the $9.1 million spent in Washington State against Initiative 1100.

In a story written by Robert Taylor of the Wine Spectator, Craig Wolf, president of the Wine & Spirit Wholesalers Association, key opponents of Initiative 1100, is quoted as saying:

"The vote of the people of Washington state is a strong reminder that the majority of Americans are opposed to the deregulation of an alcohol distribution system which has proven to be the safest and most effective in the world."

He's wrong on a number of counts.

First, what is desired by many is not "deregulation", but rather "reform". In order to accommodate a marketplace unrecognizable from when the three-tier system was developed well in to the last century, this system must be reformed. This is what what happening in Washington State and it is the motivation behind the calls for liberalized direct shipping laws and self distribution laws.

Second, 48% of Washington State voters supported Initiative 1100, even with the overwelming amounts of "No" money that poured into the state from wholesalers across the country. Had 2% of the electorate gone the other way, we would have a different message coming from Wolf.

Finally, it's true that the three-tier system is effective, but only if you are a wholesaler. Thousands of wine brands are prohibited from reaching retail shelves and wine lists in numerous states not because the market won't sustain these brands but because the wholesalers are either unwilling or incapable of representing them. The system is not set up to handle a 21st century wine marketplace and everyone knows this.

There are simple fixes to this situation. This outlines the problem. And this is one way to effect the change.

There are more battles to come next year where consumers and the industry will fight the efforts of wholesalers to keep total control of the wine market. Virgina and Pennsylvania are likely to see efforts to get the state out of the business of selling alcohol and reform their distribution and sales system. And H.R. 5034, the congressional bill that wholesalers have introduced to assure the system is never reformed and continues to be gamed in their favor will be fought out again in the next Congress.

On HR 5034, the wholesalers have some work in front of them. The recent election results show that upwards of 40 of the bill's 151 co-sponsors will not be coming back to Washington in January due either to retirement or defeat (hat tip to Randy at Napa Valley Wine & Cigar for doing the calculation). However, the likely new Speaker of the House, Rep. John Boehner of OH, is a long time friend of the wholesalers.

To again quote Wolf from the Wine Spectator article,

“The constant whining and complaining from the wineries that this is somehow going to change direct shipping in this country is absurd.”

Besides being wrong, Wolf also miscalculates. Those most concerned about the status of wine shipping are not wineries. They aren't retailers. They are Consumers. As long as the wholesalers continue to make this miscalculation, I remain hopeful about the future of real consumer access to wine in the United States

7 Responses

  1. James McCann - November 4, 2010

    This was a tough defeat, as it will embolden the opposition in PA and VA. Two things I found interesting:
    1. Wine and Spirit wholesalers stayed on the sidelines and let the beer wholesalers fund the effort. (Except for those in WA state.) This probably saves funds for another run at 5034.
    2. The wineries in WA lined up against it, which gave any other opponents political cover.
    This defeat is most crushing because these kinds of initiatives are very hard to pass in a state legislature, because political pressure is easier to bring to bear on a few individuals to stop a bill, as opposed to swaying hundreds of thousands of votes.

  2. John Kelly - November 5, 2010

    Looks like there ware 858k “no” votes on 1100 in WA state, so the wholesalers spent just under $11 per vote. Better ROI than Meg Whitman got at $50/vote in her losing bid.

  3. Mark - November 5, 2010

    It’s getting mighty interesting, I can’t say I am as comfortable in regard to HR 5034 as I was just a couple of weeks ago.
    I worry that even losing that many of co-sponsors won’t matter because many of the new guys coming in are perhaps more prone to back bigger business when given the choice. I know that’s a generalization and I certainly hope cooler thinking heads prevail, but I worry that in regard to what politicians regard to less important legislation (this is not taxes or health care after all) it’s easy to simply fall into the party line and raise a fuss about issues you feel are more important.

  4. Mark - November 8, 2010

    John-Agree on Meg, amazing that she couldn’t even make it a close race given the public’s long and sometimes unhappy history with Brown and the huge money she spent.

  5. ian - November 8, 2010

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  6. Shipping - November 17, 2010

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  7. Melvin - December 14, 2010

    Everyone wants to earn good and fast money, and trade is a very good platform to make that happen. At the same time one has to take some precautions and should be well prepared to make it big in this field. Nice article, thanks for sharing.

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