The State of Wholesaler Liquor Domination

TLD When a relatively small group of businesses control an entire industry, something is broken.

Yesterday the Specialty Wine Retailers Association (for whom I act as Executive Director) released a study entitled, "Toward Liquor Domination". The study details the more than $82 million alcohol wholesalers have spent on campaign contributions and federal lobbying over the past three election cycles.

This amount dwarfs all of the state and federal campaign contributions and federal lobbying by wine stores, beer producers, spirit producers and wine producers during the same time period.

Why would one relatively small part of the alcohol industry spend so much more on political influence than the rest of the alcohol industry? And how can they do it?

In the vast majority of states alcohol wholesalers are granted a monopoly on the distribution of wine, beer and spirits. That monopoly, in place for the past 75 years, might be the most valuable single subsidy given to any industry in America.

As the American alcohol industry has changed to the point that it is unrecognizable from what it was 75 years ago, the regulatory scheme that places wholesalers in the middle of transactions where they are not needed—but are granted a place by state mandate—has changed very little. The result is wholesalers have become the choke point, the controlling interest in nearly all alcohol transactions in America. And with this power, they have been able to control the political process to the point of getting laws passed that protect them from nearly any form of competition. To this day they control the political process surrounding alcohol legislation in nearly every state.

Due to the power of alcohol wholesalers represented by the $82+ Million dollars they can spend on influencing the politics of wine, beer and spirits, they have been able to achieve the following:

• Bans on retailer-to-consumer wine shipping

• Bans on winery-to-consumer wine shipping

• Bans on producers selling directly to retailers or restaurants

• Franchise Laws that limit the ability of producers to move from one wholesaler to another

• Laws mandating that wholesalers be paid COD when they deliver wine

• Laws banning multi-store retailers from housing their inventory in a central warehouse

• Passage of Primary Source Laws that ban retailers from importing wines directly

• Forcing wineries and retailers to pay millions of dollars in legal fees just to get courts to tell us what was already known: States can't discriminate against inter-state trade

• Forced the introduction of H.R. 1161 into Congress, which would strip wine stores of their constitutional protections against discriminatory state laws, threaten winery-to-consumer shipping, and give wholesalers far more power to control alcohol laws and regulations than they even currently possess.

• Threatening to shutter New Jersey wineries by convincing lawmakers not to pass any law that would square that states laws with the constitution

• Stripping consumers in numerous states of the long held right to buy wine from out of state wine stores

The system that keeps wholesalers flush enough to drop $82+ million on campaign contributions and lobbying, the "three tier system", was put in place 75 years ago for a simple reason: To prevent the pre-prohibition practice of producers dominating saloons to the point of forcing them to act irresponsibly in their marketing and to assure that the "speakeasy" did not continue on into the Post-Prohibition era. Today, none of those threats exist nor could they exist.

The three tier system today continues to exist for a simple reason: To line the pockets of wholesalers where their services are often unneeded.

Consider this: in most states, wineries are unable to have their wines sold on restaurant wine lists unless their wines are sold to the restaurant by a wholesale. However, wholesalers are under no obligation to represent a winery. Is there any other industry in America where a producers wares and a business' inventory is determined by whether or not a wholesaler wants to act as the middleman?

Little of this will change unless producers of alcohol and retailers and restaurants band together in a united front against the corruption that is the middle tier's domination of the alcohol industry. More importantly, consumers are the secret weapon to changing the system so that goods can flow easily and be carefully regulated without the state giving wholesalers a dominating advantage in exchange for campaign contributions.

Read "Toward Liquor Domination".

Then Go take action by

-Join the American Wine Consumer Coalition Facebook page
-Join the StopHR1161 Facebook Page
-Visit and get educated
-Visit Free the Grapes to write to your representative
-Tweet Out the Above Link to "Toward Liquor Domination"
-Put a link to the "Toward Liquor Domination on your Facebook, blog or website
Contribute to Specialty Wine Retailers Association and their effort to make change.


5 Responses

  1. bb - July 13, 2011

    >>Little of this will change unless producers of alcohol and retailers and restaurants band together in a united front against the corruption that is the middle tier’s domination of the alcohol industry. More importantly, consumers are the secret weapon to changing the system so that goods can flow easily and be carefully regulated without the state giving wholesalers a dominating advantage in exchange for campaign contributions.<< I have been in the licker business for over thirty years and the liquor distributors are no more evil now than they have ever been. There are less of them and they are more powerful, but I don't even see this as the problem. You could have written the same paragraph about the banking, pharmaceutical or insurance industries. The problem is that our elected representatives no longer represent us as citizens, they represent those who fund their campaigns and buy their path to power. If every wine drinker stormed their congressman's office, things would not change. It will not be until we choke off the flow of money that buys the congressional / senate seats that the consumer will regain any control over the markets. I appreciate your efforts to stand up against the forces of evil, but the evil is much bigger than the entrenched wholesalers.

  2. Tom Wark - July 13, 2011

    Thanks for commenting.
    I’m a little less cynical than you, though I recognize the truth of your concern with how campaigns are financed.
    That said, I have seen changes to the alcohol regulatory and legal environment that have been driven by factors beyond contributions and that have been advantageous not only to the alcohol industry but to consumer.
    I think we do have to admit, however, that the wholesalers IS different than Pharm or Insurance: the use of the wholesaler by retailers and producers and the diversity or lack thereof in products in a market are given over to the will of the wholesaler by none other than the state.

  3. Ned - July 13, 2011

    Tom I don’t think bb is being cynical as much as utterly realistic. That reality is the reason the contributions are so huge. Money not only equals speech but it talks too.
    If you still sincerely believe that politicians-on the whole- are prepared to act in service of the common good or really any interest not represented by significant campaign contributions you are charmingly naive. Given a choice to act on behalf of a significant contributor whose interest is narrow and selfish or a group of activists who are selflessly advocating for a greater and more common good without a check in hand, well, show me an example of the latter getting action.

  4. Tom Wark - July 14, 2011

    Your point is well taken. However, i’ve seen the power of the wholesalers overcome in courts, legislatures and with executives. However, it takes a concerted effort.

  5. Fabio (Vinos Ambiz) - July 15, 2011

    When I first found out about the 3-tier system a few years ago, I literally couldn’t believe it – I thought it was some kind of joke or misunderstanding!!! Our stereotype of America, here in Europe, is the land of economic freedom, commerce and business unhindered by bueaucrats, etc, like it was in the Bizantine Empire and like it is now by the EU!!! So the 3-tier system was a real eye-opener for me.
    The big problems I see in getting rid of it are:
    – the encumbent, wealthy and powerful position and budget of the middle tier, and their links to politicians
    – the emotional, historical, cultural baggage of the Prohibition, gangsters, speakeasys, etc
    – the religeous, puritanical beliefs on alcohol of a big portion of the US population
    I wish you all the best.

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