Foxy Wine Wholesalers Ask the Hens to Give Up the Henhouse

Posted by Tom Wark on Apr 11, 2012

I note with some interest that among the American alcohol wholesaling community there is a great deal of talk about the need to unite the the various sectors of the alcohol beverage industry to advance a common political agenda. There was a great deal of call for common agendas at last week's Wine & Spirit Wholesalers Association of Ameirca Annual Convention.

The new Chairman of WSWA, Charmer Sunbelt CEO Charlie Merinoff, put it like this in addressing last week's convention in Las Vegas:

"The other option is we do come together. That we do work together to come up with a common agenda, put our differences aside. I truly believe if we do that we can prevail in the marketplace."

Charlie and the wholesalers are going to have a difficult time advancing this agenda of fraternity between the tiers because the wholesaler remains wed to a long ago lost idea of how the American alcohol beverage marketplace functions.

The fundamental basis of the wholesaler, retailer and supplier's positions in the marketplace is derived from the creation of regulatory system based on the social and economic conditions that existed in America from 1900 to 1933. The "Three Tier System", which theoretically separates the tiers and forces very specific and well controlled interactions between the supplier, wholesaler and retailer, was created as a reaction to economic and social realities that once existed in America but today are non-existent. 

This early 20th century understanding of the marketplace for alcoholic beverages is a reaction to a time when suppliers (primarily brewers) controlled access to alcohol on a regional basis. In the 1900s and 1910s regional brewers were able to tie taverns to their brand and force upon the tavern owner allegiance to their brand to the exclusion of others and also force them to undertake very sketchy and dangerous marketing practices that exasperated the already dangerous and abusive drinking habits of a urban populations.

This problem was addressed after Prohibition by the creation of a so-called "three tier system" that required a wholesaler be placed between the supplier on one side and the restaurant and retailer on the other.  This worked to solve the problem of taverns being tied to suppliers. But over time it resulted in wholesalers having enormous power to control the market place…and the supplier and the retailer.

It's not difficult to understand why, today, almost 80 years after the end of Prohibition, the American alcohol wholesalers primary objective is to keep in place the requirement that alcohol flow through them and only through them before it gets to the consumer.

But things have changed.

While wholesalers are particularly effective box movers for Big Wine and Big Spirits, they are terrible at distributing and selling the products of artisan wineries, craft brewers and artisan spirit producers—a critical part of the marketplace. One solution is to allow these dynamic producers to distribute their product themselves to retailers and restaurants. But wholesalers oppose "self distribution" without discussion.

Additionally, while wholesalers adamantly oppose consumers having products shipped to them from out of state retailers that are willing to sell products that consumers can't get locally, consumers demand this kind of access because it leads them to the very products they want.

So, wholesalers, in the face of what they consider recent political disasters (the passage of Initiative 1183 in Washington State that privatized liquor sales and reformed the wine regulatory system and the failure to get H.R. 1161—The CARE ACT—adopted in Washington, D.C.), remain unwilling to modify their opposition to simple regulatory reforms that respect current market conditions. Yet these same wholesalers plead with retailers and producers to support their agenda, which in large part is antithetical to the agenda of the vast majority of alcohol producers and many progressive retailers.

And there's something else. Wholesalers appear unaware or or indifferent to the fact that the consumer side of the marketplace equation bares no resemblance to the consumer that existed when the ancient and archaic regulatory structures they defend were put in place in the 1930s.

Today's consumer is willing to live with restrictions on alcohol consumption and marketing. But they have no interest in, nor do they understand, regulations that restrict their access to the explosive and exciting expansion in products. This is seen in the wholesalers' unmitigated opposition to any regulatory changes that would make consumer access to products easier and simpler.

Wholesalers always oppose direct interstate supplier to consumers sales and shipping

Wholesalers always oppose direct interstate retailer to consumer sales and shipping

Wholesalers always oppose direct supplier to retailer sales and distribution.

Yet, these are the only mechanism that would give consumers what they really want: real access to the new and varied and exciting products that have hit the American marketplace over the past 20 years and continue to grow like weeds in response to consumer demand. These are also the mechanisms that suppliers and retailers want in order to satisfy consumer demand and to give them the means to compete and prosper. Yet, wholesalers continue to oppose these kinds of simple reforms.

So the question becomes, how in the world do wholesalers expect to create common cause with retailers and suppliers (particularly small and medium sized retailers and suppliers) when they oppose the reforms most important to these market participants?

Charlie of Charmer Sunbelt is living in a fantasy world if he believes as he said in Las Vegas:

"I truly believe if we and our suppliers can put our differences aside and focus on what is really the greater good of the industry, and take those things that are truly divisive and put them aside. If we really start to work together, I truly believe we can shape a much better world for ourselves."

The problem that Charlie and wholesalers don't understand is that "the greater good" can't be defined as only what's good for the wholesaler, yet that seems to be their perspective. It's a bit like the fox trying to convince the chickens to overcome their reliance on the hen house.