Losing Control of Wine & Spirits…It’s Scary

Posted by Tom Wark on Apr 20, 2012

Yesterday, the Wine & Spirit Wholesalers of America (WSWA) explained that while they DID oppose it with millions of dollars and while they ARE financing a lawsuit to stop the law from taking effect, they are in fact NEUTRAL on privatizing alcohol distribution and sales in Washington State…and elsewhere.

The occasion for this oddly dichotomous position that is probably lost on no one, was an annual WSWA press conference held in Washington, DC yesterday that was purported to address "The State of the Industry". It did no such thing.

However, the occasion resulted in a few explanations that were perhaps the most revealing examples yet of the greatest concern of the WSWA: CONTROL.

Perhaps the most notable comment from the wholesalers and other industry representatives at the press conference was that their main problem with Washington State's Initiative 1183 was that it was a voter initiative and not something hammered out in the legislature. It was explained that voters are simply not capable of understanding the complicated issue of whether the state or private citizens should be the sellers of spirits in Washington.

What needs to be understood about this position, besides its remarkable but not unexpected disregard for consumers and voters, is that the initiative process does not allow wholesalers to control what happens. Controlling the process of alcohol regulation has always been the primary concern of wholesalers. The initiative process takes control out of their hands.

Consider the other remarkable wine regulatory event of the past decade that flummoxed and set the wholesalers back on their heels: The Granholm v. Heald Supreme Court decision that invalidated the wholesalers long standing claim that states are constitutionally authorized to to discriminate against out of state sellers for the purposes of protecting in-state wholesalers. The Supreme Court was another venue that could not be controlled by the wholesalers. In fact, in the wake of the Granholm decision and going forward for years, wholesalers have argued that the courts are no place to determine alcohol policy; that this ought to be a function of state legislatures where, it not so surprisingly turns out, wholesalers control the process through their massive amounts of campaign contributions.

If wholesalers can't control it, they oppose it.

Consider the following statement made by the master of ceremonies of the press conference yesterday, Craig Wolf, president and CEO of the Wine & Spirit Wholesalers of America:

"Unfortunately some interests have tried to hijack the recent privatization movement and destroy the balance (between the tiers) by tilting the beverage alcohol system in favor of one party or another. 'That’s something that WSWA has vehemently opposed.”

He's talking about Costco, the large retailer that wrote Initiative 1183 in Washington and spent millions on advocating it's successful passage. The fact is, WSWA does not oppose attempts to tilt the alcohol system in favor of one party or another. They oppose someone besides wholesalers attempting to alter the alcohol regulatory system. Consider H.R. 5034 and H.R. 1161, two bills in DC that would have considerably tittled the alcohol regulatory system in the wholesalers' favor in every state in the nation by making it impossible….wait for it…for wineries and retailers to bring LAWSUITS in COURT that challenged discriminatory laws that FAVORED WHOLESALERS.

It's about control.

It should be no surprise that this press conference about "The State of the Industry" in no way addressed anything about the state of the industry. Rather, it was an occasion for arguing the three tier system is perfect and that privatization is bad.

Other interesting tidbits that came out of the press conference, which I listened to via an Internet webcast (Thank you, WSWA) were these:

—-John Bodnovich, executive director of the American Beverage Licensees, an organization of retailers, disputed that consumer access to the wines they want at retail was an issue at all. While he admitted that "sometimes your local retailer will run out of your favorite chardonnay….Perceived inefficiencies" in product availability resulting from the three tier system is a myth. This will be news to those wine lovers who do not have access at their local wine retailers to anything more than a tiny fraction of the wines, beers and spirits actually available in the American marketplace.

—-Mr. Bodnovich, talking about his view of Costco's motives with regard to the Washington State privatization initiative stated, "Citizens are not served by laws that reduce competition". One wonders when Mr. Bodnovich, his organization and the more provincially-minded members of his organization will come out in favor of giving their customers access to wine via direct shipment from retailers—something that would considerably increase competition, but which they oppose.

—-Charlie Marinoff, CEO of Sunbelt-Charmer, a large distributor, uttered something very interesting. While wholesalers and WSWA have for some time now been warning of the dangers of "deregulation", Marinoff noted that even with privatization of the sale and distribution of alcohol, there really is "No real chance of deregulation”. It's interesting to note that while wholesalers of beer and wine, and particularly their associations often claim that the industry will be hurt by those clamoring for "deregulation", these same Chicken Littles never actually explain what they mean by "deregulation" nor what kind of changes amount to "deregulation". One suspects this kind of bait-run-and-be-silent excuse for an argument is undermined precisely by what Mr. Marinoff candidly explained at the press conference.

—-Finally, Mr. Marinoff—the wholesaler—had this to say about the process of creating rules for regulating the sale and distribution of alcohol: "The important thing is to involve all stakeholders in regulatory decisions. We all get provincial. That's why you need all the parties to participate because everyone sees the world through their lens." The irony of this statement, particularly in the wake of wholesalers themselves writing H.R. 1161 that was opposed by every producer and retailer of alcohol in the country when it was introduced on Capital Hill, was likely not lost on the retailers or producers representatives sitting on the stage next to Mr. Marinoff.

At this point in time, alcohol wholesalers appear quite pre-occupied with privatization efforts across the country. However, it's more likely that their primarily concern is that along with privatization will come reforms to the alcohol distribution system that they have controlled for decades. The traditional three tier system requiring suppliers to sell to wholesalers who are then alone authorized to sell to retailers is radically at odds with current economic realities, with logistic and information technology, with the need to create jobs, with the need to accommodate consumers who have changed their expectations concerning access to products from what they were in 1933, and with the basic philosophies of free and fair trade.