Promoting a Misunderstanding of America’s Wine Consumers

mis understandingThe Center for Alcohol Policy, a creation of the National Beer Wholesalers Association that works on behalf of beer wholesalers and has the interests of no one but beer wholesalers in mind, has funded the release of a new little book for state alcohol regulators: “Alcohol Beverage Control: The Basics for New State Alcohol Regulators.”

The description of the new book delivers an assertion that is not only incorrect, but in fact if believed and if pursued as the truth or as a model for understanding alcohol regulation, we will find a new generation of alcohol regulators completely misunderstanding the nature of America’s alcohol marketplace.

That assertion is this: “There is no national alcohol market. There are 50 different alcohol markets by constitutional design.”

Any understanding of alcohol regulation based on this principle will result in a regulatory regime that is decidedly anti-consumer. Not quite as important, but equally true, is that the idea there is no national marketplace for alcohol is a notion that provides a continued foundation for America’s alcohol middle men—wholesalers—to dominate and control the alcohol industry in the same way that the tied house model allowed producers to control markets pre-Prohibition and that led to the kind of corruption that inspired the move to Prohibition.

First, we know there is a national marketplace because consumers have decidedly determined by their purchasing habits that they are more than willing to explore alcohol options far beyond their state borders. They happily seek out new, hard-to-find, rare and regional bottlings of beer, wine, spirits and cider that simply don’t show up in their state stores. Just as important, the producers are more than happy, willing and able to sell their products to this increasingly important segment of consumers.

An Efficient logistics and shipping industry makes this possible as well as the expansion in access to information provided by the Internet.

Any view of alcohol regulation that promotes the notion of their being no national marketplace purposefully ignores this 21st century reality and is flawed from the get-go. However, such a view of alcohol regulation does serve to provide wholesalers with a means of controlling product distribution and retarding the growth of the American alcohol marketplace—particularly for small producers and the consumers that seek them out.

Written by Roger B. Johnson, a 38-year veteran of the Alcohol & Tobacco Enforcement Unit of the Wisconsin Department of Revenue, ” “Alcohol Beverage Control: The Basics for New State Alcohol Regulators.”, also describes the primary concerns of alcohol beverage regulation:

•Preventing Tied Houses
•Ensuring public safety by penalizing underage or over-service of alcohol beverages
•Collecting state revenue from excise taxes
•Providing Education and Training to the Industry
•Balance desires for a “free market economy” with the goal of promoting temperance

These are all legitimate and important areas of concentration and concern not only for alcohol regulators but for the industry and the public. Still, without a proper understanding of how a modern American alcohol market operates, without an appreciation for the nationalization of the alcohol beverage economy (particularly as it relates to craft and small artisan products) and without a regulatory community willing to take as their mandate something more than protecting the favored position of the middle tier then the young alcohol regulators this book is aimed at will find those whom they regulate as well as consumers demonstrating too much disdain for their work.

Posted In: Uncategorized


19 Responses

  1. Randy Agness - June 12, 2015


    Well done. I’ve appreciated the collaboration help on my Wine Politics series.

  2. Steve - June 12, 2015

    Everything about the 3 Tier system causes me to feel violated and without the prescribed follow-up kiss.
    -I hate being unrighteously controlled by Big Brother.
    -I do not like being artifically taxed through a system that rewards an industry by elite politicians for their personal gains (campaign contributions). Remember, McCain’s wife is a distributor of alcoholic beverages.
    -If government is going to extract money surreptitiously from me as though I have the intellect of a daycare charge, I am incensed and rebel.
    -Government should add value to/for the uncleaned masses when they pass laws; what is the real value when a law is passed with global reach without value? The reach ultimately is when government reach into our pockets without adding value…then it becomes theft.
    if 3 Tier distribution systems are so great, will government force ALL industries to go through distributors to get product to consumers. Maybe there should be a 3 Tier system to sell Dental Floss to consumers. Mary Jane has been around for centuries and there is no 3 Tier system for this product yet it is somewhat controlled by governments-for the purpose of tax revenues.
    If an entity finds it helpful to retain distributors to help get their product sold, then it should be a free choice. Today, a distributor is free to take on any client they desire and can charge that client anything they want, if the potential client refuses then they can sell–folks ,that is what most people call a monopoly.
    Is the 3 Tier system in America to powerful to fail?

  3. Tom Wark - June 12, 2015

    Thanks for your comments. You’ve hit on one of the problems with alcohol regulations: They treat the modern world as though it is the same as 100 years ago. It of course is not. Trying to fit a square peg into a round hole will always cause friction. And the three tier system clearly does that.


  4. Ron Marsilio - June 16, 2015

    You describe Roger B. Johnson as a 38 year veteran of the alcohol enforcement when he articulates his 5 basic reasons for alcohol regulation. Well 38 years in the regulation business should give you some sense that the man may just know of what he speaks. You yourself claim that the 5 points are all “legitimate and important areas of concern not only for alcohol regulators, but for the industry and the public.”

    Now, I am not in favor of the general public paying more for goods and services than they have to, however, the 5 points listed as primary concerns of alcohol beverage regulation just happen to be the very reason the 3 tier system was created. You can stand on a soapbox all you want and rail against the system that is in place, but the fact remains that what is being regulated are products containing ethyl alcohol. Dangerous 100 years ago and still dangerous today. You seem to think that because decades have passed, that now all citizens of this Great Land and the World in general are enlightened and will all treat alcohol with a new found respect and care. The passage of time has nothing to do with abuse. There is still an urgent need for control. We see it everyday. Just because someone drinks a First Growth Bordeaux, a Grand Cru Burgundy, a 25 year old Highland Scotch, or a boutique small batch Bourbon, does not mean they cannot be abusing these products. The poor bloke who sits on a stoop in a run-down neighborhood and drinks rot-gut from a paper bag, remarkably has fellow abusers who dress in tuxedos and dine in 5 star restaurants in the name of gourmet organizations sipping Harlan Estates and Screaming Eagle until they fall off their Damask linen covered chairs. And in response to you Steve, ethyl alcohol is NOT dental floss. It is a drug, and the most popular drug used in this Country, and as such needs regulation like the 5 points articulated above offered by the Three Tier System.

    Don’t get me wrong, I am not a teetotaler, I like all types of adult beverages as much as the next guy, and like I said before, I am not one who likes to see anyone pay more for a product than is necessary, but the controls that the Three Tier System provides are a minor inconvenience for an increased measure of safety for the general public.

    • Steve - June 16, 2015

      Ron, points are all well taken and I do understand. Most anything taken to excess is harmful and alcohol is at the top of any such list. Government seems to play both ends of the spectrum-they love the revenue/taxes and they are there to protect citizens from themselves; certainly citizens who cannot control themselves. To protect the citizenry from themselves, excessive alcohol consumption seems to be something outside the Three-Tier System capabilities. Unless such a system has policing powers like the Feds/states/local governments it seems like the Three-Tier System is really an artificial middleman in the salesor controlling process. Can there be a better way to protect drinkers of alcoholic beverages from themselves, no matter the socio-economic level. Look at drug (illegal) sales, today there is a major move to let drug dealers and users out of jails and not arrest them at all. We have States allowing retailers to sell pot after years of the DEA confiscating and burning forests of pot plants. The concept seems to be it is a losing battle for government to protect select individuals from lthemselves.
      Is there a better way for the alcohol industry to be party to helping those that abuse the substance? Right now, the Three-Tier program is controlled by big business that makes money off of beer, wine, distilled product sales, as does the Government. Strangely they say they are also the gatekeepers to protect those of us with drinking issues. A monopoly industry, endorsed by politicians, receiving campaign monies from the industry is a compromised approach. The question remains: Is the Three-Tier system protecting consumers of too much drink? Is it effective? How much money is the Distribution system spending from their profits to stop and prohibit problem consumption?
      This is like the gaming industry policing itself. Ron, most are saying there should be a better way than the Three-Tier system if protecting people is the primary emphasis.

      • Ron Marsilio - June 16, 2015

        Well said and understood, but the point is this, it is not so much how the Three Tier System solves the overconsumption of alcohol, it is more like what would the abuse situation be like if the system now in place were abandoned. Remember, the Three Tier System was created in response to the abolishing of the Volstead Act. Prior to Prohibition, the controls on alcohol were negligible. Prices were erratic, quality was poor and the “business” of alcohol consumption took precedence over safety and quality. I really do not think we want to go back there. Can the Three Tier System evolve, and become more workable? Perhaps, yet something still needs to be in place. Just because it is 80 years later does not mean that we cannot wind up in the same situation that existed before.

        You mentioned the recent changes in drug policy and the legalization of marijuana in some locales. None of this is done without strict measures of control by the government, and I consider pot to be much less harmful than alcohol. Why would you want less restrictions on alcohol? Yes, sometimes the presence of the Middleman is distressing considering the fact that it is a business and as such contributes to the cost of the product, but their existence provides more benefits to the general public than detriments.

  5. Tom Wark - June 16, 2015


    Requiring that producers use wholesales to bring their products to market and banning the shipment of wine direct to the consumer does nothing to prevent tied houses, make anyone safer, prevent over indulging, collect excise taxes. It is merely a form of rent seeking and extortion.

    Do you remember what the wholesalers said when the direct shipping battles first heated up? That minors would buy wine by the boatload, that states wouldn’t get their taxes and that the middle tier would be put out of business. AND, that the three tier system would be endangered.

    Exactly ZERO of those things happened.

    The thing is Ron….Wholesalers and the three tier system do not now and never have played any significant role in preventing abusive use of alcohol.

    • Ron Marsilio - June 17, 2015

      I have to vehemently disagree with you. How many tied houses do you now see operating in the U.S.? Granted, the repeal of Prohibition came about over 80 years ago, however, the abuses and excesses of the past in the alcohol industry would once again rear their ugly heads if all current distribution procedures were abandoned. We are talking about greed. You claim that the greed exists with the wholesalers, and in some ways, I agree, however their function in this process is necessary to prevent the extreme greed of big manufactures, distilleries and wineries that could easily corner the market and curtail competition. Can the system be tweaked and altered? Yes. Abandoned? No.

      I need only to focus on Great Britain, which has systematically dismantled the three tier system, only to find abuses and excesses beginning to run rampant as it once did before controls were established.

      There is a reason the three tier system was instituted and even though, it sometimes seems unfair and leads to higher prices, it is necessary for all of the five reasons, that you yourself agreed with, as outlined in your blog above. The legislators that concocted the three tiers sought to remove one part of the chain as the controlling force in alcohol distribution. I think it has succeeded in doing that. It promotes competition, insures quality products, collects taxes, provides more products to the consumer and aids in the over consumption of alcohol and therefore should remain as the predominant distribution system of alcoholic beverages in this Country. Alter it if you will, but do not dismantle it.

  6. Tom Wark - June 17, 2015


    I have to point out that you can’t name a single example of how allowing wineries and retailers to sell direct across state lines (a violation of the three tier system) has caused any problems, let alone tied house issues.

    I have to point out that you can’t offer up a single example of how allowing self distribution (a violation of the three tier system) has caused any more abuse than would have existed with a strict three tier system.

    It’s quite possible to keep prohibitions on cross tier ownership (tied house laws) in place AND allow all direct to consumer shipping and self distribution. Doing anything else is no more than offering unjustified protection and rent seeking mechanisms for well heeled campaign contributors.

    • Ron Marsilio - June 17, 2015

      I did say that there is room for tweaking the system, however I firmly believe that the three units representing alcohol sales should and must be kept separate. Internet sales are something new and present an entirely new focus, one that could not be foreseen by those who put the three tier system in place. Internet sales to private individuals must be dealt with, but when it comes to sales to retail stores and on premise establishments, the three entities must remain separate.

      I still have some problems with internet sales to private individuals also, since any kind of swill can be bartered on line. No protections for the consumer.

    • Ron Marsilio - June 17, 2015

      On a small scale problems may not appear, but expand that to include the whole Nation and problems could arise that reach enormous proportions. It would not be economically sound to eliminate the three tier system. How would the lack of product building and supplier distribution to big box stores effect the pricing to the consumer? How would the lack of advertising support supplied by distributors effect product awareness and availability? What about shipping costs? How would we deal with the lack of accountability from the manufacturing side when there are no longer separate licensing procedures for each leg of the distribution process? How do you introduce new products to an ever-changing market without the help and support of a distributor? Beyond the economics, where is the “safety net” for the consumer?

      I can see on a small scale how direct internet sales to private individuals may have its place, and I understand that in California it works to some degree, but California is a different animal than the rest of the Nation. Most of your suppliers are right there.

      No, I think that there is a very definite need for the three tier system, and if it is not mandated, then many of the 16,000 plus distributors will go out of business, the consuming public will suffer, and the economy as a whole will reverberate with the loss and the void that is created in this multi-billion dollar business. Without assurances that prices will take a dramatic nose dive and that consumer safety will not suffer, I think the risk is too great.

      • Steve - June 17, 2015

        The Three-Tier system was not instituted 83 years ago to be an in-perpetuity make-work program for people interested in buying, rep’ing, selling, stocking, and ensuring that at large citizens are protected from the ills of alcohol (after picking up the Carrie Nation banner), and warehousing alcoholic beverages for the unwashed masses who enjoy wine, beer or spirits. It is hard to believe there are 16,000 companies that are Three-Tier Distributors. That is about 350 such companies per state. The TTB only has 400 employees for the whole nation. No matter the number of distributors, why are consumers expected to fund the Three-Tier System as part of a welfare system for a government imposed for profit monopoly system. Auto dealers are now up-in-arms because Tesla is proving that that system of distribution is government mandated and protected-just like the Three-Tier System. Just like Three-Tier.
        Heck, throw in Trade lobbyist, trade associations and politician-they all live off the Three-Tier System!
        Respectfully, everyone is entitled, in the U.S. to opinions for the time being 🙂

        • Ron Marsilio - June 17, 2015

          No Steve, it was not instituted 83 years ago as a make-work program, however, it was instituted for protection of the public and regulation of alcoholic beverages and also to insure that the manufacturers would not develop monopolistic tendencies and keep competition alive in the alcoholic beverage industry. The three tier system was also mandated to help in the collection of excise taxes and, in general, to keep the whole system orderly and controlled so one facet of the industry could not dominate. Separate but equal.

          Yes there are about 16,000 of them out there, however only about 30-40 are important. The rest are Mom and Pop licensees distributing or importing only a handful of items.

          No matter how you slice it, they are important. Important to the industry and to the U.S. economy. Billions of dollars are generated through the three tier system, billions that probably would not be there if the whole beverage industry was left to direct sales. Yes there would be sales, and yes consumers MAY pay a little less, there is no guarantee of that, but the alcohol distribution business would be depressed if the middle men were removed. I think so and so do a lot of others in the business. Having worked for importers and distributors I cannot emphasize their economic and social importance enough. Now, should they be mandated? That is another question. Perhaps not, but without the mandate Nationwide, the whole middle may collapse, and that, I fiercely believe would be disastrous.

  7. Tom Wark - June 17, 2015

    “when it comes to sales to retail stores and on premise establishments, the three entities must remain separate.”

    Why? I read this. But I don’t see an explanation of why there ought not be self distribution, assuming that tied house laws stay in effect.

    Look at CA. Producers and importers can use wholesalers, can sell direct to the consumer or can sell directly to retailers and restaurants. Until you can tell me how this has harmed the public, I have to assume you can’t think of a way it has harmed the public.

    Keeping a system in place that does not provide the benefits it is said to provide is simply a form of unjustified inertia.

    And as for “Any Swill” being sold direct to the consumer. Consider that those getting licenses to sell direct are wineries (who produce their own wine) and retailers who buy either from wholesalers or wineries. Where is this swill you speak of coming from?

  8. Tom Wark - June 17, 2015


    California is a pretty large scale. So is Washington State, both of which allow self distribution for wine. Where are the problems that lead to abuse??

    More importantly, you seem to make the same mistake that others do…assuming that where self distribution is allowed, wholesalers are not used. This isn’t the case. The difference is that wholesalers are not mandated by law, but rather are used when they can show they add value.

    Further, you’ve failed to explain why there would not be separate licensing procedures for producers, wholesalers and retailers and why there would be no accountability under self distribution. There are both in CA and WA.

    And, what “safety net” are you referring to that you imply would not exist with an end to legally mandated use of wholesalers?

    Ron, you are doing the same mistake that most apologists for the mandated three tier system make: you are making claims that are in no way backed up. You assume certain changes to the 3 tier system will result in abuse, yet you offer not a shred of evidence or examples of this occurring.

    • Steve - June 17, 2015

      Another application for the successful Three-Tier System: Smartphone devices.
      Smart phones are dangerous. They can cause cancer of the brain, cause people to buy things they shouldn’t, can distroy homes and families, kids become addicted to the devices and foster texting, selfies are encouraged and that can harm relationships and communities, causes people to be addicted to porn, production of the devices harm the planet, seas are rising and the idle chatter the devices perpetuate waste millions of minutes a year to business. These devices cause car crashes and death. Yes, there are benefits however…
      I propose monopoly distributorships be awarded and even mandated by law in each state to protect the public from the devices.The only way these new devices (imagine-even now worn on the wrist) can be bought by a consumer is by paying a 30% premium to a distributor to buy such a device. Producers will not be allowed to sell direct to consumer even if they want to, even if cheaper.
      I assume consumer will love the new tax. To protect this newly mandated distribution system, politicians will need to be part of the effort; they will guarantee exclusivity.
      Oh my gosh, could we parrot the Three-Tier System that is so beneficial to consumers now?

  9. Steve - June 17, 2015

    Remember, the Three-Tier System is kind of a 3 legged stool-Consumers, politicians and lobbyist. The consumers be damned whatever the merits of the Three-Tier discussions, as long as there are politicians and lobbyist the Distributor will thrive and not just survive. “Too often government responds to the whispers of lobbyists before the cries of the people.”, Andrew Cuomo. He is even a good tax and spend guy.
    Maybe the consumer will get in the mix more at the Three-Tier corporate welfare system.

    • Steve - June 17, 2015

      If the Three-Tier System is the foundation upon which society and producers survive then let the market decide. What are Distributors afraid of? Consumers and producers will demand the best distribution system. Compared to community programs to protect the public from Alcohol-What does the Three Tier System spend on:
      Protecting the public from alcohol abuse?
      What do they spend of product promotion in media and events?
      What are their documented successes in any area other than-their per share value, dividends and cost controls?
      What kind of revenue increases do they post annually?

      Going to market without Distribututors is like going deer hunting without your
      accordion or Rely on Distributors to protect the public from alcohol is like going deer hunting without your accordion.

      Let producers buy services from a distributor if they offer preceived value. Let the market dictate their value to the world.

      Norman Schwartzkopf

  10. Ray - July 5, 2015

    Time for you to write “21st Century Alcohol Regulation: Practicality and Pragmatism for a Less Stupid Era”. Then send a box to every SLA in the country.

Leave a Reply