Corrosion and Corruption in Alcohol Beverage Sales
One of the major battle grounds in the ongoing alcohol three tier war is the issue of Self Distribution: when producers sell their own product to either retailers or consumers without the use of a wholesaler. To craft brewers and craft distillers, a dynamic part of the alcohol beverage industry, this ability is crucial to their success.
It is often argued only by the wholesaler tier that producer sales without use of a wholesaler is a corruption of the three tier system; an example of one tier encroaching on another tier’s territory and an undermining of principles of the system. This view of self distribution ought to be dismissed.
When a winery, brewer, distiller or cidery sells their own product either direct to the consumer or direct to a retailer or restaurant they are in fact not acting in the role of today’s wholesaler for the simple reason that they are not providing their buyers with a choice of products from various producers in the way that all wholesalers do today. Only their product are on offer. In essence they are not acting at all like a wholesaler but rather opting out of the three tier system entirely.
Furthermore, when the producers sell directly to retailers, they are not vertically integrating insofar as they are not the end seller to the consumer. The same can be said when the producer sells directly to the consumer as they are not acting as a wholesaler.
Wholesalers and their trade associations too often are successful using the argument that producer self distribution threatens the three tier system and that lawmakers ought to protect the system by assuring that producers only sell their production to wholesalers. In reality, lawmakers ought in every instance to reject this argument. It makes no sense in the 21st century and it is a self serving argument wholesalers concoct in an effort to retain a rent-seeking environment.
The primary goal of the three tier system of alcohol distribution when it was created in the mid 1930s was to assure that producers could not manipulate retailers and, particularly, taverns and bars by tying them to their brands through coercion. Additionally, the goal was to assure that there would be no black market, no organized crime and no marketing efforts that would lead to intemperance. Not to put too fine a point on it, but the goal was to assure that producers did not control the alcohol beverage market. So, a middle man—the wholesaler—was placed by legal mandate between the producer and the retailers.
The irony is that by giving the wholesale tier this kind of monopoly, lawmakers of the the past assured the new mandated wholesale tier would dominate and control the alcohol market, provide the means for wholesaler coercion of producers and retailers and this is exactly what we see today. And today’s lawmakers tend to support this wholesaler manipulation and control of the alcohol beverage marketplace by giving unthinking support to the argument that the three tier system must be protected.
Producer self distribution where allowed has in no instance resulted in Tied Houses. It has not caused any wholesalers to go out of business. And it has not caused any upheaval due to intemperate consumption. In short, all self distribution does is give small producers the means to succeed. Self distribution is a net-win for producers, for alcohol regulation and for consumers. It ought never be opposed when proposed.
Does anyone believe the craft beer or wine industry isn’t controlled by a corrupted system at the expense of the public? This is really mind warping to understand the logic of monopoly distribution laws. Only 1 way to get the product to the mass market? As long as politicians need money the system will survive because voters do not understand the system.
Tom, I could start here by saying I hate to be contrarian, but we know better.
In New Zealand, I have been to a number of rural restaurants which offered wines only from Montana, the country’s largest wine company, now wholly owned by Pernod Ricard. Their wine selections … let me see if I can be generous here … sucked sheep dick. Not only did they only have Montana wines, they only had multi-region, boring, made in enormous tanks, Montana wines at lousy markups. And did I mention that these were rural restaurants? So it’s not like you have the choice to walk around the block and dine and drink elsewhere.
Tied House laws are now more of a burden to U.S. consumers than a blessing, as they add the egregious distributor markup to every bottle. And the laws could be better conceived and written than they are now. But we can’t say there is no reason for them.
Interesting post! Very good points in this post! And I expect more information about how this affects the wine industry and customers! Thank you for sharing with us!
The Wine Elite
[…] wholesalers and distributors is, of course, an anachronistic relic of the Repeal of Prohibition. As Tom Wark cogently pointed out last week in his blog, the original reasons for creating this “third leg” between producers and buyers might have […]