No Need to Care About Wine Industry Consolidation

Posted by Tom Wark on Sep 4, 2015

Recent stories about consolidation within in the wine-producing tier remind us of one fundamental fact of the wine industry in the second decade of the 21st century: The conditions that led lawmakers in the 1930s to think up many of the “Tied House” laws simply don’t exist anymore.

When BIG wineries like Gallo or Constellation buy up smaller, medium-sized wineries, its does nothing to reduce choice for consumers and retailers nor does it give these producers any control at all over retailers, one great fear that led to the creation of Tied House laws and the three-tier system. With upwards of 8,000 wineries now in the U.S., worrying about any multi-national winery exerting excessive pressure on any tier of the industry isn’t a worthwhile pursuit.

This is the case with beer too. There now exist so many craft brewers that it’s impossible for any one or two brewers to control the regional beer market, let alone a single retail outlet. And the real irony is this: If lawmakers and regulators are for some strange reason still concerned that big producers will exert too much control over retail outlets (the very concern that led to the three-tier system and the legally mandated middle wholesale tier), then they should make sure that breweries, wineries and distillers all have self distribution rights. By doing so they guarantee that retailers can easily get their hands on all sorts of products as alternatives to the big boy’s products.

The only time wine drinkers, alcohol regulators and lawmakers should be concerned about “consolidation” is when it is happening in the middle, wholesale tier. When this happens in a market, the result is the accumulation of massive amounts of market power that leads to wholesalers controlling the destiny of retailers and restaurants in exactly the same way they always feared producers would control the marketplace. Of course, once again there is irony. The assault on consumers, regional marketplaces, producers and retailers by wholesalers that have bought up other wholesalers is only possible as a result of the 1930s era laws that looked to prevent domination of the marketplace by large, powerful entities.