The Thugs of the Wine Industry

Distributor consolidation in the wine industry —such as the latest between Republic-National and Breakthru — is beneficial to consumers who like their wine wet and with alcohol. This is the majority of wine made and sold. However, it comes at a price for those consumers who these two distributors care nothing about and generally despises: consumers who want a wine that is interesting, innovative, well-made, authentic or simply really good.

But consider this little economic innovation: today two wholesale wine companies control far more than 50% of the U.S. Market AND the producers who make the wine and the retailers that sell the wine are forced by law to use their services. Some call this a corrupt oligopoly. But it is more commonly called the Three Tier System.

Now consider the following two facts: 1) those folks who most vehemently defend the Three-Tier System are the wholesalers and lawmakers. 2) Wholesalers give hundreds of millions of dollars to the lawmakers that keep the three-tier system in place.

The vast majority of wineries in the United States are small, family-owned affairs. The vast majority of these wineries, knowing the commercial and legal power of the wholesalers will only serve to harm them, can choose to sell the majority of their wine direct to the consumer via tasting rooms and direct shipment. And they will. This, in turn, means that the great diversity of wines produced in the U.S. will not make it into wholesalers’ hands and, through them, into the hands of retailers and restaurants. This is exactly what the wholesalers want. They don’t particularly like producers selling directly to the consumer. But the few wines they have to handle, the better off the wholesalers are. Over the years, the wholesalers have learned that the less work they have to do, the fewer brands they have to serve, the easier their job.

So, yes. The recent merger of mega wholesalers is good for the vast majority of wine drinkers who merely require their wine be wet and alcoholic. And it’s better for producers of merely wet and alcoholic wine who prefer to work with fewer wholesalers in the states. And it’s better for wholesalers who prefer to work with fewer brands and still serve the majority of consumers.

However, make no mistake about it. The merger serves a corrupt purpose that is maintained and supported by lawmakers who have no problem supporting the thugs of the wine industry and they are happy to do it.


7 Responses

  1. Bill McIver - November 27, 2017

    the more things change, the more they stay the same.

  2. Patricia - November 27, 2017

    At the risk of seeming seriously British and annoyed, “No S***, Sherlock”. The distributors have been doing this since I was working in the States 31 years ago. It’s hardly better in Europe, but at least we (until Brexit) ship wines for personal consummation from the EU to the UK.

    Best of luck?

  3. Carl Giavanti - November 28, 2017

    You are correct Patrick, but the plight of small craft producers is telling when you consider these numbers (2015 SVB) over just 20 years – 1995 2,600 wineries / 3000 distributors. 2015 8,800 wineries / 700 distributors . And in Sherlock’s defense, yes, we all know what’s happening with 3-Tier corruption. Tom’s role as an industry watchdog is to remind us lest we forget!

  4. Julius Orth - November 28, 2017

    So, is this not an opportunity for the small distributor to work a niche market segment with the small artisan producers that has select client lists that crave those unique selections that the big distributor does not want to deal with? I represent a small family winery that to date has been unable to find a distributor willing to deal with us. If there are any small guys out there, contact me at [email protected]

  5. Chris Archibald - December 3, 2017

    To say “…these two distributors care nothing about and generally despises: consumers who want a wine that is interesting, innovative, well-made, authentic or simply really good…” is a fairly broad recrimination of a number of really good wines made by really good people who happen to use them for distribution. Moreover calling the system corrupt isn’t useful because it doesn’t really help forward the discussion. Corruption = criminals and criminals =bad and if true, what is there to talk about, everyone goes to jail right? But we know it’s not that simple.

    The Three Tier System may very well be a boiling hot bowl of greasy crap but in that cauldron, there are a lot of good people and a lot of good brands trying to find their way to a career and life in the world of wine and spirits. Broad generalizations are relatively good click bait but intellectually a little lazy.

    Though product mix varies from state to state I happen to enjoy the following wines represented by Breakthu and do not consider the producers un-authentic, non-innovative, un-interesting or generally not good.
    — AA Badenhorst
    — Montenegro Amaro
    — Arnaldo Caprai
    –Avery Brewery
    –Bibi Graetz
    –Sipsmith
    –J. Wray and Nephew
    –Brewer-Clifton
    –Calera
    –Chartogne Taillet, Jean Lallement, Rene Geoffroy…

    Okay the list of producers of very good wine, spirits and beers is going to get too long for you to apologize to. Let’s just agree that when you go after the big bad distributor, be careful about insulting some really great producers during your quest.

    • Chris Archibald - December 3, 2017

      **I should have said wines, spirits and beers I enjoy.

    • Tom Wark - December 4, 2017

      Chris,

      Thanks for your lucid comments.

      The fact that some wholesalers carry well respected brands doesn’t negate the fact that they have pursued a business and political strategy that diminishes access to hundreds of thousands of wnes from small, family owned, high quality producers from the U.S. and abroad. And it’s not as though they’ve just missed those producers. They don’t want them and their political action suggests they don’t want consumers to be able to access them if they don’t sell them.


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