Dear Wine Industry…Signed, Anonymous

Posted by Tom Wark on Aug 19, 2021

What would you tell the federal government about competition in the alcohol industry if you could keep your comments anonymous?

This is the question that struck me as I began to look over the nearly 190 comments that have been provided to the TTB in response to the Biden Administration’s announcement it was looking into the subject of “Promoting Competition in the Beer, Wine and Spirits Market.” It began taking public comments in late July. The deadline for sending comments was Wednesday. Presumably, some sort of proposed rule changes and policy initiatives will result.

As you might expect, the anonymous comments that were submitted to the feds, versus comments by companies, trade associations, and named individuals, are far more pointed. So you don’t have to, I’ve read through the anonymous comments and present below a selection from some of the more interesting comments. Enjoy:

“Big beer expends tremendous resources to keep alcohol laws the same in states and has the market power to get this to happen. In addition to keeping the ABV limits in their sweet spot, they do their best to keep information that is important to consumers, like ABV, from being required on beer labels.”

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“The wine distribution in the US is controlled by two companies and they account for 90% of all wine distributed.
They will not distribute smaller wineries products, they want ridiculously low prices and high volume to even consider it.
These companies need to be broken up – via anti-trust laws.
The three tier system needs to be eliminated and allow the sale of wine to be conducted freely like any other commodity.
I submit this anonymously for fear of reprisals from distributors”

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“Distribution, as required by the three tier system, is antiquated and counter productive for anyone but the top 4 or 5 manufacturers. Distributors act as gatekeepers in all markets, denying distribution to new entries, and sometimes blocking or “shelving” product that competes with existing skus.”

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“We [a distillery] have suffered egregious loss of market share from distributor practices that manipulate the behaviour of retailers. We made a significant effort to interest high end retailers in our area to buy our products, and were successful in gaining bonafide interest in stocking our products from numerous exceptionally well-known restaurants. However, it fell through in all instances because each had an exclusive arrangement with a specific distributor. The purpose of the 3 tier system is to prevent producers from manipulating retailers. Why then are distributors allowed to manipulate retailers? Our very small size makes it ludicrous to imagine any manipulations of a retailer.

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“I echo the need for removing restrictions on DTC sales and loosening restrictions on spirit sales to make them similar to wine and beer sales across the board. But my concerns go far beyond that. I believe the large spirit producers create a barrier to entry to the smaller producers. Distributors are solely focused on maintaining their large brand portfolio leaving smaller producers to fend for themselves. Many large distributors will not pick up a smaller producer and even if they are willing to, they allocate no time or effort into promoting small brands since all of it is spent on large brands. Large brands buying up all of the competition needs to be evaluated to ensure that smaller producers aren’t pushed up by the handful of large players in the industry.”

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“For the best intentions for the American Citizens everything should be left the way it is. In fact direct to consumer should be done away with because of the deep problems of under age drinking.”

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“Antiquated state laws need revision when it comes to Posting Prices and Discounting. Many states prohibit mixed product quantity discounts which put burdens on Retailers to garner the best discounts for the BIG BRANDS and dedicate large sums of available cash for the best deals on these BIGGEST SELLING BRANDS. 100 case deals on Bacardi, Tito’s or other Big Names leave little for the smaller wine brands which forces small importers to have best their prices on 1 or 2 case buys.”

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“Any consumer in the United States will tell you that, in an effort to hinder competition and product availability, distributors continue to push for interstate shipping restrictions. In this day and age, these restrictions are unnecessary so long as proper taxes are paid. The distributors say that they are concerned about minors getting easy access to alcohol but this is a farce. How many minors do you know that will ship wine and spirits as opposed to simply going to the closest liquor store. Wine and spirits shipping needs to be completely liberated and consumers should be able to buy from whomever they want.”

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“Direct Sales- Large distributor control of markets prevent small producers from getting into markets to the large brands benefit. Direct to retail and direct to consumer is the only chance small producers can have to compete with the big brands and their distributors. Many states allow direct beer sales but it’s very rare that spirits can be sold direct to a retailer. Direct sales via ecommerce to consumers would be a great leveler of the playing field. Distributors won’t get a “taste” of that money so they fight hard against it. Their trade associations have all kinds of circa 1933 arguments, don’t let that fool you, it’s about controlling the market and that’s about money in their pocket.”

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“I am a top 200 craft brewer located in a state in the deep south, and we face unrelentingly restrictive laws that overwhelmingly favor distributors. Our franchise law requires manufacturers to sign a contract with no expiration date from day one in order to get our product to market. It is virtually impossible to get out of the contract. Despite our brewery’s rapid growth and success, we still face distributors who refuse to bring in new products, provide terrible service to retail accounts, dictate what margin at which to resell our product (sometimes punitively as retaliation for forcing their hand on a new product) – all while we have zero recourse. This is indentured servitude, and I cannot think of any other market where the manufacturer is required by law to partner with a third party in order to get its product to market.”

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“The 3-tier system MUST BE ABOLISHED for WINE – it should be available for distribution by ANYONE – two companies control 90% of the wine distribution in the US – THEY need to be broken up for anti-trust reasons.”

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“The Federal government should open up shipping of wine to consumers between states fully and take it out of the hands of individual states ABCs that are limiting competition. Having a piecemeal system makes it near impossible to be compliant in states for small producers and limits consumer choice. This should not impact states’ ability to regulate alcohol and how it is consumed in the state, but just allow all DTC wine shipments for all 50 states.”

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“The size and scope of Southern Glazer’s and RNDC are such that it impedes competition, placing minority businesses at a disadvantage. As a result, these minority-owned businesses have to either “sell-out” to these large distribution companies or forever be disadvantaged. The Department of the Treasury’s Alcohol and Tobacco Tax and Trade Bureau should consider using the Teddy Roosevelt-era trust-busting laws forcing the companies to divest and correct any possible unfair trade practices.”

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“The largest national distributors have too much power and influence with the state and federal representatives. The more they consolidate and grow their influence, their ability to lobby increases greatly….There is no way to fight that influence for small wineries, retailers and distillers. We are at their mercy trying to modernize shipping laws and rules throughout the country.”

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“I work for a wholesaler who for the last few years have lost many brands, small and large not due to performance issues but being told they are moving to Southern Glazers because they have a much bigger footprint NATION WIDE, where was the oversight when Southern merged with Glazers? I hear all the time SGW&S has terrible to no customer service from my customers but they MUST buy from them because of ALL the brands they have acquired since their merger…. it’s a bad situation to be in for a business to be in, where is the competition in that?”|

What I want to assure you is that I have not cherry-picked from the anonymous comments to give the impression that the alcohol industry is very frustrated with the three-tier system, its limitations, the barriers to a competitive marketplace it protects, and the consolidation within the wholesale tier. This is real. And it has been for a very long time.

Any effort to level the playing field between producers, importers, wholesalers, and retailers must balance the real need to regulate a substance that both can cause harm and provide significant revenue to the state on one hand, with the need for participants in the industry to have genuine and unfettered access to the marketplace without having to pay rent to protected players.

For generations the wholesale tier has been treated with kid gloves and favored by law and regulation at the expense of every single other entity in the alcohol industry: Bans on shipping direct to consumer for producers and retailers; incredibly unfair “franchise” laws that provide wholesalers an excuse to abuse their producer partners with no consequence; state-mandated use of wholesalers to the point that retailers have no means to diversity and differentiate their offerings while producers are at the mercy of wholesalers.

What comes through from the anonymous comments is the fundamental unfairness of requiring producers to sell to wholesales and requiring retailers to buy only from wholesalers, but not requiring wholesalers to represent every brand that desires to enter a market.

Whether or not the federal government can make any attempt to address this fundamental problem in the alcohol industry is not yet known. I personally have significant doubts that the feds, given the power of the 21st Amendment, can do much to change this situation. If it is going to change, if retailers and producers/importers will ever have direct access to each other, it is likely going to take a coalition of very large retailers, very small retailers, large producers and a wide swath of importers to take the issue directly to the legislators or to the people.

In the meantime, we have anonymous comments.