The Real Threat of Counterfeit Wine From Wholesalers
Over the past five years or so some members of the alcohol beverage industry have voiced concern that counterfeit alcohol is such a potential problem that increased vigilance is necessary to keep unlicensed and counterfeit products from entering the supply chain and eventually making their way to the consumer.
While America’s wine, beer, and spirit wholesalers have been most vocal in warning of this potential problem, what has gone unsaid is that it is the wholesaler that is most likely to trade in counterfeit alcohol.
While the Wine & Spirit Wholesalers of America have been most vocal in decrying the threat of counterfeit alcohol, they fail to mention that it is the wholesaler, their members, that are most likely to deal in counterfeit alcohol.
In this context, we are not talking about the rare occasions when a doctored or counterfeit bottle of very rare wine moves from a counterfeiter’s hands to an auction house. In these cases, rare as they are, we are generally talking about a few bottles of very rare wine that authentic examples would result in thousands of dollars in bids. Rather, we are talking about mass-produced fake bottles of well-known and relatively modestly priced products.
Distribution of fake Cuervo, Yellowtail, Makers Mark, or Sam Adams doesn’t occur in the United States for the most part. But this isn’t due to the fact that these modestly priced, high production, popular brands are almost always distributed from producer/importer to wholesaler to retailer (via the three-tier system). The reason there is no trade in counterfeit items such as these is due to the fact that they are produced in large enough quantities at their source so that there is no excess demand for these products that outstrips supply that might result in and attract counterfeiters.
Equally important is that neither retailers nor wholesalers undertake quality control measures that might spot counterfeit products. Wholesalers take delivery of palllets of product from producers or importers, place the pallets in their warehouse, then remove them when they fulfill orders from restaurants and retailers. They don’t test for producer integrity. Neither do retailers test for product integrity when they take delivery from wholesalers.
In fact, only by purchasing a product directly from the producers assures that a product is what it says it is. This fact demonstrates why wholesalers would be the most likely source of counterfeit alcohol making its way to consumers.
By definition, “counterfeit” products originate outside officially regulated and licensed chains of custody and possession. The greatest danger occurs when large quantities of counterfeit alcohol make their way into official and licensed channels of distribution. It is only at the wholesale tier where such a thing could happen.
Retailers are generally required to purchase their inventory from wholesalers. Yet, the nefarious retailer could go outside that chain and procure counterfeit alcohol from a skilled bootlegger/counterfeiter. However, in order for large amounts of counterfeit alcohol to enter the supply chain in this fashion, you would need a counterfeit producer to undertaken numerous illegal transactions with numerous retailers. The risk is greater when a larger number of illegal transactions are undertaken.
However, one large transaction from counterfeiter to wholesaler results in the counterfeit product moving into multiple retail establishments. So, in fact, what we see is that the real threat of counterfeit alcohol moving into the supply chain comes from an alcohol regulatory system that puts includes the mandated use of a wholesaler—the Three-Tier System.
It’s notable that when wholesalers discuss and warn of the danger of counterfeit alcohol, they assume nefarious intent on the part of retailers who want to go around the three-tier system. The wholesaler imagines retailers selling in person or online alcohol they actively procured from an illegitimate, unlicensed source. But there is nothing inherent in the operations of wholesalers or the three-tier system that somehow prevent wholesalers from being the nefarious actor. In fact, wholesalers are equally likely to be bad actors as are retailers or producers. Moreover, because the largest wholesalers who have permits in multiple states effectively operate numerous, separate, state-based businesses, the risk of one wholesaler in one state being caught trading in counterfeit alcohol means it is likely just that one branch of the larger company will be penalized or shut down. When a retailer, which generally only operates in one state and one store, is caught dealing in counterfeit alcohol they risk their entire operation being shut down.
The bottom line is this: The existence of a “three-tier system” in no way protects against counterfeit wine entering the supply chain. Moreover, it is the wholesaler that is most likely to be the source of large amounts of counterfeit wine entering that chain of supply.
Finally, the best defense against this happening is giving retailers the ability to bypass the wholesaler and purchase directly from the producers. Not only does this give the retailer greater confidence that they are not dealing in counterfeit alcohol due to the illegal acts of a wholesaler, it also gives retailers the opportunity to broaden the inventory they offer customers beyond the generally meager selection of products the wholesale tier offers in any given state.