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Why Can’t I Buy the Wine I Want to Buy?
By John ~ June 30th, 2009.
This is America, right? Land of the Free. We’ll you wouldn’t know it if you are shopping for wine. If Lenn Thompson recommends a great New York wine, or Russ Kane touts a super Texas wine, or Dr. Debs or Alder Yarrow puts me onto a special California wine, that does not mean I can buy it and have it shipped to my house in Seattle. And very often, those wines I’d really like to try are not available in my local wine shop.
Why not? There are three primary bottlenecks to the wine distribution system in the US:
- Archaic wine laws in all fifty states that date from Prohibition days.
- A Distributor monopoly that spends millions on lobbyists to preserve the three-tier system and thwart customer choice.
- And most recently, a failure at a business like New Vine Logistics, the huge California wine fulfillment center that shipped wine for hundreds of producers and was scheduled to be Amazon.com’s wine logistics/shipping firm. [While there is now a deal to pick up the pieces of New Vine Logistics, there is no assurance that this company or its major competitors will be long-term survivors.]
Mike Veseth of The Wine Economist made some excellent points on this subject in a recent post:
SVB [Silicon Valley Bank, a major wine industry lender] estimates that there are 6000 wineries active in the US market producing about 7000 wine brands. All these brands need to squeeze through the U.S. three tier distribution system bottleneck. This means they need to go from maker (first tier) to state-licensed distributor (second tier) to local retailer (third tier). ….
Now we get to the big squeeze. These 7000 brands get funneled through about 550 major distributors, according to SVB (obviously this does not count many smaller Mom-and-Pop and specialized distributors that I am familiar with), which is about half as many as a few years back. Hopefully you can appreciate the bottleneck — 7000 brands worth $30 billion in retail sales have to squeeze through 550 distributors in 50 states on their way to 76 million wine consumers. Any blockage in the distributor tier backs up the whole industry. ….
The net effect is clear — distributors are reducing their SKUs (stock keeping units to non-economists) and focusing [on] a smaller number of reliably profitable product lines. This means that it is harder and harder for new and niche wineries to get on the warehouse pallet. [And the distributor does not want you or I to circumvent them and buy direct from our favorite winery.]
So, what’s the answer? For a free market advocate like myself, it’s difficult to suggest this, but I believe we need a new federal law that will take precedent over the ridiculous patchwork of fifty different state laws that we have today. Steve Bachman of Vinfolio has been an outspoken advocate of this solution for some time. Here’s what Steve says:
As I have written before…, the best solution is a new federal law that relies upon the government’s authority under the Commerce Clause to mandate rules for interstate wine shipping while leaving the rest of the states’ regulatory and enforcement systems intact.
How a Federal wine shipping law should work
- Single annual shipping permit – A single Federal process for issuing annual permits to parties licensed in any state by their state regulatory authority (including retailers, wineries, wholesalers, and importers).
- Tax collection – Mandatory state/municipal tax collection on new purchases based on destination zip code with monthly remittances to each state.
- “Dry” area registry – National registry of dry counties and zip codes where inbound shipments would be prohibited.
- Age verification – Age verification required (21 or older) to ship (either via an online service or in person) and to receive a shipment (with signature required).
- Centralized reporting – Federal reporting and recordkeeping standard established requiring the permit holder to file monthly reports (available to all state authorities for tax verification and other purposes) and to maintain all shipment records for a minimum period of three years.
- Regulatory jurisdiction matching activity – Shippers regulated solely by their home state authority for all activities other than shipping (where Federal regulation would apply) and shipment-related taxes (where each state’s taxing authority would have jurisdiction).
- Violations – Violations of Federal shipping rules (including the failure to pay associated state taxes) would constitute grounds for revoking all interstate shipping privileges.
If such a law were in effect, you and I could buy the wine we want, no matter who has it for sale or which state they are located in, or whether a large distributor has deemed it worthy of inclusion in his portfolio.
Is this likely to happen any time soon? Probably not, unless a massive grassroots consumer-based campaign is launched that puts Congress under pressure to act. One thing for sure is that it’ll never happen unless all of us wine lovers unite to break the bottleneck that keeps us from buying the bottle of wine we want to buy.
What do you think?
Filed under: American Wine, General Wine Information
A new Federal law is not possible. It’s not federal law that created the three-tier system. Each state has the right to control alcohol distribution within their borders. This was set by the 21st Amendment to the Constitution, and only a new constitutional amendment can change that. Congress can pass an new amendment with 2/3 vote, but then it goes to the states and 3/4 of them need to agree.
The only thing the courts can do is say that the 21st Amendment conflicts with other amendments, but the last time they did that they said the 3 tier system was constitutional.
It is better to work within each state to show them how the current system benefits neither the consumer nor the state itself. The wholesalers are the ones protecting their turf. This is one of the biggest “land grabs” in history and the wholesalers don’t want to see a change.
Larry,
Thanks for your thoughts. You are obviously a very knowledgeable guy on the subject, but I don’t believe we’ll ever solve the problem fighting the wholesalers state by state.
We may never completely solve the issue state by state. And it is possible the courts may find a way to rule in favor of wineries even further. But the Granholm decision was 5-4, so a slightly new court can also differ.
Perhaps the courts can rule that the wholesalers’ power is restraint of trade. Or they can rule that the 21st Amendment does not take precedence over the Commerce Clause. The courts have ruled against state power of alcohol distribution in a few isolated cases. The 21st Amendment only repealed the 18th (Prohibition) Amendment, not the rest of the Constitution. And the 21st gave individual states the right to control alcohol “importation and distribution.” But it has to be fair about it, and there’s a big wedge that can be exploited.
My original point was only that it’s not a federal law that’s involved here, so changing the law is not simply up to Congress. I don’t know the solution, or even if there is one. Slowly the state barriers are crumbling (except in Michigan where it was shored up), so progress is being made.
Larry,
Your points are well taken. Thanks. I’m hopeful that, as you said, the courts can rule that the wholesalers’ power is restraint of trade or that the 21st Amendment does not take precedence over the Commerce Clause. Even if a new federal law is not the answer, I believe that a massive ground
swell in that direction could still help the cause.