Tag Archives: three-tier system

The end of the three-tier system?


three-tier systemPaul Mabray, who knows this stuff better than almost anyone, says the end of the three-tier system is coming. It will probably be later rather than sooner, but Mabray is convinced that technology, combined with three-tier’s built-in inefficiency, will make the system obsolete.

The Wine Curmudgeon mentions this because my views on three-tier are well known. The system, which mandates how wine is sold in every state, says consumers can’t buy wine from the producer (with some exceptions), but must buy it from a retailer, who must buy it from a distributor. Buying wine from an Internet retailer, the way we buy clothes from Overstock.com or computers from New Egg, is almost always illegal. In this, three-tier is constitutionally protected, so we’re stuck with it until the end of time or until we reform campaign finance laws, which is about the same thing.

But Mabray, the chief executive officer for VinTank, which helps wineries use the Internet and social media to market their products, sees the situation from a completely different perspective.

Market access should not be constricted by antiquated regulations, but by market choice,” he says. “Yes, there needs to be regulation to enforce a regulated product but forcing it to go through a mandated tier structure is outdated.”

Mabray said this during last month’s Silicon Valley Bank State of the Wine Industry presentation, and I was so intrigued by what he said that we talked about the subject this week. He reiterated it during our chat: Trying to stop the advance of technology with artificial barriers is almost always futile, and three-tier will eventually break itself.

How that will happen involves lots of supply chain geekiness, but Mabray is convinced that Internet technology — the same thing that has allowed Amazon to make money by selling diapers for next day delivery, unheard of a decade ago — will come to wine. Three-tier as we know it will break down because it will be too expensive and too complicated to work the way it does now. Even the distributors, who have the most to lose, will want to change it to make it more consumer-friendly.

Perhaps. One reason our views are so different (besides my crankiness) is that Mabray sees an economic model ruled by efficiency. I see an economic model ruled by state legislatures with vested interests, whose idea of a supply chain is something you tow your car with. I hope he’s right about this, but I won’t be surprised if he isn’t.

More about three-tier and direct shipping:
Could the Internet screw up direct shipping?
Amazon.com, Prohibition, and the three-tier system
The Supreme Court and retail direct shipping

Could the Internet screw up direct shipping?


direct shippingThe perfect world of direct shipping — where we can buy any wine we want from any retailer we want, just like we buy computers or tennis shoes — will likely never happen, given the three-tier system and its death grip on the wine business. But, assuming we could make three-tier vanish, would direct shipping actually be that perfect?

Maybe. And then again, maybe not, says Steve Tadelis, Ph.D, an economist and Internet search expert at the University of California, Berkeley’s Haas School of Business. Tadelis’ research, summarized quite nicely in this article from The Economist, has found that consumers don’t necessarily use the Internet the way we think they should. His work, based on search patterns on eBay from people shopping for classical music, found that price or the music itself didn’t necessarily matter. Sometimes, they were searching just to search.

“They were looking for music not so much to buy music as to learn about music,” he says. “And when they bought something, it wasn’t always for the lowest price. And I can see that applying to wine, where buying isn’t as important as learning about wine.”

In other words, we may not care that direct shipping will make possible the ultimate wine retail experience. We may still buy wine the same we always have, or do it in some way no one has figured out yet. Tadelis says this is because we know little about how consumers use the Internet; after all, the idea of Internet shopping is still very new in comparison to the centuries of traditional retail. We assume, because it seems logical, that consumers will shop online the same way they shop in a store. But that’s not necessarily true.

“In hindsight, I shouldn’t have been surprised by our results, but I was,” he says. “But that’s because I based my assumption on my behavior, which is searching for the best deal on items that I know I want, and because traditional economic theory says search is a friction, and that shoppers try to avoid friction. But searching on the Internet isn’t the same kind of friction as driving from store to store.”

Further complicating the issue: Shipping costs, which don’t figure into music purchases, and the idea that wine is experential, which means we tend to buy something we’ve had before, based on our experience with it. With music, it’s not only easier to experiment with something new, but Mozart is Mozart, regardless of who is performing it.

Finally, the idea that direct shipping will lower prices, since it will increase competition and make it easier to find the same wine for less, may not be entirely true. In some cases, it could increase demand, which would raise prices as part of something economists call the long tail. If I make a rare wine without an apparent audience, and I can only sell it from my winery, demand is limited to the people who visit my winery. But if I sell it over the Internet, millions of people could learn about it, and I will be able to sell the wine more easily and at a higher price. This could lead, says Tadelis, to more experimentation and more unique and intriguing wines.

Ask the WC 6: Box wine, wine closeouts, open wine


wine questionsBecause the customers always have wine questions, and the Wine Curmudgeon has answers in this irregular feature. Ask me a wine-related question by clicking here.

Wine Curmudgeon:
Are there any box wines that you would find acceptable for someone who can’t afford $15 or $20 for wine every night?  I have been buying several of the Almaden wines and find them quite good. Are they, or is it just my unsophisticated taste buds? Could I be getting a better taste for my buck?
Bottles aren’t necessary

Dear Bottles:
Box wine comes in varying degrees of quality, just like wine in bottles. Many are of higher quality than the Alamaden, though they won’t be as sweet. You can try Bota Box, Black Box, Bandit/Three Thieves, and Big House, for example. But realize you don’t have to spend $15 or $20 for a bottle; check out the $10 Hall of Fame or the $10 wine link at the top of the page.

Curmudgeonly one:
How do wineries get rid of excess inventory, if they make too much and have to sell it off? Can you find good deals on wine this way?
Looking for a bargain

Dear Looking:
It’s difficult to do thanks to our friend, three-tier. Can’t have a warehouse sale, since it’s illegal, and it’s rare to find a wine retailer that specializes in closeouts and discontinued items like Big Lots because the process is so difficult. Some retailers buy excess wine and discount it, but there isn’t much rhyme or reason to how they do it. You need to find a good retailer and ask them to let you know when they have that kind of sale. In fact, most excess wine sits in a distributor warehouse until it is sold, returned, or destroyed (which is what multi-national Treasury did in 2013).

Wine Curmudgeon:
How long will an open bottle of wine stay good? Is there anything I can do to make it last longer?
Can’t drink a bottle in one sitting

Dear Can’t drink:
The answer to this used to be simple — if you didn’t finish an open bottle within 24 hours, it oxidized and tasted like bad brandy. Hence, closures like the VacuVin. But improvements in winemaking have complicated the issue, and I’ve had wine, including cheap wine, that stayed drinkable for a couple of days after it had been opened. My suggestion? Put it in the refrigerator and hope for the best if it’s there longer than 36 hours.

More Ask the Wine Curmudgeon:
Ask the WC 4: Green wine, screwcaps, mold
Ask the WC 3: Availability, prices, headaches
Ask the WC 2: Health, food pairings, weddings

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