Tag Archives: three-tier system

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).

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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

Winebits 358: Goverment regulation edition

government regulationSomeone has to keep an eye on this government regulation foolishness, because it really is getting out of hand — something to remember on election day.:

? When is whiskey not really whiskey? When you’re in Tennessee, where the state legislature apparently has better things to do than worry about education, taxes, highways, and the rest of government. Instead, it will debate the definition of Tennessee whiskey, Diageo, which owns George Dickel, and Brown-Forman, which owns Jack Daniels, are two of the biggest booze companies in the world. They’ve talked the legislature (no doubt using campaign cash) into setting limits on what Tennessee whiskey can be, and the current definition favors Brown-Forman. Not surprisingly, Diageo is aghast, and wants changes. It’s enough to make the Wine Curmudgeon boycott both brands, and I like Tennessee whiskey. I wonder: Will anyone in the legislature have the courage to stand up and tell both companies to go away and let the lawmakers worry about important stuff?

? Yes, we sell sell beer (but not really): U.S. politicians and bureaucrats aren’t the only ones who are obsessed with this stuff; even the normally mild-mannered Canadians lose control. How else to explain this, from an advisory committee in the province of Ontario which says the province should not privatize its government-owned liquor stores — just change the way it sells beer. Consumers will be allowed to buy 12-packs in addition to six-packs. Be still, my beating heart. And, believe it or not, the same committee is debating electricity deregulation in the same mandate from the provincial government. How anyone thinks booze and power are alike in any way, and that the same decisions apply, is mind boggling. Unless, of course, you don’t want to deregulate liquor sales to begin with.

? Ensuring a fair marketplace or hurting consumers? The New York State Liquor Authority has imposed more than $3 million in fines on distributors and retailers in the past three years in an attempt to eliminate sweetheart deals that allow some stores to get better treatment than others. This isn’t unusual in other businesses, where the best customers get the best deals, but it’s not supposed to happen in three-tier, which governs alcohol sales in the U.S. Three-tier says everyone has the same opportunity to buy the same products, regardless of size. Many retailers and distributors are furious about the fines and new rules, which strikes me as ironic — three-tier is protecting them from even more intense competition.

Winebits 352: Red wine, wine brands, three-tier

wine news red wine ? Bring on the red wine: Americans, apparently, drink more red wine than white. This is not news, though for some reason a writer at the Washington Post who doesn’t write about wine (and there seem to be so many of them) thinks it is. Red wine has traditionally outsold white, but a white, chardonnay, remains the best selling wine in the U.S. The people at the Post have one of the best wine writers in the world working for them; I don’t know why they insist on pretending to be experts when there is a real expert at hand. One other thing, as long as I’m being cranky: Given that online retailing accounts for just 5 percent of U.S. wine sales, is a survey from an on-line retailer a better source than Nielsen or the Wine Institute?

? Bring on the new brands: One of the great mysteries in the wine business is how many wines actually exist. It’s also a mystery why it’s a mystery, since wine is regulated and this should not be difficult to determine. But it is, and the best guess has been about 15,000, which includes different varietals but not different vintages. Turns out that may be just a fraction of the total, according to Ship Compliant, a company that helps wineries through the maze of regulation. It found that the federal government approved 93,000 labels in 2013. However, since that could include changes to old labels or old wine given a new name, as well as wines that were proposed but never made it to market, there probably aren’t 93,000 wines available for sale. Which, given the size of the Great Wall of Wine, is no doubt a good thing.

? Bring on the lawyers: The Wine Curmudgeon notes this item not because he expects anyone to understand it unless they are a liquor law attorney with a large staff, but to remind the world, again, of the pointlessness of the three-tier system unless you are a distributor or attorney. It details a court case in which a distributor is suing a producer even though the producer followed the letter of the law. Or something like that. Regardless of the outcome, it will make no difference to anyone who buys wine. Incidentally, this is a jury trial. I can only shake my head in sympathy for those poor jurors, and hope they have lots of wine at home for afterwards. Update: Hours — literally — after I posted this, the suit was settled. No doubt they were terrified the jury would laugh at them, go home, and open a beer.

Image courtesy of Houston Press food blog, using a Creative Commons license

Winebits 350: Three-tier, wine prices, wine marketing

three-tier system ? No love for three-tier: The Wine Curmudgeon has much respect for the Wine Folly website, which does great work educating wine drinkers. Its recent post on the dreaded three-tier system was no exception, detailing what it was and how it worked with quality graphics and clear writing. I don’t know that it gave enough credit to Prohibition in three-tier’s formation, but it did discuss its beginnings in the late 19th century, which I didn’t know. And it did impressive work tying the cost of wine to the inefficiencies of the system. My only complaint: That it forecast the coming demise of three-tier, based on direct shipping, the Internet, and flash sites. It’s not that I don’t want three-tier to go away, but it overlooks three things — three-tier’s constitutional protections, which the Wine Curmudgeon has lamented many times, the system’s immense clout through campaign cash, and that direct to consumer sales account for less than five percent of wine sales in the U.S. That’s hardly eroding the system.

? “A giant sinkhole”: W. Blake Gray writes about the media’s immense joy in forecasting rising wine prices, which seems to happen every six months or so whether it’s true or not. The most recent example came after the Napa earthquake, even though the region produces just a tiny fraction of the world’s wine. Gray writes: “People just don’t have a sense of how enormous and international the wine business is — that if Napa Valley or Mendoza, Argentina or Barossa Valley, Australia fell into a giant sinkhole tomorrow, we would all be the poorer for it, but overall world wine prices would still not be much affected.” He also notes that many media types figure only rich people drink wine, and so deserve higher prices. I’m not so sure about the second; many of the media types who still get paychecks in this post-print world aren’t exactly paupers. My hunch is that it’s mostly crummy reporting. When a Washington Post writer proclaims that wine prices are skyrocketing when they’re not, and the Post is supposed to be one of the world’s best newspapers, it’s no surprise that everyone else misses the point, too.

? It’s not about the marketing: Producers in the French wine region of Bordeaux are running around in a panic because sales are down, and this report discusses how it will try to solve the problem through better marketing — some ?3m worth (about US$3.8). The Wine Curmudgeon, out of his great respect and admiration for Bordeaux wine, has a cheaper and simpler solution: Stop overcharging for your wine. It’s one thing to sell the best wines for hundreds and thousands of dollars a bottle, but when the everyday stuff costs $15 or $20 — and isn’t any better than $10 wine from California, Spain, or Italy — you’re not going to sell it, no matter how much you spend on marketing. One retailer, when I asked him why this was happening, attributed it to Bordelais greed. “If they can get it from the Chinese, they figure they can get it from the rest of us,” he said. Obviously, that isn’t the case any more.

Winebits 340: When you think three-tier can’t get any more foolish, it does

three-tier system
How does anyone make sense of these three-tier decisions without a crate of aspirin?

The Wine Curmudgeon always underestimates the silliness of the three-tier system — which governs alcohol sales in the U.S. — even though I have been writing about it for 20 years:

 • Only in Texas: What happens if you open a chain of liquor stores in the Lone Star State and run it successfully? You get sued — by other retailers who claim you’re violating state law. Like most three-tier stories, it’s terribly confusing, but the gist is this: Texas law says only state residents (for at least a year) can get a retail license to sell booze, but the law hasn’t been enforced in more than two decades. Total Wine, a Maryland chain that has opened six stores in the state, is being sued by the trade group that represents Texas liquor stores because Total isn’t a state resident. The trade group says that a recent Missouri case validated the residency requirement that Texas hasn’t enforced, and wants Total’s license revoked. Yes, I know, it makes my head hurt, too.

• Cold beer? How dare you? A federal judge had told Indiana convenience stores and supermarkets that they can sell warm beer and cold wine, but not cold beer, reports Supermarket News — even though liquor stores can sell cold beer. His logic? That the state would have a more difficult time preventing beer sales to minors if c-stores and supermarkets sold cold beer. Apparently, minors don’t try to buy cold wine or warm beer at gas stations by asking their friend who works there to ring it up as motor oil. Still, before we start making too much fun of the judge, know this: His logic makes perfect sense given the legal underpinnings of the three-tier system, which allows each state to regulate liquor sales as it sees fit. If Indiana law says everything possible must be done to prevent underage drinking, and the state insists that grocery store cold beer sales will make this difficult, then the judge didn’t have much choice.

• Beer at Oktoberfest? Not in Utah: The Wine Curmudgeon has a soft spot in his heart for Utah’s liquor laws, because they have managed to retain their 19th-century Victorian charm in the 21st century. The latest? That the state’s liquor cops require an event be for “the common good” before they will grant a permit to sell alcohol for something like a festival or concert. And, since the Snowbird Ski Resort near Salt Lake City couldn’t demonstrate that its annual Oktoberfest was for the common good, it didn’t get a license to sell beer or wine. That the idea of “common good” — whatever that is — is not part of state law, but from rules written by the liquor cops, only makes this decision that much more charming.

Winebits 329: Legal affairs edition

Winebits 329: Legal affairs editionBecause the Wine Curmudgeon is always amused by the legal side of the wine business:

? Blame it on Utah: The Wine Curmudgeon has first-hand experience with Utah’s liquor laws, thanks to a story I wrote about the 2002 Winter Olympics in Salt Lake City. But not even I was ready for this excellent piece of reporting by Nancy Lofholm in The Denver Post. How about eight different liquor licenses? Or that some establishments have to have a barrier between customers and the bartender, and that others don’t — even if they have the same license? But don’t worry too much. Says one Utah tourism official: “We are not the only state with peculiar liquor laws.”

? Scores don’t matter: Or, did a New York judge tell a wine drinker that a high score can’t be the basis for suing about wine quality? There are many ways to interpret the decision, in which a Manhattan judge dismissed a lawsuit (requires free registration) in which a consumer wanted a refund from a wine store because he didn’t like the six bottles of 91-point wine he bought. The judge wrote that wine taste is subjective, and so can’t be the basis for a lawsuit. I know the wine in question, a decent enough bottle of Rioja, but one that’s probably not worth the $12.99 the consumer paid. Damn those scores anyway.

? Questioning three-tier? Or so says this post from the Libation Law blog, analyzing a New Jersey court decision that said “New Jersey’s liquor control laws and regulations must be administered in the light of changing conditions.” Which, of course, is what those of us who want to reform the three-tier system have been saying for years: That a system put in place at the end of Prohibition to keep the mob out of liquor has outlived its reason for being. The decision, which dealt with distributors and how they paid commission, is esoteric, but Ashley Brandt at Libation is optimistic that it “strengthens the argument that a vigilant regulatory system can uncover and prohibit the practices that people claim the three-tiered system was meant to forestall.” The Wine Curmudgeon, with his vast legal experience (a semester of First Amendment law in college) isn’t quite so sure, but who am I to ruin a good mood?