Tag Archives: three-tier system

What’s next for three-tier after the Supreme Court’s Tennessee retailer decision?

Tennessee retailer decisionDon’t make too many bets three-tier will open up after the Tennessee retailer decision; we’ve been down that road before

The cyber-ether has been awash with confident pronouncements since the U.S. Supreme Court’s Tennessee retailer decision, which struck down a law that limited who could own a liquor store in that state. Many predicted the beginning of the end of the antiquated and restrictive three-tier system that regulates alcohol sales in the U.S.: “Consumers could benefit from Supreme Court ruling,” “Supreme Court hands retailers a big win,” and so on. One of the smartest people in the wine business even said we should see these pro-consumer changes quickly.

Don’t bet on it.

I’ve spent the three weeks since the Tennessee retailer decision interviewing attorneys who practice liquor law, analysts, and other knowledgeable people. And their consensus, almost to the syllable: The Tennessee retailer decision may be a big deal at the moment, but don’t expect much to change about three-tier — and it’s not going to get easier for us to buy wine.

“I don’t see this ruling going much farther,” says Tucker Herndon, an attorney in Nashville who is the office managing partner of Burr & Forman LLP. “I don’t think it’s going to open the floodgates, and I don’t think it’s going to give us a regulatory system without a lot of limitations.”

The Supreme Court ruling said Tennessee couldn’t impose a residency requirement on liquor store owners because such a requirement didn’t promote the public health and safety. All it did, said the ruling, was shield local retailers from competition from national and regional chains. In fact, residency laws are common in in the retail booze business for just that reason, and we’ve had one in Texas in one form or another for years.

The 21st Amendment, which repealed Prohibition, allows the states to regulate alcohol sales as long as the states are promoting the public health and safety. Hence, the Tennessee law ran afoul of the Constitution’s Commerce Clause, which says states can’t favor their residents ahead of people from other states unless there is a very good reason, like public health and safety.

Nothing new about this test

Hence, what seems to a litmus test for the three-tier system. But the attorneys I talked to said that public health and safety has always been a litmus test, and it’s a long way from the Tennessee retailer decision to Internet wine sales. That’s what many analysts are predicting in the wake of the decision: That we will be able to buy wine from any retailer anywhere in the country with the click of a computer mouse.

The attorneys and analysts cited three reasons for their pessimism:

First, the decision didn’t really do anything but overturn a bad law that even the state of Tennessee didn’t think much of. The state attorney general didn’t appeal the lower court ruling; the state’s liquor retailer trade group did because the attorney general didn’t think the law was defensible.

Second, says Herndon, the decision is about retailer residency – nothing more. That someone doesn’t need to be a Tennessee resident to get a retail liquor license to open a store in Tennessee doesn’t mean that someone who doesn’t live in Tennessee can get a license to open a store outside of Tennessee. It’s a subtle difference, perhaps, but an important one. He says the state can almost certainly show that it’s protecting the public health and safety by requiring anyone who has a Tennessee retail license to use that license for a store in Tennessee.

Third, says Lou Bright, the former generral counsel for the Texas Alcoholic Beverage Commission, it’s a long legal journey from this ruling to Internet wine sales. Three-tier mandates that consumers can only buy from retailers and restaurants, while retailers and restaurants must buy from wholesalers and they can’t buy from producers. And producers must, save for one small exception, sell only to wholesalers.

Bright says Tennessee was about who can get a retail license, and not about retailers selling wine directly to consumers. When the court carved out the small, direct shipping exception in 2005, it didn’t address the mechanics of the three-tier system and the role of wholesalers. And, he says, this ruling didn’t, either.

Photo: “Moot Courtroom” by College of William & Mary Law Library is licensed under CC BY-NC-ND 2.0 

Wine of the week: Peterson Shameless Fifth Edition

Peterson shamelessThe Petersen Shameless is a terrific California red blend that most of us can’t buy – thank you, three-tier system

Today, on the day before Independence Day, the blog offers a wine of the week that most of us can’t buy, the Peterson Shameless. That’s because the three-tier system’s stranglehold on consumers deprives us of the independence to buy the wines we want, like the Shameless. Instead, we’re forced to buy the wines the second tier – the wholesalers – decide we can buy.

The Peterson Shameless ($15, sample, 14.2%) is a non-vintage red blend from California. It’s a field blend, where the grapes change with each bottling depending on what’s available and what fits the winemaker’s mood. In the fifth edition, that means nine grapes, though about one-half are barbera. The result is ripe red fruit (cherry and a sort of tart berry thing) that leads to a rich, almost soft mouth feel and wonderfully creamy tannins. It’s a terroir driven wine, something that is difficult to find at this price in California, and quite enjoyable (and especially for people who like this style).

And, unfortunately, difficult to buy even though it screams July 4 barbecues. That’s because Peterson is a small winery and doesn’t make enough of the Shameless to interest one of the mega-distributors that dominate the market. Hence, no clout to get on store shelves and probably not available outside of parts of California. Yes, you can buy it from the winery, but only if your state allows direct shipping – and most still don’t.

Call this post the Wine Curmudgeon’s contribution to the on-going debate about the the three-tier system. Yes, progress was made last week, but we still have a long way to go – as the Peterson Shameless demonstrates.

Winebits 600: The Wine Curmudgeon has ulterior motives and is trying to destroy the wine business edition

Wine Curmudgeon
“Dude, you’re so not good for the wine business. Why are you trying to destroy it?”

This week’s wine news: The cyber-ether is ablaze in criticism of those of us, including the Wine Curmudgeon, who want people to enjoy drinking wine they can afford to buy. Because, of course, we’re up to no good.

July 3 update: Thank you for the kind words in the comments and your emails. Frankly, I was surprised, though I shouldn’t have been. The blog’s readers have always supported what I do and are the reason I keep doing it even when too many in the wine business want me to sign off on selling $12 wine for $25.

• Take that, Curmudgeon: Dwight Furrow, writing on the Food and Wine Aesthetics website, wants to know where people like me get off offering wine advice. After all, all we want to do is destroy wine and make money in the process. He links to the Jamie Goode post I wrote about earlier this year, and agrees with Goode that people like me are part of some vast conspiracy that has it in for “wine experts.” We’ll ignore for a moment that I am incapable of evil mustache twirling and that the only conspiracy I believe in is that Microsoft tried to destroy Linux. What Furrow misses, as Goode did, is that wine criticism is seriously flawed, and that responsible, legitimate critics who aren’t so-called cheap wine slime like me (Eric Asimov, for one) think so. So let’s figure out a way to fix the problem instead of pronouncing judgment on everyone else.

• And this, too: I’ve been writing about wine and the three-tier system for more than 20 years, but I’ve never seen anything like a recent post in something called Alcohol Law Review. Apparently, those of us who oppose the three-tier system are lying scum who want to make money off the deaths of others. As near as I can tell, if we change the three-tier system in any way, we’ll end up with tourists dying after drinking tainted booze, as happened recently in the Dominican Republic. The enemy here is the same one as in Furrow’s post: “Various economic interests” who want to overthrow the system so they can get fat and rich. Who knew? I thought I just wanted to buy cheap wine more easily.

• And don’t forget this one, either: Jamie Goode is back at it, reminding those of us who like cheap wine that we’re not only wrecking the environment, but that our greed ruins the wine business: “The race to the bottom in terms of price points sucks life out of the wine category. It also sucks out all the profit.” I would argue that the £5 wines he’s talking about are Barefoot and their ilk in the U.S., and the last time I checked, Barefoot owner E&J Gallo was one of the richest and most profitable companies in wine. But what do I know? I’m trying to ruin the wine business and feather my already fat and corrupt nest.

Tennessee residency law: Did the three-tier system come crashing down yesterday?

tennessee residency lawSupreme Court overturns Tennessee residency law – does that mean all of three-tier is in trouble?

Did the Fourth of July come a week early for wine drinkers yesterday? That’s when the Supreme Court struck down a Tennessee residency law that limited who could open a liquor store in the state. As such, a host of legal and alcohol experts from around the country have predicted the beginning of the end of the three-tier system – the series of laws that restricts how we buy alcohol in the U.S. – if the court did just that.

I talked to a couple of attorneys who practice liquor law and they weren’t quite ready to pronounce three-tier dead. Said Lou Bright, the former executive counsel of the Texas Alcoholic Beverage Commission, the state’s liquor cops: “There will be lots and lots and lots of screaming and arguing about this in the coming weeks and months and years. You might consider just reporting the facts of the case with a ‘stand by for further screaming.’  ”

Still, the 7-2 decision seemed unequivocal: Since the residency requirement “has little relationship to public health and safety, it is unconstitutional,” Justice Samuel Alito wrote in the majority opinion.

The key phrase in the decision is “relationship to public health and safety,” which has been the bedrock of three-tier since the end of Prohibition. Every part of three-tier rests on the assumption that each state can regulate alcohol as it sees fit, since it’s protecting the public health and safety. Hence, every restriction in how we buy wine, beer, and spirits in the U.S., no matter how foolish or outdated or left over from the days when Al Capone controlled the liquor business, has been defended in court.

Because public health and safety

• Can’t buy wine on the Internet? That’s the various states protecting our health and safety.

• Can’t buy discounted wine where you live? That’s the various states protecting our health and safety.

• Can’t buy wine in a grocery store where you live? That’s the various state’s protecting our health and safety.

• Can’t buy wine directly from the winery where you live? That’s the various states protecting our health and safety.

• Can’t by a wine where you live even though it’s sold in a neighboring state? That’s the various states protecting our health and safely,

And Justice Alito’s majority opinion seems to turn all of that on its head. He invoked the Commerce Clause of the Constitution, which says states can’t favor their residents ahead of anyone else. That has been the law for more than 200 years, though exceptions had often been made for alcohol laws.

In fact, that was the defendant’s argument in asking the court to uphold the residency law, which made it all but impossible for anyone not from Tennessee to open a liquor store. The defendants said that the state, by essentially outlawing out-of-state chains like Total Wine, was protecting the public health and safety. Resident owners, because they were residents, would sell alcohol more responsibly than anyone else.

The court said phooey to that

But did it say phooey to all of three-tier? Robert Lewis, a partner in the Spiritus law firm in Coral Gables, Fla., told me that many analysts may see the beginning of the end of three-tier in the decision. But he is more circumspect. He remembers hearing the same sort of optimism in 2005, when the Supreme Court allowed direct shipping in its landmark Granholm decision. Many, myself included, expected three-tier to come tumbling down 14 years ago. It never did.

“I think the decision made it more difficult for states to use residency laws to regulate alcohol sales as part of three-tier,” Lewis said Wednesday afternoon. “But I’m not so sure it will affect more than residency laws. The idea that it may change other parts of three-tier, I just don’t see that.”

So the Tennessee decision may make it possible for supermarkets to sell spirits in Texas, which they can ‘t do currently because state law says only residents can get a license to sell whiskey, gin, and so forth. But it probably won’t help consumers in Michigan and Connecticut, where state law mandates minimum wine prices and forbids discounts, 20 percent off sales, and the like. And it won’t help consumers in New York, who can’t buy potato chips in a liquor store (perhaps my favorite part of three-tier’s vast and bizarre grip on the country).

And it almost certainly won’t do anything to loosen the stranglehold that distributors have over the wine, beer, and spirits supply chain. That’s the most fundamental tenet of three-tier, that consumers must buy directly from the retailer and restaurant, and that the retailer and restaurant must buy from a distributor. Only the distributor can buy from the producer (with minor exceptions like direct shipping), something that exists in almost no other consumer goods category. And if a wine doesn’t have a distributor in your state, you can’t buy it – something that will become even more common now that the top three distributors control 60 percent of the market.

Imagine not buying being able to buy a computer from Dell because the state is protecting the public health and safety – and then wonder why we have to endure that in wine.

Winebits 590: Shipwreck wine, Gregg Popovich, liquor laws

shipwreck wineThis week’s wine news: Century-old shipwreck wine off the coast of Cornwall, plus NBA coach Gregg Popovich’s and wine and the National Review takes on the three-tier system

• Under water for 100 years: The Wine Curmudgeon must confess to a weakness for stories about shipwreck wine. Why is there such enthusiasm to rescue it, given that it’s probably not going to be drinkable? The most recent story comes from Cornwall, where a ship sailing from Bordeaux was torpedoed by a German U-boat in 1918. Now, a group wants to salvage the cargo. There’s no word on what wine it might include, though a spokesman associated with the operation claims it’s a “one-of-a-kind opportunity to be a part of one of the most significant historical discoveries of the century. The rarity of such a cargo is unprecedented. …” On the other hand, it could be nothing more than pinard, the cheap red wine French soldiers were issued during the war.

• NBA wine culture: I don’t often get to write about wine and sports, but this item, from Psychology Today, does just that: “In a neo-Temperance public health period, Gregg Popovich stands apart.” The piece cites Popovich’s embrace of wine culture as something good – not something that will kill all of us if we have one glass. Popovich “is the son of parents from Serbia and Croatia. … For him, wine is essential to group gatherings.” And who can argue with one of the greatest coaches in NBA history?

• Too much government: Caleb Whitmer, writing in the National Review, asks: “Are crazy state liquor laws constitutional?” Regular visitors here know the answer to that question, but it is good to see one of the country’s leading political journals address the question. Whitmer misses the role the country’s alcohol distributors play in keeping the system buttoned down, blaming three-tier on local retailers and state legislatures. Still, it’s worthwhile reading, and especially his discussion of Mississippi’s quaint Prohibition-era liquor laws.

Illustration courtesy of Points: The blog of the Alcohol & Drugs History Society, using a Creative Commons license

Amazon Wine 3.0: Is the on-line retail giant getting back in the wine business?

Has Amazon figured out how to make wine work after two e-commerce flops?

Amazon has twice given up selling wine over the past decade, perhaps the two most notable flops in the e-commerce giant’s history. But it looks like the company may be getting ready to try again – call it Amazon wine 3.0.

The evidence comes from two places: First, a Washington, D.C.-area job posting for a “manager of alcohol public policy” – someone to “create, execute, and manage key public policy issues related to alcohol procurement and sales.” In other words, someone to navigate the three-tier system for the company, which it wouldn’t need unless it was getting ready to launch a major booze initiative. (A tip o’ the WC’s fedora to blog reader Tony Caffrey, who spotted the ad.)

Second, rumblings in the trade press that Amazon might buy or lease abandoned Kmart and Sears locations (and even Pier 1?) to open more Whole Foods; to set up some sort of warehouse/retail operation; to build more Amazon Go pop-up stores; or for something that no one but Amazon knows yet.

Amazon didn’t respond to an email request for an interview. But I talked to several supermarket analysts, and they agreed something may well be going on.

“Amazon doesn’t really get all that wrapped up in failure,” says Bill Bishop, the co-flounder of the well-respected Bricks Meets Clicks consultancy in Chicago. “It’s very much a learning organization. Wine in particular, and alcohol in general, is very attractive for an organization like Amazon.”

What makes Amazon think this effort will succeed when the first two failed? In 2009, it killed a test project called AmazonWine, in which it would have sold wine just like it sells books, computers, and garden hose, because the company couldn’t make it work given the complications of U.S. liquor laws. In 2017, it closed AmazonWine 2.0, in which it didn’t sell wine but sent buyers to winery websites to make the purchases – again, because of the complications of U.S. liquor laws.

It does sell wine on-line through Whole Foods, but the orders must be made using your local store’s website and you’re limited to the inventory at that store. Plus, you have to deal with a third-party delivery service and a potential delivery fee. Which is hardly the same as Amazon’s seemingly unlimited inventory and free Prime shipping.

The sense from the analysts is that the company figured out how to work within the three-tier system for what it’s going to try next, in much the same way that alcohol delivery apps like Drizly and Internet retailer Wine.com have figured it out. But don’t expect delivery, although that’s possible, as much as a variation on the current Whole Foods setup.

Amazon Wine 3.0

One possibility:

• You order wine from the Amazon website, which sends the order to a company distribution center in your state in one of those empty Sears stores. In this case, your choice could well be every wine available from your state’s distributors, based on the Drizly model.

• The Amazon retail/warehouse in the old Sears would have a standing inventory of the most commonly ordered wines, while special wines could be shipped from the distributor to the warehouse.

• You pick your order up at the old Sears store, in much the same way you can drop off Amazon returns at some Whole Foods stores.

The advantages here are obvious: Amazon has the booze supply chain infrastructure in each state where it operates Whole Foods, plus the leverage of existing Whole Foods liquor licenses. And, since you pay for the wine on the Amazon website, there’s less legal hassle about underage drinking. All you have to do is show an ID at the old Sears store when you pick up the wine.

In addition, says Bishop, advances in robotics may make it possible to run the retail/warehouse in the old Sears with a minimum of employees, trimming costs and allowing Amazon to undercut traditional wine retailers. Think of R2-D2s scurrying around the building, picking and sorting orders. The only humans needed would be to check IDs.

Will this happen tomorrow? Probably not. Will it happen in exactly this way? If I knew that, I’d be living in Burgundy. But I talked to some very smart people, and their consensus was that something like this makes sense, and it especially makes sense given Amazon’s seeming obsession with wine.

Winebits 589: The world revolves around the three-tier system edition

three-tierThis week’s wine news: It’s all about three-tier — a merger called off because it would have raised pricers, the “unique” U.S. distribution system, and tussling in New Jersey

• No deal: Breakthru Beverage Group and Republic National Distributing Company, which had announced a $12 billion merger in 2017, have called it off. The reason? The Federal Trade Commission, which oversees these deals, said it would have caused “likely anticompetitive harm.” An FTC official said the agency found that “this transaction likely would have resulted in higher prices and diminished service in the distribution of wine and spirits in several states.” The Wine Curmudgeon, who is not an attorney and doesn’t pretend to know anything about anti-trust law, has just one question. If this deal was anticompetitive, why did the FTC allow the 2016 Southern-Glazer’s merger, worth $16.5 billion, to go through? The new company controls one-quarter of the wholesale spirits and wine market, and is bigger than the next three companies combined.

• Just a happy family: Who knew that alcohol distribution was just another family business? That’s the latest from the industry’s trade group, the Wine and Spirits Wholesalers Association, which wants the world to know the “story of wholesalers and the three-tier system while highlighting the value and uniqueness of America’s beverage alcohol system.” The Wine Curmudgeon, who does know how to read a news release, got a giggle out of this one. Unique indeed – so unique that almost no one but liquor law attorneys and wholesalers understand how the damned thing works. And yes, value, especially when the FTC doesn’t object.

• Not in Jersey: New Jersey’s legislators are trying to decide if they should loosen the state’s direct shipping law, one of the most restrictive in the country. The article is exceptionally well written by Bloomberg.com reporter Stacie Sherman – easy to understand, direct, and almost devoid of winespeak and legalese. In other words, it’s everything almost all other mainstream media booze stories aren’t. My favorite part? Her description of three-tier: A “patchwork of laws that, as with those governing so many other industries, were ill-suited for the advent of e-commerce.”