Tag Archives: three-tier system

Winebits 526: Three-tier and direct shipping news

direct shippingThis week’s wines: Distributors lavish campaign contributions, plus direct shipping and Mississippi stays true to form

• Big, big money: Distributors – the second tier in the three-tier system – contributed $107 million to state political campaigns over the past five election cycles, according to a report from the National Association of Wine Retailers. Two things to know about this study: First, the group that did it is the sworn enemy of the wholesalers, and second, that doesn’t affect the results. Anyone can find the same numbers, using sites from the The National Institute on Money in State Politics (which this report used), the Federal Election Commission, or Open Secrets. The distributors spend heavily to protect constitutionally guaranteed monopoly, which prevents us from buying wine over the Internet from places like Amazon, in grocery stores in New York, and on sale in Michigan. The distributors’ $107 million “dwarfed the combined contributions of all other sectors of the alcohol industry.” Said association executive director Tom Wark: “It should be no surprise that this ‘middle tier’ of the alcohol beverage industry pays huge sums to lawmakers to keep their competitive advantage in place.”

• Direct shipping update: Five states still don’t allow their residents to buy wine directly from out of state wineries – but that’s the good news, reports the Napa Valley Register. Just 20 years ago, 44 states didn’t allow the practice. But “There’s been a lot of progress made over a long period of time,” says Jeremy Benson, who heads the Free the Grapes! Lobbying group. “But I think the No. 1 reason why this works is that [the industry groups] got together and they realized they needed a lobbying plus litigation plus PR strategy and that’s been really what has made this entire campaign.”

• Only in Mississippi: Mississippi officials are suing four mail-order wine sellers, saying they illegally shipped wine and liquor into the state. It’s one of a handful of states that don’t allow wine to be shipped to someone’s house for any reason. All wine and liquor is supposed to go through the Madison County warehouse operated by the Revenue Department’s Alcoholic Beverage Control division. Because, Mississippi. And, of course, the three-tier system.

How to stop Amazon Go: Try to buy wine

amazon go
Look at the lower right: In the most high-tech store in the history of the world, “We check ID.”

The Amazon Go employee-less store actually has an employee – to check IDs if you want to buy wine or beer

Amazon’s failure in the wine business, where it shuttered not one, but two sites, might be the only defeat the retail giant has ever suffered. So it’s probably no surprise that its new, revolutionary Amazon Go store, designed without employees or checkout lines and which has panicked every other retailer in the world, does have an employee: To check your ID if you want to buy wine.

Call it the revenge of the three-tier system.

None of the store’s incredible 21st century technology can do the ID job, even though (as described by Ars Technica’s Sam Machkovech) there are so many cameras that it’s impossible not to be seen: “They watch your every move from the moment you walk in and scan your smartphone. Every item you pick up and put down is then tracked to you as an entity – not by your face, but by your body and hands milling about and grabbing stuff.” The system works so well that it even foiled Machkovech’s attempts to steal something.

But not for booze. Writes Machkovech: “The other unusual process involves purchasing alcohol. Amazon Go leaves one staffer in the back of the shop next to a selection of beer and wine in order to check IDs. There was nothing fancy or high-tech about this when I went to peruse the beer.”

Of course, nothing fancy or high tech – because we regulate wine, beer, and spirits using last century’s three-tier system, devised when there were still ice wagons, an orange was an exotic Christmas gift, and nine out 10 rural homes didn’t have electricity.

The Wine Curmudgeon does not advocate underage drinking, and I have always emphasized responsible alcohol consumption on the blog. But – and I know a little about post-modern tech, how this sort of operation works, and a decade’s worth of improvements in ID technology – it’s inconceivable that Amazon didn’t find a way to check IDs using something other than a person. It’s difficult to believe that there’s no way to tie an Amazon account to the person who owns it, so that a 16-year-old can’t pose as someone who is 37.

But it probably didn’t even bother. The failure of both Amazon wine stores taught one of the world’s most powerful and influential companies an important lesson: You can’t beat the three-tier system.

Photo courtesy of Recode/Jason Del Ray, using a Creative Commons license

Winebits 518: Three-tier rant, James Tidwell, wine trends

James Tidwell
James Tidwell

This week’s wine news: Top attorney lambastes three-tier, plus an honor for sommelier James Tidwell and a look at wine’s future

• A legal blast: John Hinman is one of the most respected attorneys in the country in liquor law. So it’s a big deal that he said: “The wholesalers are dedicated to maintaining their position as mandatory middleman at artificially inflated margins. This is why they continue to perpetuate the fallacy that the three-tier system is necessary to protect the public.” It’s also a big deal that he said it in a post on the wine-searcher.com website, where the stories usually aren’t quite so outspoken. But wine-searcher exists to help retailers sell wine, and they often do so by bypassing the distributors and wholesalers who make up the second tier of the three-tier system. So consider this a shot across the bow of the distributors, and let’s watch and see what happens next.

• Well-deserved: I’ve known sommelier James Tidwell for almost my entire career as a wine writer, and few people understand wine or love it the way James does. So it’s not surprising that he has been named one of four finalists for the Wine & Spirit Education Trust’s prestigious Outstanding Alumni Award. The trust offers wine and spirits education for professionals throughout the world, and its graduates are some of the biggest names in the restaurant and sommelier business. The award will be given Jan. 22 in London.

• Ingredient labels: At first glance, the only thing that French wine guru Pascaline Lepeltier and I have in common is that we both like wine. But, as Cathy Huyghe reports in Forbes, Lepeltier sees five keys for wine’s future, and one of them is transparent ingredient lists — something I have written about extensively. Lepeltier told Huyghe that “People are not stupid. Give them the education and they can make the decision themselves. More explanation, more education, more critical thinking.”

Winebits 517: Big Distributor, Big Wine, Wine.com

Big DisributorThis week’s wine news: Two of the biggest distributors in the country merge, plus Coke considers the wine business and Wine.com adds pick-up

• The big get bigger: This spring, the 10 biggest distributors in the U.S. controlled almost three-quarters of the second tier of the U.S. wine business. That means that a handful of companies touched three-quarters of every bottle of wine we drank, adding another layer of bureaucracy and cost to a system that exists nowhere else in the world. Last week, the big got bigger, when No.2 RNDC announced it would merge with No. 3 Breakthru Beverage. That means, since Breakthru bought a smaller company in July, that the top eight companies will control 73.3 percent of the second tier. And, if that’s not enough concentration, the two biggest – Southern Glazer’s and the combined RNDC – will control 55.4 percent of the U.S. wholesale market. How anyone can claim this is beneficial to anyone but the distributors is beyond me. It will reduce competition, never good for consumers, and limit choice. That’s because fewer distributors mean the ones remaining will distribute fewer wines; can someone explain to me how that helps wine drinkers?

• Is Coke returning to wine? One of the most famous failures in the wine business is Coca-Cola’s effort in the 1970s. Its brands included Sterling, but the company had little success and got out in 1984. So is Coke ready to try again? The company’s CEO said probably not, but that “Philosophically, I never say never about most things. …” Intriguingly, that company that bottles Coke in Australia is partners with the company that owns Yellow Tail, the best selling imported wine to the U.S., in the beer business.

• Let me pick it up: Wine.com, the biggest on-line wine retailer in the U.S., has tripled the number of pickup locations to more than 10,000 across the country. This includes nearly 1,000 in California and more than 500 in New York. If you order from Wine.com, you don’t have to wait for it arrive at your house; you can get it FedEx Office locations, selected Walgreens and Duane Reades, plus some Safeway, Shaws, Jewel-Osco, Albertsons, and Fred Meyer grocery stores.

Will anyone notice that Amazon Wine is gone?

The news is not Amazon’s Wine demise, but the stranglehold the three-tier system has – even on one of the most powerful retailers in the world

amazon wineThe Amazon Wine website is closing at the end of the year, which has caused any number of eruptions in wine’s portion of the cyber-ether. In truth, though, no one else cared. My grocery store trade e-letters ignored the news, and they usually cover Amazon the way I cover cheap wine.

And the end of Amazon wine won’t make any difference to most wine drinkers, since Amazon Wine never actually sold wine. Instead, it was a platform that re-directed consumers to winery websites, where they bought wine from the winery.

Amazon was nothing more than a middleman, collecting marketing fees from the wineries that were listed on the Amazon Wine website. And it is those marketing fees that are forcing the wine website to close.

Which is the real subject of this post – yet another rant against the three-tier system.

Three-tier law includes something called tied house restrictions. One part of tied house prohibits retailers and restaurants from accepting “something of value” from producers or suppliers. This, theoretically, prevents the latter from bribing the former to sell its products, but can cause any amount of legal tomfoolery in the post-Prohibition world.

Amazon could operate its wine website because it didn’t sell wine and so didn’t need a liquor license. But as soon as it bought Whole Foods, it inherited hundreds of the luxury supermarket’s liquor licenses, and liquor licensees fall under tied house. As W. Blake Gray first reported on Wine-Searcher at the end of September, these tied house laws could cause any numbers of problems for the Internet giant.

Which they apparently have. The marketing fees Amazon was collecting from wineries that are listed on its site could be construed by state liquor cops as “something of value” and Amazon could be forced to list the wineries on its site for free. So rather than fight the system, which it has fought before to no avail, Amazon will close Amazon Wine.

Do not worry if this is confusing. The only people who understand tied house are those who enforce and litigate it, and interpretations vary from state to state. What one state defines as “something of value” may not be in another state. In Texas, there was once a marvelous debate about whether iPads given to a restaurant that bought a certain amount of product it was going to buy anyway violated tied house.

The point is that one of the most powerful retailers in the world, who revolutionized the way we shop, is terrified of an arcane law passed to keep the Mafia out of the liquor business more than 80 years ago. This speaks to the stranglehold three-tier has on the liquor business to the detriment of consumers, who suffer higher prices and fewer choices because of it. And because of three-tier’s constitutional protection and the political clout that its distributor supporters have, there’s little we can do.

Except, of course, appreciate the irony. Note that the world has not come to an end in the United Kingdom, where Amazon sells wine just like it sells books and computers. To hear three-tier’s supporters defend a corrupt and obsolete system, that’s impossible.

More about Amazon wine:
• Amazon, Whole Foods, and wine prices
• Amazon can revolutionize grocery stores, but it still can’t sell wine
• Amazon goes into the wine business

Direct shipping update: Unfortunately, more of the same

direct shippingThe distributors are fighting back so that direct shipping remains complicated and limited

Just when it looked like it might be getting easier to buy wine through the Internet, either from retailers or a winery, we got the not unexpected backlash from the people who don’t want to make it easier: the distributors.

“The distributors conceded the battle against the wineries, but they doesn’t mean they’re conceding anything else,” says Jeff Carroll, who has helped companies comply with direct shipping rules and regulations for more than a decade – and knows as much about this stuff as almost anyone I’ve met, including attorneys who work with the subject.

The winery concession he mentions came in the 2005 Supreme Court Granholm decision, which made it possible for wineries to ship to customers in another state. Since then, says Carroll, despite several favorable court rulings and even a few states taking a second look at direct shipping – and especially to allow us to legally buy wine from retailers in a different state – very little has changed.

That’s because the distributors – the legally mandated second-tier in the three-tier system – want to keep what they have, says Carroll. And why not? It’s a constitutionality protected monopoly that forbids almost all direct shipping from another state. The only exception is for wineries, who are allowed to ship to some states depending on where you live.

Their aim is two-fold: First, to more strictly enforce existing direct shipping laws by pressuring the states and UPS and FedEx to crack down on illegal shipments. That means, for example, that your state liquor cops may be asking the two delivery services for customer lists to see if you ordered wine from an out-of-state retailer, which you may not be allowed to do depending on where you live. In addition, a variety of states are being more exacting in the complex paperwork required for direct shipment. If the winery misses dotting an i or crossing a t, it could face fines or penalties.

Second, the distributors, through their trade group, have invested in Drizly, the on-line delivery service. The goal is to allow Drizly to fill orders using distributor inventory, and where the local retailer is the conduit for the product and the delivery. It’s actually a clever idea, which uses the three-tier system to help Drizly offer more products to deliver; limited selection has been one of its problems. Theoretically, it could deliver any wine in the world that has a local distributor.

More about direct shipping:
• Could the Internet screw up direct shipping?
• Direct shipping and underage drinking
• The Supreme Court and retail direct shipping

responsible drinking

Can we ever solve the problem of wine availability?

wine availabilityProbably not, hence these jury-rigged solutions for wine availability

One of the most requested features during my recent blog survey: Some way to improve wine availability, so you’ll have a better idea where to buy what I write about. Which, sadly, is almost impossible.

The rule for wine availability on the blog: If I write about it, you should be able to find it at a well-run wine shop in a decent-sized U.S. city. But that doesn’t mean you’ll be able to buy it at a supermarket, Walmart, or specialty stores like Trader Joe’s.

Thanks to the way wine is sold in the U.S., I can’t do better than that.

That’s because wine is not like ketchup or laundry detergent. Its sale is controlled by state law, and each state has different laws. Those laws make up the legal and regulatory nightmare that is the three-tier system, and it means that even if I can buy the wine in Dallas, there is no guarantee you can buy it in any other state in the union – or even in Houston, for that matter.

Case in point: I got samples of three $20 California wines, one of which I liked and wanted to write about. The catch? The wine is only for sale in eight states, which isn’t all that unusual. So what do I do?

I’ve written about this many times, both on the blog and in the cheap wine book. It’s the most frustrating thing about what I do, and even more so because it baffles so many readers. One woman wanted to know where to buy several roses I recommended in a free-lance piece. I asked her where she lived, and she didn’t understand – even after I explained it to her – why that mattered. Why couldn’t she just buy the wine at her grocery store?

Changes in the wine business are making this problem even worse. For one thing, more retailers are selling more private label wine, wine that you can only buy at their stores. I had a fabulous $9 Gascon white from Whole Foods the other day, but it’s only for sale at Whole Foods. Do I write about it or not? For another, wine brands have proliferated like plague-infested rats in a medieval city, so that there is not enough shelf space for all of them, even if three-tier was more benign.

In the end, solving the problem of wine availability is out of our hands. All we can do is jury-rig a solution. This post describes the best ways to find wine that you don’t see on the shelf. In addition, I’ll start adding the name of the importer when I review foreign wines. This comes with the caveat that a wine can have more than one importer depending on where you live.

Because, as a long-time blog visitor and reformed wine PR type named Leslee Borger told me: “I’ve stopped trying to explain to my husband why we can’t order wine from Amazon. It ended with ‘You just can’t.’ ”