Is the coronavirus pandemic the beginning of changes to the three-tier system?

three-tier system

“Those poor saps in 2020. They’re stuck with the laws that were designed to keep speakeasies from opening, even though speakeasies don’t exist in 2020.”

Will the success of e-commerce and restaurant delivery during the pandemic eventually make it easier for us to buy wine, beer, and spirits?

This is the second of two parts looking at how the coronavirus pandemic has changed the way we buy wine. Today, will the pandemic lead to changes so it’s easier to buy wine on-line? The first part – finding value when buying wine on-line – is here.

Wine is being shipped to our homes, and we don’t have to sign for it. That used to be a felony in many states. We’re ordering wine from restaurants and liquor stores over the Internet, which was not only illegal in some states, but almost impossible to do even where it wasn’t.

All of this is because of the coronavirus pandemic, as state liquor cops relax enforcement of many of the laws that make up the three-tier system. Their goal is to help restaurants and retailers stay in business, and so the economic benefit outweighs enforcing the law.

Which raises a question about the future of the three-tier system, the set of state laws that govern how we buy alcohol in the U.S.: Will the success of Internet sales and restaurant delivery during the pandemic lead to changes that will make it easier for us to buy wine, beer, and spirits?

The answer, after a week of reporting, is almost certainly. Once the pandemic ends, say those I’ve talked to, it will be difficult for state regulators to return to the strict, Prohibition-era system that defines U.S. liquor laws. And that means more flexible e-commerce and home delivery regulations.

“My crystal ball is not particularly clear on this,” says Jason Haas of Paso Robles’ Tablas Creek Vineyard, one of the most thoughtful and erudite people in the wine business when it comes to discussing three-tier. “But I think it is clear that we as a society are not against lifting the restrictions. The fear was always that, if we did, the unknown might happen, that it would hurt business and alcohol would flood society. And those arguments would sound really silly after all of this.”

The genie is out of the bottle

For relaxing enforcement has worked. Wine.com’s sales doubled in March, while the Drizly home delivery service reported “greater shift to e-comm” that “is not only just maintaining, but it is growing.” All told, says the Rabobank consultancy, wine e-commerce has experienced “astounding growth” during the pandemic.

E-commerce and home delivery have traditionally been a tiny percentage of U.S. wine sales. Wine.com, the only truly national e-commerce wine retailer, does less than $150 million in sales each year, barely noticeable among the $70 billion U.S. wine market. Even the so-called DTC market, where wineries sell directly to consumers, accounts for just single percentage points of that $70 billion.

And that’s because the three-tier system was set up to make it difficult to do anything other than buy wine in a restaurant or retailer. And that’s because the goal of the three-tier system, which took effect when Prohibition ended in 1933, was to keep Al Capone out of the liquor business. I’ve written extensively about why this happened, on the blog and in the cheap wine book, but the reasons almost don’t matter anymore. It’s enough to know that even though this is the 21st century and Al Capone has been dead for 73 years, we’re still stuck with a liquor regulation system that makes no sense in the Internet age.

But maybe not for much longer.

“The genie is definitely out of the bottle,” says Cameron Hughes, whose self-named winery has been one of the country’s pioneers in DTC sales. “This shows we can operate successfully without ruining the intentions of the three-tier system, so why should have to sign up for it again once the pandemic is over?”

And the wine industry executives I talked to aren’t the only ones who think change is coming. The Wine & Spirits Wholesalers Association, which has lobbied successfully on behalf of three-tier for almost 90 years, is apparently worried, too. It warned U.S. consumers about “black market liquor” shortly after many states eased three-tier delivery restrictions. That the only thing most of us know about black market booze is from old movies is irrelevant to the wholesalers; they’ll do almost anything to save the system that gives them a constitutionally protected monopoly to distribute alcohol.

Coming next

“Relaxing the rules has always been the goal,” says Matt Crafton, the winemaker at Napa Valley’s Chateau Montelena. “So why not make that permanent?”

So what might happen – or not – once the pandemic winds down? Any changes probably won’t happen immediately, but even later rather than sooner will be a welcome change:

• The law that requires every wine sold in the U.S. to have a distributor won’t change, so the wholesalers trade group can rest easy.

• More and easier home delivery from retailers, restaurants, and wineries. It’s possible the rules will be changed in various states so that more wine shops and restaurants can take Internet orders – and how much better would it be to order wine with your takeout food? The catch here is restaurant pricing. Will restaurants realize they’ll have to improve on their three and four to one markups to be competitive?

• The end to signing for wine deliveries, the hassle that the delivery companies hate as much as consumers do. So far, the republic hasn’t ended without signing for wine, and, says Hughes, “in the 21st century, there has to be a better way for Fed Ex and UPS drivers to deliver wine than to check ID.”

7 thoughts on “Is the coronavirus pandemic the beginning of changes to the three-tier system?

  • By Vladimir Zworykin - Reply

    Don’t expect big business and capitalism will let things stay as they are, comrade. If you believe they won’t, then I have some lakeside property near the Podkamennaya Tunguska River I’d like to sell you, cheap.

    Пожалуйста

  • By Paul Tincknell - Reply

    I guess I’ll take the lousy job of being the pessimist. The sad fact is that many state capitals are beholden to wine, beer, and spirit wholesalers, who give enormous amounts of campaign donations to keep their lock on their states’ wholesale oligarchies. I expect pressures from wholesalers and WSWA to ramp up when politically expedient to do so post-pandemic to protect their grip on the markets, and stall any reforms as long as possible. The 21st Amendment still gives each and every state the authority to regulate alcohol, so the maze of regulations and laws will likely continue. The wholesalers can pressure legislators and regulators to make it more expensive (licenses, taxes, insurance bonds, etc.) for suppliers and consumers buying retail-direct. Money talks, and the wholesalers have never been afraid to spend the money – in state legislators and all the way to the Supreme Court when necessary – to protect their turf, and expand their influence.

    • By Wine Curmudgeon - Reply

      Paul, as always, your analysis is spot on. The difference this time, I think, is that these are changes on the fringe of the wholesaler monopoly. That makes them much more possible.

  • By Michael Brill - Reply

    Wine.com is three tier. Drizly is. Every restaurant and wine retailer is. afaik, nothing has changed for three tier. What am I missing?

    • By Wine Curmudgeon - Reply

      Yes, Drizly and Wine.com are part of the system. But it’s easier to get their products delivered with the removal of the signature requirement. That, as I have written, has been a huge obstacle to home wine delivery, since Fed Ex and UPS don’t like delivering wine because it’s so unprofitable for them (https://www.winecurmudgeon.com/follow-up-fedex-why-wont-you-deliver-my-wine-samples/).

      In addition, I can get delivery from restaurants in Texas, which was previously illegal. That’s happening in many states, including New York. This has has been anathema to wholesalers and state liquor cops, who see it infringing on three-tier’s reason for being.

      As noted, these are on the fringes of three-tier, which is why it’s possible they could be permanent.

  • By Michael Brill - Reply

    You needed a signature for DTC wines as well. That has nothing to do with three tier.

    I also don’t understand how allowing restaurants to deliver booze implies any loosening of three tier requirements. That’s simply relaxing one of the many weird state ABC restrictions. e.g., if they also allowed bars to stay open until 3AM, that also isn’t a three tier issue.

    Having said that, I’m actually shocked that any state has dropped the adult signature requirement. Other than in the very narrow case of restaurant delivery in Oregon, where are you seeing this?

    • By Wine Curmudgeon - Reply

      Do a Google search, and you’ll find all you need to know about signatures. And we’ll just have to agree disagree about restaurant and booze delivery. It’s a huge deal in Texas that restaurants can deliver wine with dinner.

      And, as I noted, none of this will change the requirement that wholesalers will still be mandatory for wines to be sold in retail and restaurants.

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