Tag Archives: three-tier system

Follow-up: The sham and hypocrisy behind the three-tier system

three-tier system

“Ain’t it grand to be doing journalism again?”

Was the cyber-ether outraged by my three-tier system post? Nope. It mostly agreed. And that may be the biggest surprise of all

The blog’s traffic for the two days after Thursday’s three-tie system post was greater than any two-day period in the past 18 months, about three times normal.

So one would expect lots of comments, lots of emails, lots of flaming, right? After all, this is the Internet in the second decade of the 21st century, isn’t it?

In fact, just the opposite happened: Hardly a murmur of protest, hardly any comments, and only one person who canceled their email to the blog. In my world, cancellations are the mark of a controversial post – the more controversial, the more cancellations. But in this case, more people were worried that I would be arrested for illegally ordering wine from an out-of-state retailer than the number who called me names. How weird is that in today’s cyber-ether?

But, after parsing what happened over the past couple of days, maybe it’s not really weird at all. That’s because almost everyone who doesn’t have a vested interest in protecting the system accepts it for what it is – obsolete and inefficient on its best days, and corrupt on its worst. So why bother to complain? As one comment put it: “The three-tier system exists only to protect distributors – the health issue is pure hypocrisy. …”

Which speaks to a larger and more troubling point – not just about wine regulation, but about how the world works these days. The sense is that those in charge will do what they want to do, be it in politics, banking, Wall Street, technology, or the Internet, and that there is little the rest of us can do about it.

Frankly, that is a decidedly un-American approach, and it’s one I don’t believe in. If I did, I’ve wasted most of my professional life, and I know I haven’t done that. And it also explains why I wrote the post and set up the reverse sting – if the Winestream Media is going to acquiesce, that’s all the more reason for the rest of us to rouse as much rabble as we can. Which I have done my entire professional life, and which I will keep doing until I am buried, keyboard between crossed arms.

And, sadly, it also explains why so many people were worried I would be arrested. They’ve forgotten what the news media is supposed to do, which is journalism — and which is not reprinting news releases touched up with bad, punny headlines When I was a young newspaperman, this sort of thing was common – the Mirage Tavern, the bible that wasn’t in the room, and so many more. These days, newspapers are assets to be butchered to make even more money for their owners, who are usually already richer than the rest of us.

Am I the New York Times, and will this post change the world immediately? Nope. But every bit helps, and especially at a time when we need help so badly.

The sham and hypocrisy behind the three-tier system

three-tier

“Quick — get the wine unloaded before anyone spots us.”

The Wine Curmudgeon buys wine from an out-of-state retailer – even though it’s illegal

A case of Domaine Tariquet was delivered via Fed Ex to Wine Curmudgeon international headquarters in Dallas this week. The shipment violated the laws of two states – that of the retailer who sold me the wine, and Texas, which forbids shipments from out-of-state wine retailers. Welcome to the sham and hypocrisy that is the three-tier system.

Why a sham? Because the liquor cops in Texas and in the retailer’s state both know I bought the wine, since Fed Ex and UPS send so-called common carrier reports to the agencies. The Texas Alcoholic Beverage Commission received the electronic paperwork saying the order was shipped to my house; the retailer’s state alcoholic enforcement agency got the same thing when the order was shipped.

I’m not going to name the retailer or its state; let the liquor authorities do their own investigating. Click the links to see the address label and the alcohol warning label that said the package wasn’t olive oil. Also, everyone quoted in this post was given confidentiality, since I committed a crime with my purchase.

So why did my reverse sting operation work? Because each state doesn’t always enforce the interstate retail ban, according to a prominent liquor law attorney.

“It’s not high on the list of priorities,” he told me. “Most of the time, unless someone objects to that kind of sale, they don’t do anything about it. It’s like enforcing the speed limit on a highway. The police may not enforce it for a long time because they have other things to do – until someone complains about speeding, and then they set up a speed trap.”

And, now – hypocrisy

Interstate retail shipping is banned in most of the U.S. in the interest of “public health and safety” – the legal doctrine that has overseen liquor law since the end of Prohibition. Yet, more than a century later, state regulators and legislators still insist that it’s not safe for me to order wine from a retailer in another state. Yet, if it’s so dangerous, why isn’t it enforced more often?

The answer can be found in the July 8 decision by the Ohio attorney general to sue Wine.com and six other interstate retailers for selling wine to Ohio residents in violation of the state’s interstate shipping ban. Yet, according to two people with knowledge of the attorney general’s suit, Wine.com has been selling wine in Ohio in violation of the ban for more than a decade – and the Ohio Division of Liquor Control knew it was doing so and exchanged letters with the company acknowledging the practice.

The July 8 lawsuit, says the prominent liquor attorney, fits a pattern – interstate shipping bans are often enforced only when wholesalers and distributors press the issue. In Ohio, Wine.com and the other retailers weren’t buying from Ohio distributors, as required by law, but from distributors in other states. This lost business, combined with the dramatic drop in restaurant wine sales during the COVID-19 pandemic and increasing legal direct-to-consumer wine shipments in Ohio, probably had the wholesalers “crapping in their pants,” e-mailed an Ohio wine business consultant who has worked with the state’s distributors. No wonder, he wrote, that they pressured Ohio authorities to sue the interstate retailers in an attempt to redirect the lost business and revenue their way.

So where’s the public health and safety?

And, in fact, the news release announcing the lawsuit barely mentioned “public health and safety.” Instead, it emphasized lost tax revenue and lost retail sales, quoting an Ohio retailer and distributor. In addition, the Wine & Spirits Wholesalers Association, the national distributor trade group, issued a news release saying the same things. The attorney general’s spokesman didn’t respond to two requests for an interview for this post.

Keep in mind that this post isn’t about defending an illegal practice. If anyone violated the law, they should be punished, whether Wine.com (which is a long-time supporter of the blog) or me. And this post doesn’t advocate selling liquor without regulations — we certainly need regulation, but regulations that are fair and efficient.

Because selective enforcement isn’t either. If interstate wine shipping is truly dangerous, then the ban needs to be enforced. Because if the ban isn’t enforced, then it follows that interstate shipping isn’t as dangerous as it’s supposed to be. And if that’s the case, why have the ban at all?

Photo: Odd Truck” by oliva732000 is licensed under CC BY-SA 2.0

15 years since Granholm, and how much hasn’t changed in the three-tier system

GranholmThe Supreme Court’s Granholm decision was supposed to make it possible for us to buy wine from out-of-state retailers and on-line. So why didn’t it?

This is the first of two parts looking at how the century-old three-tier system still prevents us from buying wine on-line or from out-of-state retailers. Today, part I: The Supreme Court’s 2005 Granholm decision, and why it didn’t change three-tier as much as everyone hoped. Friday, part II: Dear Supreme Court: Please fix three-tier.

Fifteen years ago this spring, the Supreme Court made it possible to buy wine from an out-of-state winery in its Granholm decision. The court ruled that states had to treat wineries in- and out-of-state the same way. So, if residents could buy directly from an in-state producer, then they had to be allowed to buy wine from an out-of-state producer as well. This opened the direct-to-consumer wine market, which is worth about $3 billion today

Many smart people also thought Granholm would open the retail wine market, so that consumers could buy wine over the Internet and from companies like Amazon. But that never happened (save for the rare exception like Wine.com), and I explain why in a freelance piece I wrote for Meininger’s Wine Business International.

And why didn’t Granholm do that? Because state lawmakers, regulators, and the courts still go by what’s called the “public health and safety” standard that was set up by the political compromise that ended Prohibition and gave us three-tier. The doctrine says that if a liquor regulation protects the public health and safety, then it’s constitutional. And each group – and particularly the courts in almost every decision since Granholm – still insists it isn’t safe for wine drinkers in one state to buy wine from a retailer in another state. So it remains illegal.

Yes, this is silly and outdated in the second decade of the 21st century – but that’s three-tier for you.

More about three-tier, Granholm, and direct shipping
Tennessee residency law: Did the three-tier system come crashing down yesterday?
Is the coronavirus pandemic the beginning of changes to the three-tier system?
Direct shipping loses a big one

Winebits 651: Walmart, Grocery Outlet, neo-Prohibitionists

WalmartThis week’s wine news: Walmart will appeal take Texas liquor store case to Supreme court, plus blog favorite Grocery Outlet wins award and the neo-Prohibitionists strike again

Walmart appeal: Walmart, rebuffed twice by a federal appeals court, will appeal to the U.S. Supreme Court to be allowed to open liquor stores in Texas. We’ve followed this closely on the blog, since Walmart is trying to overturn a state law that forbids publicly-held or out of state companies from getting a retail liquor license (one of the WC’s favorite three-tier restrictions). Walmart won its case at the trial level, but was rebuffed twice by the the Fifth Circuit Court of Appeals. There’s no certainty the Supreme Court will take Walmart’s case. But if it does, expect some serious three-tier fireworks.

Award-winner: The Wine Enthusiast has named blog favorite Grocery Outlet as one of its 50 best U.S. wine retailers. This is a big deal, if only because Grocery Outlet — best known for its cheap wine — is still mostly on the West Coast. The award puts Grocery Outlet in the same class as Costco, perhaps the U.S. leader in what the magazine calls “value-driven” wine.

One glass of wine: An influential federal panel, reports Forbes, is recommending that men reduce alcohol intake to one drink per day, and that all Americans should cut back on added sugars. Who knew that a couple of glasses of wine were as deadly as that quart of vanilla ice cream? But that’s the finding from the Dietary Guidelines Advisory Committee, which says that the extra glass of wine is associated with a “modest but meaningful increase” in death rates.

Winebits 646: Expensive wine, Grocery Outlet, drinking laws

expensive wine

“Oh no, expensive wine is endangered!”

This week’s wine news: Catching up with what’s going on that isn’t about rose

The future of expensive wine: Esther Mobley, writing in the San Francisco Chronicle, asks whether the coronavirus pandemic “will make luxury Napa Valley wine less relevant?” It’s one thing for me to write that on the blog; that’s the Wine Curmudgeon’s reason for being. But it shows old-fashioned newspaper gumption for Mobley to do it, since the Chronicle is the paper of record for luxury Napa Valley wine. Because as soon as I saw the piece, I knew Mobley’s bosses would be getting a variety of nasty emails, texts, and phone calls. “How dare she write something like that?” would have been the general tone.”We need her support more than ever, and she is tearing us down!” That’s when they usually threaten to pull advertising. And how do I know about stuff like that? Let’s just say it happened once or twice during my journalism career. Hard to believe, yes?

Grocery Outlet thriving: Grocery Outlet’s sales increased 25 percent during the first quarter this year, as shoppers flocked to the discount chain as food prices increased elsewhere. Grocery Outlet is known on the blog for its quality cheap wine, but its other prices can be as much as 70 percent lower than full-service supermarkets. That has helped the chain, with stores mostly on the west coast, attract shoppers who are still looking for value despite the pandemic, say analysts.

U.S. drinking laws: The BBC takes a look at how U.S. drinking laws have changed during the duration. The story isn’t the news organization’s best reporting – it’s too long, unfocused, and depends on weak sourcing (trade lingo!), but that it did the piece at all speaks to the momentous changes that the pandemic has brought to U.S. liquor regulations. Which, of course, you read here first. It also includes the obligatory quote from a U.S. medical official saying that we’re all burn in hell if we don’t stop drinking so much.

Winebits 642: Coronavirus wine roundup

coronavirus wine This week’s wine news: Coronavirus wine sales trends, more Pennsylvania legal foolishness, and virtual wine tasting samples

What comes next? Noted wine business analyst Christian Miller, a long-time friend of the blog, tells Forbes’ Liza Zimmerman that the coronavirus pandemic could finally slow wine sales later this spring, and the slowdown could last through 2021. The good news, he says, is that “Demand for wine is not going to dry up, or even diminish much, once the initial shocks are ridden out.” He also sees significant changes in the three-tier system as it struggles to cope with the pandemic. The former is pretty much what SVB’s Rob McMillan told the blog a couple of weeks ago, and the latter is something I wrote about last week.

More fun in Pennsylvania: Remember Pennsylvania closing its state-owned liquor stores? Remember state residents being asked to leave neighboring New Jersey and Delaware when they came in search of booze? Well, now the state is being sued by two wholesalers, who say the state is violating its own laws by refusing to let the wholesalers sell directly to retailers and restaurants. The details, not surprisingly since it’s Pennsylvania, are quite confusing. But it’s enough to know that the state’s liquor control board says it doesn’t have to obey that particular law because it is still studying it.

Bring on the samples! The Wine Curmudgeon knows that many of you in the cyber-ether have been worried that I would not be able to receive wine samples for virtual tastings during the duration. But have no fear. The federal agency that oversees that sort of thing said last week that not only wine writers, but consumers would be able to receive “small containers of wine” for virtual tasting. There’s lots of fine print, depending on which state you live in, but this is one more example of the pandemic pushing the three-tier system to the side.

Image: “wine” by Chas Redmond is licensed under CC BY 2.0 

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.”