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.
“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.”
This week’s wine news: Total Wine takes on wine delivery, plus an IHOP that sells wine and the British government sticks it to wine drinkers
• Home delivery: Total Wine, the chain that wants to become the first national wine retailer, will offer same-day and scheduled delivery in select markets. Currently, the chain only does this kind of delivery in 13 cities in Virginia. The news release, written mostly in tech-speak, is difficult to understand, but the implication is that Total will roll out delivery where it’s legal as soon as it can. What makes this different from the recent rush of retailers announcing delivery? That Total isn’t doing delivery through a third-party service like Drizly or Instacart, but will apparently provide the service itself. That’s a tremendous undertaking in this era of outsourcing, but also speaks to Total’s close to the vest approach toward retailing.
• Wine with your Rooty Tooty Fresh ‘N Fruity? A Phoenix IHOP has added a full-service bar, serving beer, wine, and cocktails. So yes, IHOP mimosas with your pancakes. The chain normally doesn’t let its franchisees do this sort of thing, but the IHOP is in a former Lone Star Steakhouse, and the bar was already in the restaurant. So why not take advantage of the situation?
• Raising wine taxes: The British government, trying to balance the budget while it leaves the European Union, has found one solution: Raise the import duty on wine. The Financial Times reports that the new rate will increase the cost of a bottle of wine by 7 pence (about a dime in U.S. dollars). What makes this story so odd is that the government isn’t raising the duty on beer or spirits, even though wine is now the most popular alcoholic beverage in the United Kingdom and it’s the sixth biggest wine market in the world.
This week’s wine news: First coffee wine, so why not iced tea wine? Plus, developments among wine delivery apps and a cork closure that doesn’t need a corkscrew
• Yes, it’s sweet: If there’s coffee wine, why not iced tea wine? Natchez Hills Winery, near Nashville, Tenn., has released a wine made with 100 percent sweet tea, fermented just like grapes are to make wine. And, since canned wine is trendy, says the winery’s news release, it comes in a can. What have we wrought with Drin
k Local? I haven’t tasted this, and not sure I want to (I drink unsweetened tea), but any Southerners in the audience who are brave enough are welcome to take notes and send them in. We’ll get them on the blog.
• Wine at your door: Liza Zimmerman, writing for Forbes, updates the overcrowded world of wine delivery apps like Drizly and Minibar: They remain mostly local, retailers are increasingly wary of letting someone else handle their delivery, and opportunities abound. Sort of, anyway, given Amazon’s withdrawal from the market and the increasing presence of grocery store delivery services like Instacart.
• Just like a screwcap: Hate corks, but miss the cork popping when you open a bottle of wine? Then consider wine using the Helix closure – it has threads so it can be unscrewed, but is made of cork . The catch? It’s not on many wines yet. The most interesting bit? That Anorim, the world’s leading cork producer, is the company that developed the Helix. I guess if you can’t beat screwcaps, you might as well copy them.
The chain may not understand that delivering wine is not the same thing as delivering two pizzas for $14
Dear Pizza Hut:
Yes, pizza and wine make sense if you’re sitting in a corporate conference room trying to figure out the post-modern 21st century restaurant business, what with GrubHub and Amazon and all the rest. But at the store level – and that’s what I know about from my Pizza Today experience – trying to make alcohol delivery work may be one of the dumbest things you’ve ever done.
That’s because of something called the three-tier system, which regulates alcohol sales and distribution in the U.S. I’m sure one of your attorneys would be happy to explain it to you in detail, but all you really need to know is that three-tier is so complicated and so byzantine – and different in every state – that even Amazon gave up trying to deliver wine. And the companies that do deliver it, like Drizly, can’t believe how difficult the law is.
This one example should demonstrate how all powerful three-tier is. Let’s say you find a wine to deliver, but it doesn’t have a distributor in one of the states you’re doing delivery. So you can’t use it, and you have to find a different wine for that state. Silly? Of course. Cheese doesn’t work that way. Or tomato sauce. But wine does.
And this doesn’t take into account trying to find a wine that’s priced fairly, delivers quality, and won’t insult your customers. See, for example, the problems that Blue Apron had – and how much better off would the CEO have been if he had read my post?
Again, the let lawyer give you the details about three-tier. All I want to do is to give you a head’s up to save you from a multi-million dollar mistake. That’s the least I can do for old time’s sake.