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, because the blog is off tomorrow for the holiday: Media-induced shortages for Aldi wine, plus more three-tier trends
• Cheap rose forever: Imagine the Wine Curmudgeon’s shock when saw this sign (the one at the top of the post) at his local Aldi – a media-induced shortage of rose. As much as I would like to take credit for this, it’s the fault of NBC’s The Today Show, which ran a piece on the $9 Cote des Provence rose at the beginning of June. The clerk at my Aldi said the warehouse has been out of the wine for weeks; hence the sign. What’s most interesting is not that the wine is sold out, because anyone who follows the WC knows cheap pink wine is one of the wine world’s great finds. Rather, that the Provence has been sold in Britain, and that Aldi is bringing it to the U.S. Aldi hasn’t done that with many of the the wines it sells in Europe, instead selling a variety of very ordinary domestic wines in this country. Could it be that the chain is feeling the heat in the U.S. from the debut of its German arch-rival, Lidl? And yes, if and when it ever shows up at my Aldi, I’ll review it.
• Constitutionally protected: The Supreme Court has agreed to decide the constitutionality of a New Jersey law allowing sports betting. Why is this important to wine drinkers? Because the court has never, as far as I know, agreed to decide the constitutionality of the three-tier system that governs the sale, manufacture and distribution of booze in the U.S. But gambling, somehow, gets a hearing? And, if the court sides with New Jersey, it means any state can legalize sports betting – even if they don’t allow you to buy a bottle of wine from Amazon or six-pack of beer on your way to the lake on Sunday morning. If there any constitutional scholars in the audience who can explain why this is not hypocrisy of the highest order, send me an email.
• Only 14 states: Speaking of which, Tom Wark of the National Association of Wine Retailers reminds us that only 14 states allow consumers to purchase wine from out of state retailers. Interestingly, New Jersey is not one of the 14. But if gamblers will soon be able to take the Cowboys and the points in an Atlantic City sports book, perhaps the state will reconsider.
? One person’s inexpensive: One more example of how restaurants are out of touch with their customers when it comes to restaurant wine prices. This new Dallas restaurant is boasting about its reasonably-priced list, because, said a restaurant official, “We have a low mark up on our wines, so we ?re priced fantastic.” That would be a wine list with most wines supposedly costing less than $100 (no website for the restaurant yet, so I couldn’t check). What would the official have said if there had been really expensive wines on the list? Is it any wonder, unless there’s a special reason to go, that the Wine Curmudgeon has all but abandoned Dallas’ restaurants? Besides, it’s more fun eating at home.
? Bigger and bigger: It’s not just wine companies that are getting bigger, but distributors as well. Wine Industry Insight reports that the 10 biggest distributors in the country control more than two-thirds of the wholesale business, which makes the group more or less as dominant as Big Wine. Why does that matter to consumers? Because, thanks to three-tier, every wine sold to a retailer or a restaurant in the U.S. has to pass through a distributor, which tacks on as much as 25 percent to the cost of the bottle for their effort. Fewer and bigger distributors means less competition, which means that percentage won’t get any smaller any time soon.
? Best practices: Want to know how to help your wine survive shipment, whether it comes directly from the winery or from an online or local retailer? This list, from Entrepreneur magazine, hits the highlights nicely, emphasizing how little wine likes heat, vibrations, and being left on a delivery truck all day. One overlooked point: Give the wine, particularly the pricier bottles, a chance to recover from the trip. The bottles need to rest after being bumped across the country, and letting them sit in a cool, dark room for a week or so isn’t a bad idea.
The perfect world of direct shipping — where we can buy any wine we want from any retailer we want, just like we buy computers or tennis shoes — will likely never happen, given the three-tier system and its death grip on the wine business. But, assuming we could make three-tier vanish, would direct shipping actually be that perfect?
Maybe. And then again, maybe not, says Steve Tadelis, Ph.D, an economist and Internet search expert at the University of California, Berkeley’s Haas School of Business. Tadelis’ research, summarized quite nicely in this article from The Economist, has found that consumers don’t necessarily use the Internet the way we think they should. His work, based on search patterns on eBay from people shopping for classical music, found that price or the music itself didn’t necessarily matter. Sometimes, they were searching just to search.
“They were looking for music not so much to buy music as to learn about music,” he says. “And when they bought something, it wasn’t always for the lowest price. And I can see that applying to wine, where buying isn’t as important as learning about wine.”
In other words, we may not care that direct shipping will make possible the ultimate wine retail experience. We may still buy wine the same we always have, or do it in some way no one has figured out yet. Tadelis says this is because we know little about how consumers use the Internet; after all, the idea of Internet shopping is still very new in comparison to the centuries of traditional retail. We assume, because it seems logical, that consumers will shop online the same way they shop in a store. But that’s not necessarily true.
“In hindsight, I shouldn’t have been surprised by our results, but I was,” he says. “But that’s because I based my assumption on my behavior, which is searching for the best deal on items that I know I want, and because traditional economic theory says search is a friction, and that shoppers try to avoid friction. But searching on the Internet isn’t the same kind of friction as driving from store to store.”
Further complicating the issue: Shipping costs, which don’t figure into music purchases, and the idea that wine is experential, which means we tend to buy something we’ve had before, based on our experience with it. With music, it’s not only easier to experiment with something new, but Mozart is Mozart, regardless of who is performing it.
Finally, the idea that direct shipping will lower prices, since it will increase competition and make it easier to find the same wine for less, may not be entirely true. In some cases, it could increase demand, which would raise prices as part of something economists call the long tail. If I make a rare wine without an apparent audience, and I can only sell it from my winery, demand is limited to the people who visit my winery. But if I sell it over the Internet, millions of people could learn about it, and I will be able to sell the wine more easily and at a higher price. This could lead, says Tadelis, to more experimentation and more unique and intriguing wines.