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Three-tier system failure: A tale of three wines

three-tier system failure

Three-tier system failure has turned U.S. wine regulation upside down, and the wine drinker can’t buy even the most ordinary wines.

Three quality cheap wines readers aren’t able to buy, thanks to three-tier system failure

Sometimes, even I’m surprised at the screwed up three-tier system, which regulates booze sales in the U.S. And we know how screwed up I think it is. But three things happened over the past couple of weeks that demonstrate, with even more finality, three-tier system failure: That in the 21st century, three-tier has nothing to do with safety or law enforcement, but instead mostly prevents wine drinkers from buying even the most ordinary bottle.

• A reader in Sacramento – the capital of California, with one-half million people – couldn’t find a $10 Italian wine that I bought in Dallas. Know that the importer is one of the largest in Europe, and the distributor is the fourth-largest in the country, with $3 billion in sales. Finally, after back-and-forth emails with the importer’s brand manager (who is a certified sommelier), he found it at one store for one-third more than it cost here.

• I bought an $8 Italian red in Dallas, and it was $10 Hall of Fame quality. But, because I know about three-tier system failure, I checked on availability. The red is imported by a winery in Sonoma, and apparently mostly sold through its tasting room; it shouldn’t be in Dallas at all. So the Sacramento reader couldn’t buy a wine from a huge importer and an even bigger distributor, but I was able to buy this?

• Southern Glazers is the biggest distributor in the world, with $17 billion in sales, and it controls one-third of the U.S. market. So why does it distribute a $10 French sauvignon blanc in Texas but not in Illinois? I know this because my mom wanted to buy the wine, and I assured her it would be no problem. Because, of course, Southern Glazers. But as the sales guy at her local retailer told her in disgust, that sort of thing happens all the time.

And, of course, because it’s illegal in most states under three-tier to buy wine from an out-of-state retailer, you can’t use the Internet to buy any of these wines.

The three-tier system, as it exists today, benefits no one but Big Wine, retailers like Kroger and Walmart, and the biggest distributors. Or, as any number of small and medium-sized retailers have told me over the past couple of years: Three-tier failure in the 21st century means higher prices and less selection for wine drinkers, and we pay that price so the supply chain will be more efficient for multi-billion dollar companies. What the consumer wants is irrelevant.

Is it any wonder I worry about the future of the wine business?

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9 thoughts on “Three-tier system failure: A tale of three wines

  • By Joe Jensen - Reply

    WC,

    The failure is not the Three-tier system which so many people want to pile on with glee!

    If there wasn’t a system of importers there would be even less wine that makes it to the shores of the USA, even now only a fraction of what is made in Europe makes it here with many small to mid-sized wineries selling all they have at home or in another market besides the US.

    You should know that there are 8,000 wineries in Bordeaux alone plus all of the negociant labels which would mean the possibility of someone searching out 1 wine when there are probably nearly 100,000 labels of Bordeaux wines alone to buy. After Bordeaux you have the Rhone and all of the Southwest, then there is Spain, hmmmm Italy, let’s not forget Portugal and that is before we get to the new world.

    Not every wine will make it here and that is OK, there is no shortage of wine available in most major markets.

    Cheers,

    Joe

  • By wineman30 - Reply

    Joe,
    You must work for a distributor, that is why you are so biased.

    Bob

  • By Bob - Reply

    I’ll second the comment above.

  • By Todd Hansen - Reply

    Apparently Joe missed the part about how the retailer in Texas can’t even send the wine to Illinois because of the lobbying efforts of the entrenched three-tier system. Joe just states a complete non sequitir to deflect and defend his turf. There are lots of manufacturers of other products, Joe, but we don’t have laws restricting their market access, requiring them to sell through a regulated, costly, three-tier system.

    The three-tier system undermines interstate commerce, Balkanizes the 50 states, limits access and choice for consumers, imposes unbearable costs on small wineries (I need licenses and monthly filings in how many states now?), and introduces inefficiencies that cost our economy millions. But, hey, monopoly rents for the rich and powerful – in this case the big distributors – at the expense of everybody else. That is the American way, right?

  • By Todd Hansen - Reply

    Joe, I just wanted to add – nothing personal, man. Just don’t try to defend the indefensible. Instead why not try to work to improve the system? Why don’t the distributors recognize that their power grab alienates their suppliers and the end-users? What do you have against freedom?

  • By Joe Jensen - Reply

    Wineman30 when you actually search out wines, bring them over in a temperature controlled container, warehouse them, hire a team to sell them and deliver them for a living please come back and talk to me! Same goes for Bob!

    There is no shortage of wine in the world and on the shelves, I repeat there is no shortage of wine in the world, again I repeat there is no shortage of wine in the world, and again I repeat there is no shortage of wine in the world! Get it yet?

    The world will not end if someone can’t get an $8 bottle of wine from Texas to Illinois! There are at least 40 to 50 wines as good or better than that $8.00 bottle that is very tasty to 1 person’s palate and there are probably 300 in the market that are undoubtedly worse.

    My company alone sells upwards of 800 skews and we are somewhere between #15 and #20 in size in the Chicago area and we probably have 600 plus wines that don’t make it to the shelves at Binny’s! All of the other customers here don’t have a fraction of the shelf space that Binny’s has!

    You can all bitch about the three-tier system but the real problem is an abundance of choice and some wines won’t get represented.

    In your case Todd find a good distributor partner or get your own license in Illinois which you can do and hire a team to sell your wines in the market, pay the warehouse to hold them in inventory, etc and enjoy the paperwork that we have to fill out for the City of Chicago and Cook County plus the State of Illinois filings and multiply that by multiple states! If you think you can sell your wines in the market and get the 3 bottle reorders that some restaurants request, have at it.

    Todd, my company is a growing small distributor who works like crazy to carve off chunks of the big boys backsides and we do a good job of it for our suppliers, some of who may be your competitors and could possibly be you in the future.

    The sad truth is your winery and my distribution company can disappear tomorrow and the void will be flooded instantly and the real truth is that if every product represented by Souther Glazers disappeared tomorrow and their production capacity went away also the void would be filled in a matter of days!

    I take no offense I just deal in the realities of what happens on the street and even if you get rid of the three-tier system which is fine by me, most wineries still need a distributor that has connections and makes daily deliveries to potentially thousands of customers in a market every day!

  • By gdfo - Reply

    Do individual States have the right to conduct business under that individual States laws?

    Do we, as individual persons have to like it?

    Is it possible to find every wine in the market In the USA in very city of the USA?

  • By Todd Hansen - Reply

    Joe – My complaint is the entrenched and inherent corruption of a system that restricts access to market. Don’t conflate the number of available SKUs with the need for a freedom-crushing three-tier system. This has absolutely nothing to do with the number of available SKUs.

    Premium wine is an artisanal product. No wine lover complains that there are hundreds of bottlings coming out of Burgundy and we only need to have seven or eight. Instead the diversity of selection is celebrated – this is part of Burgundy’s mystique and charm. But there are wine lovers in several states that have a very limited selection of wines, particularly in certain niches. They are unable to order the wines they want across state lines, whether they are a consumer, a bottle shop owner, or a restaurateur.

    I hold no illusions that my wine would sell itself if only we could eliminate the middle tier. I have no complaint with distributors who help build a brand and deliver wine to market. However, I have a legitimate complaint with those distributors who protect their turf and lobby to restrict access by retailers and wineries to ship their products to willing buyers – either DTC or DTT – and then use spurious arguments to justify these senseless regulations. How absurd is it that a distributor or producer in Portland, Oregon, can’t legally drive 20 minutes north to Vancouver, Washington, and sell wine without paying for expensive licenses and committing to filing monthly reports? Why can’t a retailer in Houston legally ship a case of wine to a consumer in Detroit? The answer is the middle tier has lobbied to protect its turf at the expense of producers and consumers. This statutory cronyism has distorted the market for wine in this country, producing monopoly rents for the distributors and allocative inefficiencies that result in an economic burden for producers and consumers.

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