Southern Glazers Happily Pays Millions to Maintain Status as Alcohol's Largest Mediocrity

Paying WSWA trade association and lawmakers to protect it from competition

Last week, Southern Glazers Wine & Spirits (S-G), the largest wine and spirits wholesaler in America and the 10th largest private company in the United States, settled a California class action suit brought against them by their restaurant and retail customers in my former home state. The claim was that Southern Glazers intentionally overcharged retailers on late fees. The settlement cost Southern Glazers $50 million: $5.5 million in settlement fees and the write-off of $44.1 million in late fees they had on their books and were set to collect.

This comes on the heels of Southern Glazers being charged $3.5 million by the New York State Liquor Authority for the middleman company’s “pay-to-play” scheme in that state that “providing illegal gifts and services to business to influence their purchasing decisions, for permitting incomplete, inaccurate, and inadequate recordkeeping practices, and for engaging in discriminatory sales.”

Also in 2017, Southern Glazers was fined $5 million by the U.S. Justice Department for bribing officials of the Pennsylvania Liquor Control Board.

Meanwhile, Southern Glazers is under investigation by the Federal Trade Commission for illegally offering better wholesale pricing to larger retailers at the expense of those companies’ competitors as well as for “a wide array of conduct including any unfair, deceptive or anti-competitive business practices,”

My theory is this: You can’t engage in this kind of blatant illegal conduct, be forced to settle so many claims of misconduct, and draw the attention of federal investigators for such significant malfeasance unless you feel protected from significant consequences of your actions. What kind of protection does Southern Glazers enjoy?

That protection is Systemic, Political, and Industrial.

The aim of the systemic, political, and industrial protection given to Southern Glazers is to ensure that the wholesale tier of the alcohol industry that it dominates is shielded from having to compete on a level playing field and to keep in place archaic and indefensible federal and state laws that form the foundation for the unearned and unjustifiable power Southen Glazers and the entire wholesale tier of the alcohol industry wields over other tiers of the industry.

WINE & SPIRIT WHOLESALERS ASSOCIATION AS S-G’s FRONT GROUP
The Industrial Protection that Southern Glazers enjoys is a result of the outsized influence of the trade associations it controls, including the likes of the Wine & Spirit Wholesalers of America (WSWA)—the most powerful trade association operating in the wine and spirits industry. Of WSWA’s 13-member Board of Directors, two spots are held by Southern Glazers representatives. One is Barkley Stuart, S-G’s Executive Vice President. The other is Steven Becker, S-G’s Executive Vice President and Treasurer.

WSWA runs cover for S-G and has for many years. The raison d’etre and mission of WSWA is the raison d’etre and mission of Southern Glazers. That mission is 1) to protect S-G from any negative fallout from its nefarious actions and 2) to work to keep in place the political and systemic advantages enjoyed by Southern that allow them and their larger peers in the wholesale tier to keep their boots on the neck of both producers and retailers.

This week WSWA pursued both planks of its mission.

In the wake of last week’s announcement that the settlement in the California class action lawsuit cost S-G $50 million, WSWA took no notice of this affair. Instead, WSWA sent out a press release nationwide announcing the completely false idea that “Regulators and Lawmakers Across the Country Sound the Alarm on DTC Spirits Shipping”.

The fact is that alcohol regulators and lawmakers are taking the least amount of action against direct-to-consumer shipping of alcohol they possibly can. In defense of the hysterical headline of the press release, WSWA cites a speech made by one lawmaker on the floor of the South Carolina state House about bourbon shipping, a change in Oklahoma law from last year that requires common carriers to report alcohol shipments, a couple of old studies of DTC shipments conducted by Texas, Massachusetts, and Vermont, and a few cease and desist letters sent by Tennessee four years ago. That’s it. Yet, WSWA breathlessly writes in its press release:

“Wine & Spirits Wholesalers of America finds that across the country, lawmakers and regulators are sounding the alarm about the dangers of direct-to-consumer (DTC) alcohol shipping. Since the advent of DTC wine shipping over a decade ago, states have lost millions in tax revenue, underage consumers have gained greater access to alcoholic products, and the risk of adulterated products entering the marketplace has skyrocketed – and lawmakers are taking both notice and action.”

There are no alarms. There are no dangers, there is no lost revenue and there is no underage consumers obtaining alcohol via direct shipment. The fact of the matter is that every single person in the American alcohol industry as well as most lawmakers, roll their eyes each time WSWA and S-G have made these claims going back decades and up until today.

Take the claim that “underage consumers have gained greater access to alcohol products”. Here’s a fact: Not a single alcohol regulator nor a member of law enforcement anywhere in America has ever cited an instance of a minor obtaining alcohol via direct shipment that wasn’t instigated by a sting operation. Moreover, not a single alcohol regulator nor any member of law enforcement has ever claimed they have a problem with minors obtaining alcohol via direct shipment in their jurisdictions. Not one.

Nonetheless, WSWA sends out a nationwide press release sounding the alarm. Why? The reason this press release went out now is not only to draw attention away from S-G’s recent California troubles but as an ongoing effort to demonize any form of alcohol commerce that does not allow for wholesalers to take a cut of the action.

It was way back in 1995, according to a 1999 Wall Street Journal article, that Mel Dick, then a Senior Vice President of Southern Wine & Spirits Wholesalers, asked his lieutenant Wayne Chaplin, “is there any way we can stop this?” Dick was referring to a flyer from a California company that offered to ship wine direct to Florida consumers—a process that cut the middleman Southern Wine & Spirits out of the transaction. Since then, it has been the mission of WSWA to stop all interstate direct-to-consumer shipments of wine and spirits from any source, be it producers or retailers.

Since then WSWA has been on a mission to stamp out interstate direct-to-consumer shipping of wine and spirits as this mission is S-G’s mission. This mission aligns with the goal of S-G to prevent any and all commerce in alcohol that does not require some form of payment to wholesalers.

The current head of WSWA is Francis Crieghton, a man who has no experience in the alcohol industry. And it shows. Crieghton rarely makes public statements and rarely submits himself to questions from the media or at industry events. His direction comes from the Board of Directors of WSWA, which is controlled by S-G. Crieghton is the latest in a long line of WSWA heads who make no or the feeblest defense of the alcohol regulatory system, which is designed and maintained to protect the financial and industrial interests of S-G and other large wholesalers. This is the industrial protection S-G enjoys.

THE PAYOFFS THAT MAINTAIN S-G’s POLITICAL PROTECTION
The political protection of S-G comes not as a result of WSWA or Southern’s own lobbyists making a convincing defense of the restrictive and harmful three-tier system that protects SG and the wholesale tier from real competition. It comes from the millions of dollars in campaign contributions given to lawmakers. In the past five election cycles, WSWA has given more than $4.5 million to candidates for office, primarily federal office. During those same most recent election cycles, Southern-Glazers has given more than $8 million to candidates for office, primarily at the state level.

This is the price S-G pays to keep in place the systemic protection from real competition it receives from the maintenance of a three-tier system of alcohol regulation that requires producers of alcohol to distribute their wine to retailers only via the middleman wholesaler—of which S-G is by far the largest in the country.

There’s nothing inherently wrong with a producer of alcohol using a wholesaler like S-G to distribute their wine to retailers and restaurants and taking a fee for that kind of logistical service. However, what S-G and WSWA have paid more than $12 million over the past five election cycles is not the right to distribute alcohol. That $12 million is spent to maintain a system that MANDATES producers may only sell to wholesalers rather than sell directly to retailers and that MANDATES no wine or spirits be shipped interstate directly to consumers whereby wholesalers are left outside the financial transaction.

The problems with and the harms done by a three-tier system of alcohol distribution are well known by everyone. For brevity’s sake, I’ll simply point you to this comprehensive explanation of how S-G’s and WSWA’s preferred method of protection from competition harms the industry and consumers.

Suffice it to say, that the three-tier system is the systemic protection from competition that S-G receives, and that leads the company to act so cavalierly that it appears to regularly receive investigative attention from the feds, multi-million dollar fines, and engage in 8-figure financial settlements.

It appears that S-G, as well as its front group the WSWA, will do or say whatever it has to in order to preserve what is the largest and most comprehensive Rent-Seeking scheme in America. Let me ask you this: what would you do and what would you say and how much would you spend to preserve an economic system that only benefits you, that requires hundreds of thousands of businesses to use your services whether they want to or not, and prohibits other companies from competing with you?