Telling the Story of the Damage Inflicted Upon the Alcohol Industry
Let me help you tell your story
It’s hard to know if the die-hard-at-all-cost supporters of the three-tier system and its legal requirement that producers and retailers use wholesalers actually appreciate how much the alcohol industry hates this regulatory system.
There is the “bubble effect” that we all know too well: a person stays true to beliefs, not questioning them or hearing opposing positions, due to the media bubble they encase themselves within. Usually the “bubble effect” applies to national political issues and political parties.
But wholesaler middlemen and their trade association representatives live 24/7 in a world where the only evidence of alcohol distribution is via the three-tier system. They work with producers that use wholesalers. They sell to retailers who must (by law) use wholesalers. They buy from importers who must (by law) use wholesalers. They interact with state regulators who protect and advance the three-tier system.
Wholesalers don’t engage with producers who sell directly to consumers alone. They don’t interact with consumers who try everything they can to get around the restrictions and limited inventories offered by their local retailers that must work with wholesalers to procure their inventory.
Moreover, it’s common knowledge that those producers and retailers who work with wholesalers are very unlikely to criticize the three-tier system since they can’t risk wholesalers (who wield all the power over them) retaliating against them. So, they generally stay quiet about their utter distaste for the System and those who protect it.
But…there is evidence that this silence is beginning to be replaced with something more akin to, if not shouting, then raised voices.
I want to highlight those raised voices then I will give you a quick and easy way for you to raise your voice to those that continue to stifle innovation, stop producers and retailers from finding paths to markets and consumers, and help diminish the alcohol industry in general.
First, I want you to consider the following:
Can the Beverage Industry Stand United Against Anti-Alcohol Animosity
Vine Pair
Highlighting the various ways different elements of the alcohol industry are fighting against each other.
Craft Distilleries Are In Crisis
Food & Wine Magazine
Highlighting the many ways wholesalers work to cut off craft distilleries from the marketplace and its impact on those small, family businesses.
U.S. Distributors Awash In Wine
Wine-Searcher
Highlighting how wholesaler consolidation and practices are making the downturn in alcohol sales worse.
America’s Incredible Shrinking Wholesale Landscape
Meiningers
Highlighting the significantly decreased choice producers and retailers have in the three-tier system
Market Access: American Craft Distilleries Respond
American Craft Spirits Association
Highlights the problems with the three-tier system and the ways to address the crisis in market access
The Government is Choking Off Wineries
Reason Magazine
Highlighting how the support for the three-tier systems and cutting off alternative routes to market harm wineries.
All of these articles appear in about the last week. All of them showcase producers and trade associations demonstrating how the three-tier system and the mandated use of a wholesaler without other routes to market harm producers, retailers and the industry.
Now, consider the flurry of desperate responses by the Wine & Spirit Wholesalers Association (WSWA), the primary defender of the three-tier system, funded primarily by the billion-dollar wholesalers that fund the WSWA:
WSWA Issues Statement on Calls to Dismantle Three-Tier System
WSWA
WSWA Responds to Article, “Wholesalers Awash in Wine”
WSWA
WSWA Responds: U.S. Craft Distilleries In Crisis
WSWA
Warning: ACSA Routes To Market Endanger Consumers Market Competition
WSWA
In each of these official WSWA screeds, the trade association claims that direct shipment of alcohol is dangerous, that calls for modernizing the alcohol regulatory system is “dismantling” instead of it being simply amending, and that consumers don’t need any more choice than what they get from local wholesalers.
No one believes a word they say on these issues and no one has for at least two decades. But it is important to note the veneer of desperation that these recent missives are lacquered up with.
It’s not just the calls for change with the three-tier system that are getting louder. It’s the actions too.
Currently there are 5 lawsuits filed in 5 different states challenging wholesaler-supported laws that that discriminate by allowing their retailers to buy alcohol directly from in-state producers, but not from out-of-state producers.
Currently there are six lawsuits in six different states challenging wholesaler-supported laws that bar consumers from having wine shipped to them from out-of-state retailers.
Currently the two largest funders of WSWA are being sued for anti-competitive actions surrounding an effort by Southern-Glazers and Republic-National Distributing Company to stop retailers from buying from a third-party order-taking platform instead of directly from the two wholesalers.
Currently the FTC is suing WSWA’s largest contributor, Southern-Glazers, for violations of anti-trust laws.
Recently, the National Association of Wine Retailers Released a white paper to the entire alcohol regulatory community laying out the historical and economic reasons the three-tier system must be dismantled.
In large part, what we are looking at here is a heightened battle over archaic alcohol regulations that benefit only wholesalers amid a downturn in the overall beverage alcohol marketplace. That downturn is causing trade associations and the media to closely examine and begin to discuss how the old three-tier system is holding back and harming producers, retailers, and consumers.
What needs to come next is more individuals in and around the alcohol industry themselves speaking up. This is hard to do. Retailers who must buy from wholesalers and producers of all alcoholic beverages who may only distribute via wholesalers are correctly worried that if they speak up publicly about the power imbalance in the alcohol distribution system they will suffer retaliation from the wholesalers they work with and who hold the power over them.
SO ALLOW ME TO BE YOUR CONDUIT:
If you want to email me and describe your feelings about the three-tier system or problems you’ve faced as a result of it or any type of retaliation you have faced from wholesalers for any kind of challenge you’ve raised to wholesaler actions, I WILL PUBLISH THOSE COMMENTS HERE IN THIS NEWSLETTER AND I WILL NOT USE YOUR NAME IF YOU REQUEST ANONYMITY.
This newsletter reaches over 3,000 people, the vast majority of which work in and around the alcohol industry, including wholesalers, retailers, producers, importers and restaurateurs, and others.
CLICK HERE TO EMAIL ME YOUR STORY
It’s important not only that the media and trade representatives tell the story of the harm that has long been inflicted upon the alcohol industry by the three-tier system and those that control it. It’s important that individuals have their stories told too. I’m happy to help make that happen.
Sorry Mr Wark but you are very much wrong in this screed attacking a dynamic and successful industry. The independent tier system is dexterous through changing economic and commercial periods, responsive to changing tastes, an efficient tax collector and accountable when product mishaps inevitably occur.
I am as libertarian as most when it comes to widgets but alcohol is still a potentially dangerous product, with pathologies much more frequently occurring in systems without three tiers safeguards. It is an evolving system, which is dynamic and accountable to the wishes of the citizenry of each state. It produces a cornucopia of products, local and national in origin, across all price points. You don’t see that in many industries, from soup to sodas etc. This is one industry and business model that works for consumers.
People fail to realize that the ONLY vibrant spirits market in the World is the one with this horrific and draconian, and outdated three their system. By no means is it perfect, but without the three-tier system, the U.S. would endure the negatives of a product that is not sold with a degree of self-governing, which can seriously hurt society. Look at the U.K. or India, where people go to a pub to get "pissed" drunk, or scores of people die from illicitly made alcohol in some villages in India.
Not only do people fail to see the safety benefits of the three-tier system and the other tenants of the system that people forget are also essential, as few people know that alcohol is banned from engaging in consignment sales, most forms of inducement, and most importantly, no slotting fees that dominate almost all other CPG products. It is truly amazing that a sales rep in spirits in the U.S. is regulated exponentially more than a pharmaceutical rep.....
Nowhere in the world has a spirit industry remotely as dynamic as the U.S. The products that dominate the cultures, back bars, and retailers in France, Italy, Spain, etc., have not changed in generations. NO innovation originates outside of the U.S. Heck, brands like Jager must come to the U.S. to succeed!
COVID caused this industry to forget how to build brands, as you cannot sit behind a computer and think an Instagram post will sell a story, passion, and products meant to make people feel aspirational when buying and consuming. It is not easy, never has been, to build a brand that succeeds. And those failures are, most often, just that, as you know, who almost always fails to innovate, the largest suppliers in this industry. Innovation originates from small suppliers and often from people new to the industry!
Do people think that TIto's was an overnight success? Or did the distributor in Texas not want that brand to succeed? and heck, it didn't take over until the days of the $1000 bottle service were over and a time when flavored vodka was all the rage, not a Texan vodka. Brands like Skrewball, Hpnotiq, Hendricks, and Sailor Jerry, all slugged it out market by market over the years before being an "overnight" success story. And some of those brands lost money for years before becoming some of the most profitable and economic brands in their category.
The three-tier system is flawed, and COVID gutted the number of reps on the street and on lone platforms, threatening the scale of what can be done. However, new brands have followed the same path, either spending all their money on agave or barrels of whiskey at prices that leave nothing left for, well, like any salesperson! You cannot just show up one day, sell some barrels and think your job is done.
It is human nature; if you understand the system, you can succeed, but trying to go to war with it just because you didn't succeed will not end well for anyone. The number of millionaires and even billionaires that this industry has created out of thin air is proof that failure most often is not due to anyone but your own efforts or lack thereof. Grow up and try again. use what you leaned to not make those mistakes again.
The generational growth cycle that Spirits has enjoyed over the last 25 years has made many forget that it can be an unforgiving business, espically in caegories requiring siginficant capital like Whiskey. Categories like Tequila and Bourbon didn't premiumize they transformed, as the most premium brands 15 years ago, are now considered "daily sippers" by consumers! Howver, these things called Global Economic Cycles tend to affect premium products the most, but it is a WIN that many categories in spirits are now considerined luxury and viewed as asspirational by entire generations that they are not going back to mixto tequila or blend whiskey.
If both distributors and suppliers stopped blaming others for the slowdown, the faster we will get things back on track. but thinking that the three teir system is so bad (the last 25 years would say otherwise) is worth kiling off right now, will 100% kill off the most vibrant and dynamic market for spirits, and the things that most belvie will be fixed as a restul will get dramatically worse. Ask the folks in Washginton State how getting rid of the Control State system worked out for them.....30% higher prices, less variety as the chains dominate the market, and now you have to ring a bell to get someone to let you buy a bottle of alchol due to threat. So that would be the future, if you keep up the whinning.