Breaking the 3-Tier Bureaucracy

This week, Fermentation blogger Tom Wark rightly laments the three tier system that states use to regulate alcohol commerce. He notes: “the three-tier system is a remarkably inferior method of meeting the needs of today’s consumers that are seeking unique alcohol products.” Indeed. Most states outlaw wineries, breweries, and importers from selling directly to restaurants or retail outlets. They must sell to a wholesaler and who sells to retailers. The result: higher prices and less choice for consumers. Wark explains:

If a winery in Oregon, for instance, has communicated with a restaurant and retailer in New York, each of which would like to buy ten cases of wine, the winery must first, by law, find a wholesaler willing to represent their brand in New York, buy those twenty cases of wine, then get them to the retailer and restaurant. But as many wineries have learned, getting any one of the increasingly small number of wholesalers in a given state to agree to represent them is extremely difficult. And there is no law that says wholesalers must take on brands that want to sell wine in a state.

Small-production wineries and importers are at a huge disadvantage in this situation. Large distributors often prefer to deal with the larger-scale wineries that have bigger inventories. It is easier and more profitable for them to push greater volume wines than to market a host of small portfolios. There are some small-scale distributors who specialize in boutique wines, but they too are at a disadvantage as restaurants often focus on distributors with extensive selections. Some of these disadvantages might still exist in a freer marketplace. However, opening the market to allow winery/importer direct sales to retailers would likely open some doors, enabling small-scale businesses to develop their niches. It would also be liberating for consumers, who if they could buy direct, would likely benefit from lower prices.

Fortunately, there has been some progress allowing consumers to buy direct via the mail, but we still have a long way to go. And it is not enough. As long as regulation ties the hands of retailers and suppliers, consumer options will remain limited and innovation and creativity in the marketplace stymied. This topic will be key a focus on my new blog, in the future. Wark’s post offer a good place for readers to get up to speed on the many angles of this issue.