The wine industry doesn’t work the way Washington thinks it does

Owning a vineyard in Napa Valley sounds fancy, but the wine business is, in reality, pretty gritty: It is a low-margin agricultural and food-processing business that is, on top of everything else, highly regulated. Now the Trump administration is threatening to make things a good deal worse by throwing a hand grenade into the U.S. wine industry’s supply chains and distribution networks in the form of tariffs that are meant, in theory, to protect domestic producers from overseas competition.

Unfortunately, the wine industry doesn’t work the way Washington seems to think it does.

Thanks to a complex set of rules dating to another great American misadventure in regulation — Prohibition — almost all U.S. wine is sold and distributed through what the industry calls the “three-tier system,” with producers and importers selling to distributors, which in turn service the shops and restaurants that sell to wine drinkers.

The distributors are not just middlemen who take a cut: They function as the sales force for wine producers. With very few exceptions, U.S. winemakers are legally prohibited from selling their product directly to consumers — and, moreover, they also are generally prohibited from selling their product to wine shops or restaurants. A tiny bit of wine is sold through tasting rooms and restaurants operated by winemakers themselves, and there are some direct-to-consumer sales in the few jurisdictions where that business is legally feasible. Otherwise the distributors connect winemakers to their customers.

“Most wine is sold literally door-to-door,” said Ben Aneff, managing partner at Tribeca Wine Merchants and president of the U.S. Wine Trade Alliance. “The distributors are the salespeople who have relationships with the restaurants and retailers that sell the wines, who fill our shelves and tell us what people are interested in. They’re really critical.”

And those distributors typically earn higher margins on wines coming from France and Italy — “The Europeans have an 8,000-year head start on us,” Aneff said — which helps to sustain the distribution ecosystem that lower-margin U.S. producers rely on to get their products to market. What that means is that European imports don’t just compete with U.S.-made wines — they effectively subsidize their distribution.

Read more at The Washington Post