Owning
a winery sounds romantic and fun, but there is a lot of information that must
be understood, considered, and decided on each day for normal business
operations. One such issue
involves the selling of your wines.
Unfortunately, this subject is a moving target, thanks to the 3-tier
alcohol distribution system.
The 3-tier system was set up for the distribution
of alcoholic beverages in the U.S. after the repeal of Prohibition in
1933. The 3-tiers are made up of
the producers (those who make it), distributors, also known as wholesalers,
(those who deliver it to the store/restaurant), and retailers (the
stores/restaurants that sell it.) 
The way it works is that producers/manufactures (wine makers,
brewers, distillers, and importers) must sell only to distributors/wholesalers who then sell the product to retailers. Retailers (on-premise sales include bars, clubs,
restaurants… Off-premise sales
refers to wine shops, liquor stores, grocers…) are the only ones in the chain
who can legally sell to the consumer.
(But wineries sell… I know, I’ll get to that.)
The
margin breakdown for the producer is sobering. Although the winery grows the grapes, or purchases the
juice, ferments it, crafts it, ages it, bottles it, labels it, pays several
levels of taxes on it, and many time delivers it to the distributor, the producer only gets an average margin of 20 -
28%, depending on what type of deal s/he was able to make with the distributor
to handle the wine. 
The retailer also
hires employees to sell the product in their stores/restaurants. The retailer gets an average margin of
30 - 33%, depending on the deal s/he was able to set up with the
distributor. Interestingly, the
distribution tier has the least invested in the product, but has the most
control over it, and the potential to make the most money.
In
the past 30 years, distributors or wholesalers have decreased in number by over
75%. This is mainly due to a few
large distributors buying out, or forcing the smaller, local and regional
wholesalers to close. Currently,
the ten largest distributors control over 60% of the liquor market in the
United States. These are the companies
determining what is available on the shelves in your region for you to drink.
In
the U.S., there are over 7,000 wineries – at least one in every state. But the top 50 large wineries produce
more than 90% of wine for this country.
Less than 17% of all wineries have national distribution. If you are a small winery (or
brewery) and a distributor does not think that your line of wines will be very
profitable to their company, they can refuse to carry your product. This now limits your wine sales to
only those who come in your door!
This decision not to carry a winery’s product is usually based on sales
numbers, not the quality of the product. And the coup de
grace; in order that distributors not end up in direct competition with each
other, the winery usually has to give the distributor exclusive rights to distribute their product within a geographical
area.
There
are various exceptions to this system – such as a winery that produces its
wine, can then sell that wine in its tasting room. But only 2% of all wine
produced is actually purchased by a consumer at a winery. And
even the allowance for a winery to sell its own wine can become convoluted, as
some states have tried to require that a customer must first have visited that
tasting room in person and signed
an affidavit to that effect before they could order those wines online. The next concern; will the state
that the winery is located in allow them to ship outside of their state’s
borders? And finally, will the state the consumer lives in allow for those
wines from the winery’s state to come into the consumer’s state?
C’mon
folks – all of this legislation for….wine?!
To
make it even murkier, some states like Utah, Mississippi, and Vermont are
considered alcohol beverage control states. This means that an ABC
state maintains a monopoly on
the distribution tier; they act as both distributor and retailer. The state’s ABC (Alcohol Beverage Control) board
runs the package liquor stores known as ABC stores. These stores control both
high alcohol beverages, (Whisky, Gin, Vodka) along with low alcohol beverages
(wine and beer.) According to the
National Alcohol Beverage Control Association, there are 19 monopoly states
controlling alcohol distribution and/or retail sales in some manner. About one-quarter of Americans live
in a monopoly state.
Regardless
of the distributors rhetoric, this is NOT about the possibility of selling
alcohol and it being delivered by Fed Ex or UPS to minors – those under the age
of 21. That is another touchy
issue to be considered another day. But it is interesting to note that distributors and their political groups spent over 60-million dollars in a six year period, from 2000 - 2006, in state elections to maintain this status quo.
But
wine consumers and wine producers are fighting back. The voters and consumers in the state of Washington voted
last year to do away with the three-tier system in their state. As of June 2012, retailers may bypass
distributors and purchase directly from producers. They can then store the product themselves and negotiate
volume discounts that can save the consumer money, while still paying the
producer a favorable amount for the product. 
Free
the Grapes! http://www.freethegrapes.org is an
organization that supports both winery owners and wine consumers. It represents over 2,000 wineries in
the U.S., and a countless number of wine lovers who simply want the right to
purchase wine from a favorite winery across a state line or across the country,
without needless rules and legislation.
As stated on their web page, “We believe wine lovers, not special
interests, should choose which wines to enjoy”.
Another
group is the Specialty Wine
Retailers Association SWRA)http://specialtywineretailers.org which represents the wine retail industry and its consumers. They support the unrestricted movement of wine across state lines, both for producers selling to retailers directly, and for consumers purchasing from retailers. In other words, an adult consumer should be able to legally purchase wine from any retailer in the country.
As
an American wine drinker and former winery owner, I do not agree with individual
states regulating what we can and cannot drink. Nor do I fathom how a structure like the 3-tier system is
still in operation in the 21st century. Maybe it’s time for a grassroots movement made up of
consumers, wineries and retailers – all seeking to remove state restrictions
that still prohibit consumers from purchasing wines directly from wineries and
retail shops - to form.
All
across our country there is a movement to Occupy Wall Street http://occupywallst.org – maybe its time we
now Occupy Wine Street and take back our rights as wine consumers to purchase
what we want, when we want it, from where we want it, at a fair price to enjoy
anywhere we are!
Let
the wine revolution begin!
~
Joy
If
you’re interested in finding out where your state falls in regard to Control
States, alcohol laws and consumer rights, visit http://en.wikipedia.org/wiki/Alcohol_laws_of_the_United_States_by_state
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