Thursday, August 17, 2017

The Politics of Three Tiers

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Posted by Burke Morton On April - 8 - 2010

I'm politically infuriating to partisans because I don't have knee-jerk reactions to most political issues, simply because they are too complicated. For this reason, I do have knee-jerk reactions to partisans of all political persuasions. So here's a knee-jerk reaction for you: what in God's name could Sarah Palin POSSIBLY have to say to the Wine & Spirits Wholesalers of America? No doubt her message of deregulation at their annual convention was well-received by the Three Tier System advocates at WSWA. If her intention was actually to stir the pot, well, then she deserves some credit.

Three Levels of Bureaucracy to Get You Your Wine
If you don't know what the Three Tier System is: tier one is the supplier (whether winery or importer), tier two is the wholesaler that creates a portfolio of wines to sell to tier three, which is the retailer or restaurant that gets the wine to you. In some states a wholesaler is required to distribute wine to retailers, in others you can buy directly from the supplier, if they are willing to ship it to you. The system is also a flashpoint for many people, in part because there are some very large wholesalers who have been known to abuse their dominant positions within the distribution networks.

An Argument that Would Be Better off Dormant
But that explanation isn't the principal purpose of this missive, really. Nor am I suggesting that Palin's presence at the convention was for no other purpose than to drive attendance (perhaps it was, but I really couldn't care less). All these things do dovetail together, actually, as I am reacting to an old argument I heard again this past Monday: apparently many, many, many people still like to decry the Three Tier System and the way it costs us--wine consumers--more money, blah, blah, blah. Yeah, yeah--the wineries aren't going to sell a wine for any less than it would retail for on the shelf at your local shop. If the argument were that wineries will make more money, and that's good...then I'm with you! Most wineries have a tough time given the costs of not only making wine, but selling it. The old saw goes like this: "How do you make a small fortune making wine? Start with a large one."

It is a fallacy to assume that wineries will sell their wine to consumers for the same price for which they sell it to wholesalers. It is economic common sense: if the wine is selling for $50 on the shelf, why would a winery be satisfied with selling it to a customer already willing to pay full price? If you go to a winery, you'll find that's what they already do. So what incentive do they have to sell it for the price at the next tier down, $33 (which is roughly the retailer's cost)? Of course there's no way they would sell it to the consumer for the $25 (roughly) that the wholesaler pays them. Pricing schemes won't change, with or without the Three Tier System.

Practicality Has No Peer
There are other more cogent issues that surround the Three Tier System, but they are long and boring (for an entertaining look at a Three-Tier Experience, click here.), and as I'm at a loss for a better alternative, here my little practical defense of it. If the regulations on alcohol sales are lifted, wholesalers will become much more vulnerable to the whims of the market and they may lose access to some wines. They are still, I submit, crucial to the business. As a professional with long-time experience as a wine buyer for both retail and restaurants, I was happy to work with as many as 20 wholesalers, because this small group was able to provide me with the selection of over 2,000 wines I carried as a retailer. I would not be happy to work with the over 1,500 sources I'd need in order to provide a similarly broad selection without wholesalers. As someone who has occasionally had difficulty with follow-through, why would I want to do that? Can you imagine the paperwork involved?

No thanks.

My thanks, however, go to Sarah Palin for providing me with a shameless use of her name as a search term. And I'll keep my wholesalers, regardless of whether I can mail order wines or not (I happen to live in a state where this is now legal), I'm only willing to pay for but so much shipping, and wholesalers, especially the good ones, make my job easier, and I hope I return the favor.

Nothing like a friendly, colleagial relationship with your sales rep to help get things done. Perhaps Congress will figure that one out before I cash it in....

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3 Responses

  1. whthair12 Said,

    Why would anyone want to listen to Sarah Palin anyway? I’d much rather listen to you! You are LOTS smarter on all subjects, especially this one.

    Posted on April 9th, 2010 at 8:18 am

  2. Cork & Foil Wine Blog Said,

    I think that the 3 tier system is inevitable really. I suspose one good argument for it is that wholesalers act as a good filter for the bad stuff, or you would hope they did. It would be pretty difficult for an individual, or even a restaurant buyer to taste such a huge number of wines each year. At least you feel that buying from a wholesaler they have already decided what is worth buying themselves so have saved you a lot of angst and bad tastings in doing so! Look on the bright side, at least in the states you grow your own, in the UK we have to pay to import everything as well!

    Posted on April 15th, 2010 at 1:38 pm

  3. Burke Morton Said,

    I agree that it is an inevitable system. I wish wholesalers were a reliable filter for the bad stuff, but one big problem is that often they are required to sell certain wines they might not want in order to get the those that they do. This means there is still a significant amount of dreck flowing through the system, most of which gets dumped into grocery stores. The system doesn’t bother me too much, but I do not like the wholesalers trying to push through legislation that would prevent consumers from ordering wine directly from producers, and there is a resolution currently on the docket in the U.S. Congress dealing with that very thing.

    Posted on April 26th, 2010 at 6:11 pm

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