83-year-old law continues to govern books that sell wine and are expensive for consumers

Alcohol-oriented beverage sales are highly regulated and operate in all 50 states. These systems are known as both the three-tier system and the control system model, which are applied in 18 control states / jurisdictions. Basically the three-step system (very simply): Manufacturers deliver alcoholic products to wholesalers / distributors, who then distribute these products to retailers and eventually the consumer gets into the mix.

Why does the government have to make a relatively simple distribution question so complicated? We are particularly talking about alcoholic beverages and wine. When there is little opportunity, the consumer usually loses. Every industry has some kind of frustration or particular synchronization that consumers do not understand, especially when the malfunctions do not add value. For wine lovers (and all consumers of alcoholic beverages), the reference refers to the complex system of delivery of wine to consumers. Logic is a bit confusing, if not completely contradictory. The three-step distribution system is a government-mandated system that must be followed to deliver alcoholic beverages to the consumer while protecting vulnerable consumers from themselves. Unfortunately, the system is not uniform from the state to the laws governing wine, spirits and beer and has become a real moving target for consumers to debate and understand.

This classification of state laws was authorized by the federal government in 1933, and the system was left to states for enforcement and management. Essentially, the three-tier distribution system mandates a system in which alcoholic beverages, spirits and brewers must apply their products to the consumer. Not surprisingly, there are many exceptions to the three-tier system and the exceptions are based on individual state regulations. However, as is typical of wines, the system provides (though not the rule) that producers may sell their wines only to wholesalers, who then sell them to retailers and only retailers can sell. One of the exciting exceptions is the direct sale of consumer wine in wineries or the sale of on-site winery. Obviously, at every level of the distribution process, the cost of the products will be charged. This politically mandated control system increases product costs by about 30%.

If a consumer from Utah reads this, it's a crime to bring back a case of your favorite wine from California; two bottles are your limit! From a technical point of view, the three-tier system is not entirely about tax collection, and mechanisms are in place to ensure that government (state and federal) taxes are levied on alcoholic products produced and sold.

In general, 32 states allow private companies to become distributors, and 18 apply the Control Distribution Model, in whole or in part, in which the state owns the retail distribution. Two such states are Washington and Pennsylvania.

In general, state governments allow or approve a private company to be the only distributor in or within a state. Even in states with multiple distributors, these areas of distributors are protected by state laws, which are regulated by state governments. To illustrate the detrimental effects of such a system, imagine that states can only approve / approve a gasoline dealer for sales within their state. Wouldn't there be a monopoly?

It begs the question: How did we get into this harmful system in which wine (including beer and spirits) gets to the consumer? The three-tier system is not about getting taxes for the state and the federal government. The tax collection has long been decided. The history of the alcohol tax goes back to 1791, when Alexander Hamilton proposed an excise tax to finance the federal government. The public felt that this "tax" was too much for citizens. Alcoholic beverages were seen as the most important part of life, part of the social fabric, and they were likened to the air they used to tax their breath. And so the Whiskey Rebellion was finally established in Pennsylvania. However, excise duty will remain.

The abolition of amendment 21, amendment 18, gave each state the right to control most aspects of the marketing of alcoholic beverages (beer, wine and spirits). Depending on the wording, the two objectives of the three-tier system were: States were interested in protecting citizens from over-consumption and yet wanted to encourage the sale of tax revenues. You may still be able to reward some companies with franchises. In any case, it became a three-tier distribution system in 1933.

NABCA represents the state of control system (similar to the three-tier system but with a state-owned distribution system) and promotes the benefits of the three-tier system / state of control system:

  • Regulator – All levels of the system are responsible for enforcing the law; self-regulation.

  • Economic Benefits: "Tax dollars impact society", which support government programs.

  • Public Health Benefits – Protects the public from contaminated alcohol.

  • Commercial Advantages – Manufacturers have equal access to the market for greater consumer choice.

The threats to the three-tier system / state of control system take the form of deregulation, which is increasingly receiving consumer voices and support. In most cases, large manufacturing executives, for obvious reasons, want to preserve the three-tier system. Keep in mind that in the late 1970s the aviation industry was deregulated and the US aviation industry is forecast to collapse. He didn't.

In addition to the three-tier system, there are other industrial distributor networks with voluntary / free choice of their customers. These are the distributors who provide the service for a competitive price. The three-tier system is based solely on state-level government mandates. In fairness, this industry generally supports the following values: Encourage Moderation, Generate Tax Revenue for Governments, Facilitate Aggressive Marketing and Avoidance / Tracking of Sales Practices, and State and Local Control of Alcoholic Beverages.

From a consumer point of view, problems may arise with the system introduced 83 years ago:

  • There is at least 30% cost added to the product (wine). It would be the responsibility of the consumer and the manufacturer to ascertain whether these additional costs are of financial value to the product.

  • This is to promote the practice of monopoly in the States. Producers have no choice in negotiating with third parties to market their products; what additional costs. Without real competition, what influence do manufacturers have? Surely small farmers can't compete with the big boys when trying to work with a distributor.

  • Today, the three-tier system is a conglomerate of distribution companies.

  • Producers (small wineries) cannot compete on the shelves at the retail level because the distributor promotes the brands on the basis of the proceeds from the sale of the goods.

  • The increased costs are disproportionately high for small producers who produce limited wines (varieties).

  • Large distributors may dictate the duration of the distribution for smaller producers.

  • In the macro-market sense, the three-tier distribution system may not be competitive for US producers; one size does not fit all.

  • In some cases, the three-tier distribution system does not allow small wine producers to enter (local or national) markets. Any channel of distribution is the fact that it is sometimes financially impossible for distributors to store, sell, transport and manage shelf wines. Even introducing a new wine at a limited marketing cost can be cost effective.

Note: Beer is one of the alcoholic beverages that hardly contain an exception to the rule. With a few exceptions, retail is only through distributors. At the same time, it is mostly a "brasserie pub", defined as an establishment that brews and sells its own beer at its premises.

To avoid getting into trouble when discussing the distribution of each alcoholic product, stick to the wine. For many reasons, the distribution of wines differs from the general rules of the three-tier system and varies from state to state. The options for wine distribution are as follows, with significant differences depending on the state:

  • For Direct Consumer Shipments (DtC)

  • Önelosztás

  • Sales of premises (at the winery)

Like wine sales concepts, many law firms assist wineries in individual states, and even in cities and counties within a state, with a plethora of complex sales regulations.

As other channels change and even expand, the Three-tier System will twitch every year as markets emerge and industry changes. However, the three-tier system is larger than all other channels combined. The wine industry (especially in the United States and California) has changed dramatically as more wineries are opened and vineyards / wineries have become tourist destinations. For example, in the late 1960s, Robert Mondavi conceived of the notion that the Northern California Wine Region could be an attraction to itself. One of these events helped expand the winery's local distribution channel through the sale of wine tasting rooms and wine clubs.

The craft beer business also took revenge and the public reacted. Currently, there are brewery pubs and venues where they brew 100 beers in one place, and consumers can buy removable tanks for their favorite beers (named producers-64oz).

Directly to the consumer – wine

It is a growing segment of the wine industry and is likely to come from four sources – winery visitors – wine tasting events, friends' recommendations and restaurant experiences – consumer visits.

Finding some of your favorite state wine still doesn't mean you can go online, join a winemaker club, or call the winery and ask them to ship you a case. Availability should continue to be determined by factors such as state laws, the volume of wine produced by the winery, licensing of wineries with the host state and even joint supplier agreements.

Ship-to-ship and Wines and Vines Analytics report a 15.5% increase in DtC (Direct to Consumer) wine deliveries in 2014. This results in 3.95 million wine cases. To add some perspective, Gallo produced more than 80 million cases for US consumption. The average price of bottled wine was $ 38.40; a relatively expensive wine.

In 2014, 60% of all direct consumer (DtC) wine shipments went to five states; California, Texas, New York, Florida and Illinois. In addition, the changes introduced in state law in 2014 to simplify the transport of DtCs were welcomed by consumers. In Montana, such changes resulted in a 245% increase in DtC sales, and a corresponding 61% increase in North Dakota.

In summary, 43 states allow wine to be shipped to the state and 7 do not. States that do not allow DtC shipments: Alabama, Delaware, Kentucky, Mississippi, Oklahoma, Pennsylvania, South Dakota (until 2016), and Utah.

As noted above, each state uses either a three-tier distribution system or a control system (systems that operate similarly to a three-tier system but are owned and operated by each state). The bottom line is that every state controls wine sales to consumers in some form. An exception to these rules is that DtC shipping states allow consumers to buy wine directly from the producer. The big equalizer, however, is the shipping cost, which is passed on to the consumer, which can be significant depending on the amount of purchase. It's like paying the distributor or paying the sender for DtC shipments.

Even in California, which is maintained as a child of the DtC shipping poster, there is a need for a three-tier distributor to bring wine to California from interstate wineries.

Wine Folly reports that only 17% of US wineries are nationally distributed. There are a variety of reasons: some wineries are too small to be economically viable for a distributor to carry the brand, the winery doesn't produce enough labels to make it attractive to the distributor, the prices of wine are too low and / or not enough sales; or a distributor wants a great deal of discounts to be profitable for the winery. In all these cases, the Direct to Consumer model is an excellent alternative.

Self-Distribution

Self-distribution refers to the ability of wineries to operate as their own wholesaler by selling directly to retail and restaurant companies.

Fourteen states allow wineries their own distribution, but this is not an easy process; avalanche of payment of postal bonds, permits, applications, reports and excise duties; each of which is different. Interestingly, California allows for independent distribution to state wineries. Many California wineries have sales staff who sell their wines to restaurants and retailers.

Like the three-tier system, self-distribution is governed by different rules set up by each state to allow wineries to self-distribute. To illustrate this with 2 examples: Arizona allows self-distribution for wineries that produce 20,000 liters or less of wine. In Illinois, an interstate winery that produces less than 25,000 gallons a year can self-market. However, the exemption from self-distribution allows the retailer to sell up to 5,000 liters of wine per year. This only illustrates the complexity of the distribution possibilities in different states.

The bottom line is about 10 states that do not allow shipments to consumers. In fact, if you are a Utah resident who buys wine during a visit to a wine cellar in Sonoma, California, you can commit the crime of bringing that wine back to Utah. In some other states, wineries must purchase an annual permit from the state to ship to you only.

On the spot

This approach does not require much explanation. But if you buy a few bottles of wine and go to your hotel and ask the Portuguese to ship it to you with your FedEx number, don't expect it to be delivered unless the hotel has a license to transport alcohol. The solution is to keep the wine with you.

If people are interested in what happens when laws are changed compared to the three-tier system and other related issues, I am very impressed with: Wark Communication. There are others, but this blog is lobbying for policies that lobby on behalf of the wine consumer and looking at the blog for the consumer.

The occasional wine consumer is probably not interested in wine politics. Frankly, consumers need to be concerned if there is little added value to the cost of distributing wine. DtC may be an emerging alternative, but laws are not the same between states. If you go to a wine mart or even to Costco, depending on the states, you are likely to pay 30% extra to the distributor of a three-tier system; simply because of the 83-year-old law.

Consumers pay for the value they receive, but the producer or the consumer has the choice. Their preferences are announced in the cash register.

Cheers!