Have you talked to your Wholesaler about Interstate Shipping? //php get_posflags()?>
Posted on | February 12, 2010
Written by | Ian Griffith
Have you talked to your Wholesaler about Interstate Shipping? We have a unique view of the wine industry at Beverage Media in that we work with retailers, wholesalers, importers and wineries to support their businesses. Of these industry players the mostly maligned tends to be the wholesaler who is hidden from public view and appears to operate in mysterious ways.
Wholesalers or distributors (interchangeable terms in this article) fill an important role in the sale of wine and spirits in the US. They not only manage the movement of cases through the supply chain, they have salespeople on the street selling product, and they register brands and pay excise taxes. This is the middle-tier of the 3-tier system, created by the 21st Amendment to give states control of the sale of alcohol.
Internet sales of wine have been redefining the limits of state control by enabling direct shipment to consumers that by-pass the wholesale tier. Wineries and retailers want access to a national market, but wholesaler through their national association WSWA have been arguing against this liberalization of trade. Wholesalers see direct shipping as the narrow end of the wedge and are aggressively defending their special position as the state’s gatekeeper. If wineries and retailers are permitted to ship direct to consumers, then they expect the next battle to be over whether wineries and other drinks suppliers can sell direct to retail. This is the real threat for wholesalers and would undermine their control of product in the state.
The legal campaign to increase direct shipping access for retailers has been coordinated from California where retailers can already buy direct from wineries, and where the large wholesalers aren’t as important to a store’s business. At times the rhetoric on both sides of the argument can seem extreme, but there is a growing anti-wholesaler, anti-3-tier narrative that suggests wholesalers add little value to the industry.
From an East Coast retailers perspective a different view prevails of the wholesalers’ role; store owners often see the success of their business depending on their relationship with their wholesalers. Even beyond the day-to-day interactions of buying product, retailer associations call on wholesalers as an ally when they need help with political campaigns. In recent years wholesalers have been generous contributors to campaigns that blocked wine sales in grocery stores, both in NY and MA. These are family owned operations, some very large, that have been active in their communities for decades. Understandably, retailers in these states are less willing to challenge their wholesalers head-on.
In the past month, Massachusetts became the latest state to lose an appeal that would have blocked direct shipping from wineries. In this state, retailers face a ban from “exporting” wine and many have been warned by the ABCC to stop shipping orders to other states. Faced with the prospect of wineries shipping into the state, there has been a shift in attitude that may lead to a reversal on the export ban for retailers. A change would likely allow MA retailers to ship out legally for the first time, but without opening access for out-of-state retailers.
Does this discriminate against out-of-state retailers? It probably does, but the courts are undecided over whether that is unconstitutional. For instance, in reversing a decision that allowed retailers to ship to Texas, the Fifth Circuit Court of Appeals recently ruled that national markets in the lower tiers (retail and wholesale) make it impossible for a state to protect the traditional three-tier system”.
When retailers ship wine across state lines, that wine was likely purchased from a distributor. Would wholesalers really be that worse off with a national market for retail wine sales? It could happen that trade imbalances develop between states, but having strong retailers in a market would be the best insurance against lost sales. As retailers grow stronger and more competitive with online sales, their wholesalers stand to benefit from this business.
While the legal battles are a necessary part of the campaign to open states to retailer shipments, there are relationships on the ground where retailers can make their case to wholesalers. Rather than demonizing the wholesaler, retailers would do better to make the case that both are better served by allowing interstate shipping.