More on the Family Winemakers lawsuit

Tom Wark from Fermentation posted a lengthy comment in response to Doug Caskey’s thoughts on the Family Winemakers lawsuit. This was another great response, so I wanted to post it to make sure everyone reads it.

Doug:

First, anyone accusing you of being a traitor to the wine industry simply doesn’t know you or doesn’t care for honesty.

That said, I want to comment on your elequent plea for respecting the postion Colorado and other smaller state wine industries find themselves in vis a vis the current debate over direct shipping regulations.

First, with regard to the Granholm ruling, it strikes me that the ruling did not so much “reinforce” the validity of the 3-tier system as much as it simply concurred that it was a legitimate way for a state to structure the distribution of alcohol. By this I mean, it did not endorse the excusionary charachter of system, but rather acknowledged its legitimacy. This is important.

The idea that the state is preventing direct shipping by those that produce over a certain amount because it “values small businesses that stimulate agriculture” belies the facts and machinations in the direct shipping debate. Were direct shipping to consumers open to all wineries, large and small, there is no reason to believe that a small Colorado winery would be hurt by CA wineries of any size trying to attracte consumers to wine clubs or occassional Internet sales. In fact, being closer to the Colorado consumer than a CA or WA winery, the Colorado winery should have an advantage in reaching that consumers.

The bottom line is that production limits are approved by Wholesalers becauase it keeps the vast majority of direct sales from occuring while allowing in-state wineries that they rarely deal with to go about their business without criticizing wholesalers. As a bonus for wholesalers, it puts wineries in-state into conflict with out-of-state wineries that are prevented from entering the market via direct sales.

As for monopolistic tendencies, it is indeed easy to accuse wholesalers of being monopolies. But the idea that “the same can be said of the large wineries in California” just doesn’t wash for one simple reason: The Wholesalers benefit from STATE SPONSORED monopoly status. By dictating the use of the three tier system the States guarantee that a smaller and smaller group of wholesalers take a piece of every sale in the state. Yet, there are no provisions that they represent any winery that wants to sell in that state. If in addition there are production requirements on those that can sell direct in a state that has granted a monopoly to wine wholesalers many wineries will be prevented entirely from doing business in that state.

The State of California does not impose any regulations that result in CA wineries selling the vast amount of domestic wine in the United States. This difference in who imposes a monopoly is important.

If the concern is for fairness and a desire to see Colorado wineries expand and prosper there is a simple way to accomlish this: Allow wineries to self distribute in the state as well as sell direct to consumers. No one represents a brand better than the owner. But as long as the state imposes the 3-tier system, this can never happen because under Granholm if CO wineries can self distribute then out of state wineries must be able to also. Wholesalers would just as soon see small state wine industries disappear altogether than allow this sort of situation.

And this brings us to the idea that “Under the guise of “equal protection” as spelled out in the Granholm decision, their (those bringing suits) legal actions have the impact of squelching the advantages that state governments want to give small agribusinesses like wineries.”

If government and legislators were truly interested in giving small agribusiniess a hand up, they would ignore the demands and campaign donations of wholesalers and allow unrestricted direct sales and unrestricttd self-distribution in their states. It’s clear the legislators too would rather throw CO wineries and other small state wine industries under the bus before upsetting the antiquated but very profitable apple cart known as the state sponsored wholesaler monopoly, AKA “Three Tier System”.

In the end, the restrictions that states put on who can ship to consumers don’t merely inhibit the “Big Boys”. They inhibit the very small boys too, the very boys that most distributors don’t want anything do do with. But the big problem is that as long as the three tier system is imposed by the state, small industries like that of Colorado will be hampered.

1 Comment

  1. Great Post! The systems currently in place for traditional distribution methods is most obviously a flawed system; especially in the cases of small wineries who are unable to pay the bribes necessary to obtain a distributor. Most distributors have so many brands right now, that they are starting to consolidate, making the struggle even more difficult for these rare gems.

    I am confident in saying that the system is starting to unravel, and soon we will see the 3-tier distribution system focused mainly on catering to their large (money-making) brands. Once their eyes are opened, a feat which we are attempting, we hope they will embrace a 2 1/2 tier system that will offer the internet and direct sales as a means to incubate brands before incurring the costs of placing them into full distributorship.

    While this may seem to be the most cost efficient and fair means of handling the current situation, the fear by large distributors that the internet will take over is enough to keep them fighting. What they must understand is that Amazon opened up the world of books, and is one of the largest retailers, but Borders, Barnes & Noble, etc… still hold their market share.

    Jake
    Grape Thinking
    The Tastevine

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