Breaking Down the 3-Tier System w/ Tom Wark, National Association of Wine Retailers

Instituted in a different time, post Prohibition, the 3-Tier system of alcohol distribution and sales in the US creates inefficiencies in matching inventory with demand.  Tom Wark, Executive Director of the National Association of Wine Retailers (“NAWR”), founder of Wark Communications, and writer of Fermentation -  the Daily Wine Blog educates us on the history, key issues, and challenges of navigating the 3-Tier system for wine consumers to get the wines they want.  The NAWR is on a mission to modernize the regulatory landscape for alcohol and bring choice to consumers. Listen in to Tom’s decades of war stories on wine regulation! Detailed Show Notes: Tom’s backgroundHe grew up in Northern California and got interested in wine at an early ageHe got a Masters in HistoryWorked in wine PR, then started his firm - Wark CommunicationsStarted Fermentation -  the Daily Wine Blog, in 2004 - wrote a lot about regulation, was pro-DTC (direct-to-consumer)Approached by the board of National Association of Wine Retailers (“NAWR”) to be Executive Director (2008)NAWRMembers all independent fine wine retailers (e.g., K&L, Zachy’s, Grapes, the Wine Company)>100 members nationwideEstimate ~500 retailers actively doing e-commerce and interstate shipping~400,000 alcohol licenses nationallyWine Retail SpaceGrocery stores, convenience stores, drug stores, big-box retailers - mostly Small independent retailers => focus of NAWRMulti-state retailers (e.g., Total Wine, BevMo)DTC from wineriesKey issues for fine wine retailersPrimary - want to serve customers where they areAmazon could get into the wine space w/ Whole Foods alcohol licenses and ship to anyone locally -> The only way for independent retailers to compete is to do interstate shipping16 states currently allow interstate shippingWine.com has retail licenses in many states to ship to most statesSecondary issue - procurement of inventoryRetailers must buy from in-state wholesalers who have a limited selectionRetailers desire to purchase directly from importers or wineries no matter where they are to broaden their selectionNAWR mission - to modernize the regulatory landscape for alcoholMost regulations  were written in the 1930s-1950sAlcohol is more regulated than tobaccoE.g., if a brewery wants to sell direct to consumer, it needs to sell to a wholesaler and then repurchase it to sell to the consumerFranchise laws - binds producer to a wholesaler for life, even if the wholesaler is no longer supporting the brandAdvocate litigation for change - e.g., states that allow their own retailers to ship to other states but don’t allow out-of-state retailers to ship in, believes that violates the dormant commerce clause of the ConstitutionLobbying, education of retailers, cultivation of allies (very few - consumers and media; most against - distributors, non-online retailers (believe it will create more competition), wineries (indifferent), importers (were not active supporters))The 3-Tier system in the US1930’s - post-prohibition (1933) - each state had to regulate alcohol, and each did it a bit differentlyTwo main concerns - prevent tied house laws and organized crimeTied house - producers controlled retailers => got bars to do sketchy things and promote high alcohol consumption3-tiers - producer, wholesaler, retailerRetailers must buy from wholesalersStopping tied house - wineries can’t own retailersHistorically - lots of wholesalers competing to represent producersToday - 10,000+ wineries, fewer wholesalers -> wholesalers act as gatekeepers, not required to bring producers in and shut out small producers who aren’t worth the time and effort to represent themCA producers and importers can sell direct to retailers/restaurantsWholesalers are very powerful - contribute meaningfully ($10M+/year) to state political campaigns, 10x more than wineries and retailers combinedEach state has different 3-tier regulation, creates an enormous compliance burdenIL - wineries can sell directly to retailers only if they produce CA/WA - all direct sales from producers to retailers/restaurantsE-commerce~10-12% of wine retail today, includes Drizly, Instacart, & grocery deliveryShipping far smaller than deliveryTo be successful, retailers need to engage consumers digitally - cultivate an email list, create an experience for customersChallengesGetting wine to consumers (illegal to ship to many states)Hard to make time to do outreach to legislators, regulators while running a small businessRestaurants become retailers during the Covid pandemicThe 1980s & 1990s - number of wineries exploded, they needed to sell directly to consumers since distributors wouldn’t represent them, became legal a precedent with the 2005 Supreme Court Granholm case - which specified if states allowed in-state wineries to ship to consumers, it must allow out-of-state wineries to ship into the stateTaxesIf states allow retailers to ship in, retailers are required to remit local sales taxes and have a permitSoftware systems set up for wineries also can cover retailers (e.g., ShipCompliant, Avalara), makes compliance easierPure online players - wine.com, Naked Wines => valuable for showing consumers what can be accessed online and the experience of online retailWhat needs to change?  The Supreme court needs to tell states not to discriminate (2019 case - Tennessee vs. Thomas - can’t discriminate against retailers) Get access to library episodes Hosted on Acast. 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