Part II of the Tanford & WSWA discussion on the three-tier system- WSWA comes to the dance floor

INTRODUCTION

The Wine and Spirits Wholesalers of America (WSWA) is the national trade association representing the wholesale tier of the wine and spirits industry. It is dedicated to advancing the interests and independence of wholesale distributors and brokers of wine and spirits.

Founded in 1943, WSWA has nearly 400 member companies in 50 states and the District of Columbia, and its members distribute more than 80 percent of all wines and spirits sold at wholesale in the United States.

I wanted to thank WSWA for answering my questions about the liquor industry.

I appreciate their candor as not all the questions I asked were easy to answer.

So after this segment, the reader will have heard from both sides of the argument. If you feel strongly one way or another, please feel free to comment in the blog.

I hope you enjoyed reading the viewpoint of the two sides, I am sure that they won’t be on the dance floor together anytime soon!

 

WSWA’s Answers

IrishLiquorLawyer: Why is the three-tier system important?

WSWA: The three-tier system balances a number of interests including public safety, consumer demand, and effective regulation.   Separating producers, distributors and retailers creates a dynamic market that encourages responsible consumption while allowing competition of a wide variety of products not just from large multinational companies but also smaller producers.  For over 80 years it has developed in the U.S. the most robust, independent beverage alcohol marketplace in the world. We enjoy unparalleled diversity and innovation in wine, spirits and beer choices and lead the world in trends. Further, the three-tier system ensures product integrity and accountability, something not present at the same level in markets elsewhere in the world.

 

IrishLiquorLawyer: Can you tell me about the contributions the wholesalers make to the communities?

WSWA: Wholesalers employ more than 74,000 workers at over 3,000 locations nationwide—in every state and congressional district. These workers earn a collective $6.5 billion in wages each year as part of an industry that generates a combined $50 billion annually federal and state taxes. Distributors and their employees are deeply engrained in their communities, from sponsoring sports teams and community events to educational, religious and medical causes. WSWA produces a biennial report on community engagement that provides an overview of many of these types of programs, available here.

 

IrishLiquorLawyer: What would life look like without the three-tier system?

WSWA: Without separate and independent suppliers, wholesalers and retailers, there would be less consumer choice, less innovation, and fewer producers. In vertically integrated markets, soft drinks for example, only a few large producer corporations dominate the mass marketplace – crowding out innovation from smaller companies. Further, three-tier laws promote accountability and transparency at all levels through a licensed system of independent businesses.  As a result, the U.S. has a safe system virtually free of counterfeit products. This benefit is not always prevalent in other markets.  One only has to look to other countries to see the negative impacts of counterfeit products, something unheard of here at home. Also, federal and state governments can effectively and efficiently collect taxes through a three-tier system.

 

IrishLiquorLawyer: Is the three-tier system relevant today?

WSWA: The three-tier system is as relevant as ever. Keeping a balance among independent tiers has created and maintains a vibrant and accountable marketplace for alcohol, which is also socially responsible. Today’s marketplace is full of new brands, many of whom depend on distribution to help their businesses grow. The last decade has seen unprecedented growth in the number of new products coming to market, from craft beer to micro-distilleries.

 

IrishLiquorLawyer: Could the states operate the liquor industry without the wholesale tier?

WSWA: All products need a distribution system to efficiently reach consumers.  Control states either take on the role themselves or they outsource distribution to wholesalers. We support the right of states to choose how to structure their market.  However, absent a wholesale tier (either independent or state run), many issues, including compromised product integrity and less consumer choice, would manifest themselves as seen in other markets around the world.

 

IrishLiquorLawyer: Some claim it is inevitable that the three-tier system will be weakened or eliminated how do you respond?

WSWA: The three-tier system will evolve and will remain strong because it provides important, valuable services to the industry and to consumers alike. These range from economies of scale, cost efficiencies, local knowledge and competitive insights to consumer education, a huge diversity of product and ongoing innovation to meet industry and consumer needs.
One example of evolution in the marketplace is Drizly – the mobile and online ordering platform.  Drizly facilitates consumer purchases from local retailers for delivery in one hour or less or pick up at the store. WSWA has a strategic alliance with Drizly, which is an example of how the three-tier system promotes innovation consistent with existing state regulations.

 

IrishLiquorLawyer: When the Granholm decision came out, the Court allowed out of state shipments of wine that could bypass the three-tier system, however years later the three-tier system is strong, are you surprised and what do you attribute this to?

WSWA: Granholm addressed the specific question of interstate shipments of wine to consumers by wineries. Nevertheless, when discussing these shipments in relation to the three-tier system, the Supreme Court noted how it remained “unquestionably legitimate.” The three-tier system not surprisingly remains vibrant today because of the many benefits it provides producers, retailers, states and consumers, which include extensive consumer choice within an accountable and transparent market. Since Granholm, most states have allowed some limited form of winery to consumer shipment, often with restrictions on the size of the winery or quantity that can be shipped.  But at the same time, illegal online sales and shipments have proliferated and regulators are trying to deal with those challenges.  Recent enforcement efforts in some states have led to carriers like FedEx and UPS refusing to accept illegal shipments and, in some cases, returning or confiscating attempted illegal shipments.  The three-tier system encourages enforcement, which in turn protects the marketplace and consumers.

 

IrishLiquorLawyer: In the recent Missouri Broadcaster’s Association decision, a Federal District Court decided the case without considering the 21st Amendment and further stated that there are so many inconsistencies in the three-tier system that it is hard to justify laws curtailing free speech based on maintaining the integrity of the three-tier system. Does the Court’s questioning the legitimacy of the three-tier system and ruling without a 21st Amendment analysis constitute a troubling trend?

WSWA: We disagree with the district court’s recent decision in Missouri Broadcaster Association case. The court should have considered the state’s authority under the 21st Amendment. Tied-house laws serve to regulate the economic relationships between the tiers to, for example, limit the influence of industry members over retailers, safeguard the independence of each tier, and maintain an orderly, stable, and transparent alcohol marketplace. The existence of certain exceptions does not negate the underlying purpose or overall effects of those laws.

 

IrishLiquorLawyer: In the Lebamoff oral argument, 7th Circuit Chief Judge Diane Wood, indicated that the State of Illinois’ position banning out of state online retail purchases was hampering commerce. With the economy shifting toward online purchases, does this constitute a threat to the current system? And what if her opinion in oral argument becomes written into case law, does this change the game? Either way, does this trend towards a new economy threaten your position?

WSWA: Technology can be viewed as a threat or an opportunity to any system. We choose to use technology to create opportunities to augment the successful three-tier system we enjoy today. One example is our strategic alliance with Drizly- the leading online alcohol marketplace.  Drizly is a great example of using technology to provide consumers with the convenience of online ordering for one-hour delivery or in-store pick up in a three-tier compliant way that benefits not only consumers but also local businesses.

 

IrishLiquorLawyer: How do you answer the consumer that indicates that he/she purchases a majority of their online purchases from out of state retailers, yet they can’t purchase their alcohol the same way?

WSWA: Alcohol is a unique, socially sensitive product that should be sold responsibly. The U.S. enjoys one of the safest marketplaces in the world for alcohol – if not the safest – because of the state-based regulatory system in place today. When states lose transparency into sales as is currently occurring with illegal out-of-state shipments, states cannot protect their citizens – either directly (authentic products) or indirectly (tax collection that benefits state citizens). Technology can be used to sell a wide array of choice in a convenient manner while protecting state citizens through proper tax collection and age verification.

 

IrishLiquorLawyer: The three-tier system is under constant assault and the cases filed challenging its existence will never cease. Further, legislation is introduced every year trying to curtail its power? Can you explain why the threat to the wholesaler tier is damaging to society?

WSWA: The three-tier model has yielded great benefit, including extensive consumer choice and a vibrant, accountable marketplace, for suppliers, wholesalers, retailers and consumers alike.  The three-tier model has been a stable, accountable means of providing consumer choice in a responsible way that will continue to provide these benefits into the future.

Distributors provide many benefits such as long-standing business relationships with up to thousands of retailers in a geographic area, creating local expertise that enables distributors to promote a variety of products in a much shorter timeframe and to a wider range of businesses than individual suppliers in a market. They also service a large number of local retailers and reduce transport and inventory-holding costs for both suppliers and retailers. Since distributors are able deliver smaller quantities on a frequent basis, distributors meet the logistics needs of a wide variety of retailers. Independent distributors promote the competition of products and producers, which in turn, allow new and innovative brands to flourish. These are all benefits that flow from having a well-regulated, accountable regulatory system.

(The End)

 

Conclusion

Thank you for reading, my job was to not take sides but to provide a platform for polar opposite view points. Please reach out to me if you have any questions or comments at sean.oleary@olearylpgroup.com.

 

Leave a Reply

Your email address will not be published. Required fields are marked *