Not a surprise but there is corruption in the liquor field. We have seen it at government agencies in Oregon and Virginia and the Treasury Report on Competition recognized that despite active enforcement that there are exclusionary behaviors that include “discriminatory conduct by distributors.”[1]

The corruption in Virginia and Oregon pertained to how rare niche products were allocated, namely Pappy Van Winkle. The government run stores were not exactly running a fair game. In Oregon heads rolled when it was determined that the political class was allocating product for themselves and in Virginia, government employees, did an inside job and provided information on where the supply of Pappy Van Winkle would be allocated. [2]

We have a problem that for rare niche products, government corruption is ever present and makes it impossible for optimal market conditions. And those arbitrary conditions such as corruption pervert the market’s role.

Of Value Problems on Private Side

With rare niche products there is the inevitable problems of tied-house/of-value violations when product is allocated by wholesalers to retailers.

As the supply of rare niche products is low and the demand is excessively high, there clearly is not enough to go around. So, it begs the question, how does the wholesaler, the party that predominantly provides products to retailers, decide how to allocate product in the marketplace?

There is no perfect formula and what makes it decide which retailer to provide products to, and is this decision based on impartiality, of course it is not!

Under many state statutes and regulations showing favoritism to one retailer over another can lead to tied-house/of value violations. Often times the conditions for the violation occur well before the niche product is allocated, and the retailer is often rewarded by getting these special allocations

As impartiality in this area is impossible and any allocation could lead even inadvertently to a tied-house violation, having this in the hands of the three-tier system is not the best way. At best there is a legal gray area towards legal violations, even when done as fairly as possible, laws may still be violated.

On another issue, at an NCSLA Panel in Omaha someone discussed how even private distributor insiders like a truck driver could manipulate the process by telling a select few when the delivery to a store is coming.

DTC Solution

The best solution for rare niche products is DTC shipping directly from the manufacturer to the consumer. Utilizing a specific identifier to stop people from buying the whole allocation can be employed and technology could help solve this problem.

Under the DTC method, the niche and rare products can’t be used for market manipulation or fostering government corruption. The availability of product is not based on where you live and whether you figure out timely which retailer has the product. Even if you figure out, an insider my have beaten you to the punch.

DTC shipping can eliminate the corruption of the government system and the potential inside jobs of the private system. Further, DTC shipping can eliminate tied-house violations brought on by favoritism of wholesalers to specific retailers.

The time is now to eliminate imperfections and legal violations in the system, DTC and technology affords the best solution, as the other system continues to maintain too many flaws!