The TTB entered into a public comment period seeking recommendations from industry members on potential reforms and updates to the TTB’s trade practice policies. The TTB’s opening of comments to the Trade Practice Policies reflects a more active role in the federal government shaping the alcohol industry. In the recent past the U.S Treasury drafted a report on increasing competition in the alcohol industry and the TTB made it clear they would be strongly considering nutritional labeling requirements for wine.
I wanted to provide my view of some of the comments from industry players seeking to influence and shape a potential overhaul of trade practice polices.
Equalize for the sake of destroying opportunity
“This regulatory framework, intended to foster a level-playing field, in turn, allows for a stronger retail tier and its related consumer benefits.” WSWA
Any system of reform should focus on providing opportunity, not leveling the playing field, as leveling the playing field does not happen in reality. Only economic freedom will truly grow the marketplace. As the great Milton Friedman stated, “A society that puts equality before freedom will get neither.”
Small brands in America have grown through opportunity. Since the U.S. Supreme Court legalized interstate winery shipping, the amount of the wineries has nearly doubled. DTC shipping provided markets in faraway states for those who would otherwise not have a market opened to them.
What small beer and spirits brands need is the same parity allowing it to hit more markets. Presently, the markets are shut off to them. Providing them access to markets allows them to grow.
Second, the opportunity to vertically integrate has created opportunities for small producers to sell their products in tasting rooms at retail and in some instances self-distribute. A greater capacity to self-distribute and to allow more access for direct-to retail sales would create greater opportunity for growth.
A small brand is going to grow through enhanced opportunity, not through a level playing field. Equalizing should never be the goal of the marketplace. We should not steal from Constellation, Gallo, Bacardi or Diageo, to aid Joe’s Winery or Distiller. What we should give Joe’s is the ability to access more marketplaces and the ability for growth.
As Edmund Burke once stated, “Those who attempt to level never equalize.”
A misunderstanding of the industry
The fulfillment house may be the most misunderstood part of the marketplace. One commentator wrote, “There are retailers, fulfillment houses, e-commerce companies and others that pass themselves off as suppliers – most frequently wineries – to conduct interstate commerce (i.e., wine shipping) that may be permitted for suppliers but not for retailers or unlicensed businesses.”
I have worked with many fulfillment houses; I have not met one that passes itself off as a winery or any other supplier. A fulfillment house merely stores wine, packs it in a box, and at the direction of the winery, ships the box to a destination. The label will have the fulfillment house’s address and name. The fulfillment house does not hold itself out as a winery, nor does it desire to do so. If it did, it would become subject to more regulation.
Third party services
There are many players in the industry that want to license what they deem third-party services. I find it interesting that the three-tier system held by many to be so sacrosanct, should be expanded by regulatory fiat.
Again, the main drivers of power in the industry, the middle tier, desire to expand the regulatory creep of government.
Now there are times when a third-party provider can and should be regulated. For example, a supplier sets up an independent entity that pay retailers illegally, so they can get their product enhanced placement. The third party in this instance is so distinctly related to the supplier that they essentially can be collapsed together, which essentially means there is no independence between supplier and third party, and in fact, the supplier is essentially the third party. Because of this fact, the TTB could regulate this situation.
However, some commentators want to go beyond this situation and create new ways to regulate. As WSWA states, “In the digital marketplace, an industry member might provide an inducement to a third party that is not directed at, or does not flow to the retailer, yet nonetheless, may impact retail independence or result in an outcome that, were it to occur in the physical marketplace, would flow to the retailer, and consequently, be prohibited.”
I am still trying to figure out how a retailer’ independence is threatened when they are not induced or even know they are induced. I guess what they are saying is that paying for ads on a third-party platform can cause more people to buy product A at Retailer B, and somehow Retailer B’s independence is threatened by this? So, if Product A advertises through SEO and the customer gets interested and purchases it online from Retailer B, should we start regulating the company that displays the advertising?
In the end third-parties are not part of the regulatory system. This is a three-tier system and should remain. The current framework works out scenarios where illegal third-party setups can be pinned on the responsible regulated party.
If the powers to be want to regulate advertising on digital storefront that is one thing, trying to stretch what ifs ands, and potential buts is another.
Regulating through the philosophy of an acorn falling, which could lead to a scared animal, which could lead to the scared animal setting off a stampede, which could lead to the stampede trampling the crops, is not a way to regulate.
In the end, discussions should focus on how to open up markets, too often at the state level the tied-house regulations are written to favor one specific tier. Not facing the same political pressures as their state brethren, the TTB should focus on objectivity and bolstering a competitive market not through leveling but opening up opportunities.