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Breaking Down the Legal Landscape for Wine Shipping

I've been following direct shipment litigation now for well over a decade. At first I read briefs and decisions issued in the various cases across the country because clients of mine were helping push the issue forward. Reading not only legal briefs but also decisions and analyses of court decisions means learning another language if you are not a lawyer. And I am decided not a lawyer.

Still, it's actually been something of a great intellectual pleasure for me to slowly learn the language that surrounds the constitutional issues associated with direct shipping.

Later, after beginning working with the Specialty Wine Retailers Association, it became essential that I grasp the intricacies of Direct Shipping law since SWRA was involved in litigation. What I discovered is that it is a very small group of people around the country who actually care about this litigation and even fewer who follow the litigation closely and understanding the legal theories that underpin the legal landscape of direct shipment law.

One of those people is Corbin Houchins.

Corbin, a lawyer, has released an analysis of the recently decided 2nd Circuit Court of Appeals decision in Arnold v. Boyle in which a panel of three judges determined that the State of New York may discriminate against out-of-state wine retailers by prohibiting them from shipping to consumers in the state while allowing NY retailers to do so. Their reasoning boiled down to two important notions. ). The Granholm Supreme Court decision only determined that "products", not commerce, was protected by the commerce clause of the Constitution and could not be discriminated against, and 2) that out-of-state retailers really aren't discriminated against because they, like NY retailers, need only get a license in New York to ship wine to New Yorkers.

On the face of it, these two notions, both wholly inadequate interpretations of the law in my opinion, seem pretty straight forward. But as Corbin makes clear in a deliciously argued analysis of the case, it isn't all so simple.

You can find Corbin's analysis of Arnold v. Boyle at the ShipCompliant blog where he publishes periodic notes on direct shipment of wine. You can see SWRA's take on the decision here.

This is where this post is going to lose a few readers if it hasn't already: If you have any interest in the theory and practicalities and minutiae of direct shipping law, then you MUST read Corbin's notes on this case.

Now that four readers have stayed with me, let me say this: You don't often see a set of judges take a radical departure from Supreme Court directives. You saw it in this case. The 2nd Circuit rendered what can only  be described as a radically conservative reading of the Supreme Court's decision and directives in Granholm v. Heald. Some have argued that this happened in part because one of the judges on the panel was also the judge who's decision was overturned in one of the cases that led up to the Granholm v. Heald Supreme Court case. I'm not so sure of that.

So, readers 1, 2, 3, and 4.....Go take a look at Corbin's analysis of this case. It's very good reading.

Asking For Wine...In A Good Way

Over the years I've found myself in a position of asking my colleagues in the wine industry and  folks in the hospitality industries to give me things. "Donations" they are called. Some people are better than others at doing the asking. I fall somewhere in the middle. In asking for wines, airline tickets, hotel rooms, memorabilia and other items, almost always for auctions, I have learned one thing: You get your best results when you tell the potential giver that the donation will help the cause more than it will help them. Hand out

I'm doing this again for Specialty Wine Retailers Association as we gear up for an important fundraiser in Chicago where we hope to raise funds to move hearts and minds toward re-opening that state for consumer purchases of wine from out of state wine stores. That option was stripped from consumers and retailers in 2007. I'm looking for Big Bottles, Bordeaux Futures, Verticals, Horizontal Collections, airline tickets, Guest Houses in Wine Country, Limos Services, etc, etc.

Here's how the request sounds:

"Joe, this is Tom at SWRA. I need your help. I need to fill an auction in Chicago with great lots so we can raise funds to change the laws in that state to allow direct shipment of wine by consumers. Our event is on August 6. If  you can donate a six liter bottle of your Cab, you'd be helping us tremendously and we need it if we are going to open that state back up. All I can promise you in return is a mention on the program and a guarantee the money will  be used wisely to fight the good fight."

The reason I never promise more than good will is because I've been the object of requests on too many occasions to count. The PR Guy is often the first person people go to when they ask for these things. I've listened to schpeal after schpeal about how my clients will receive tremendous exposure by having their wine available for auction. And I've been to these events. The exposure is minimal, at best. And I can't bring myself to puff up reality.

At some point, the person being asked to help simply has to decide if they can afford to help and if the cause they are helping is worthy of their support. Those are really the only two questions that someone being asked to give must answer. On top of that, these are questions that wineries in particular are confronted with constantly. and they usually have pat answers that resemble "no"...unless they are taken by the cause.

Of course, my cause and the cause of Specialty Wine Retailers Association is critical and I can't imagine why anyone would say "No" to my requests. And this kind of attitude and ridiculous optimism is key. If you've ever spent time asking for things, you know that "NO" is coming your way. It's a lot like selling vacuum cleaners though—something I have experience with: If you hear enough "No's" you'll eventually get to the "Yes". But it's a matter of asking and asking with honestly.

By the way, all donations to this worthy cause and worthy event can be made by calling Tom Wark at 707-935-4424.




The Three-Tier System and Consumer Access To Wine

The three-tier system of having a “distributor” in between the producer of wine and the wine retailer was put into place after prohibition to prevent the abuses associated with “tied houses” prior to prohibition. Unfortunately this system has merely served to duplicate the corruption that it was created to fix.

Prior to prohibition, suppliers wielded so much power they could control retailers by threatening not to supply them. Retailers became “tied” to particular alcohol producers. The "tied" retailers were forced to sell a single manufacturer’s product. Producers also forced retailers to promote their brands without regard to public safety. These circumstances exasperated alcohol abuse problems and were often cited by Prohibition’s advocates as one of the key problems with alcohol in America.

To assure this measure of control and this kind of abject corruption would not happen after repeal of prohibition, most states mandated the “second tier” to sit between the producers of alcohol and the retailers of alcohol. They created the state-mandated monopoly known as the “wholesaler tier”.

Today, almost 75 years after the Repeal of Prohibition, every state has only a very small number of wholesalers that control the flow of alcohol. They determine which brands will be sold in wine stores and restaurants. The obscene power once wielded by producers of alcohol over 70 years ago today is in the hands of alcohol wholesalers.

Because most states mandate that alcohol flow from the winery to distributor to retailers, distributors find themselves in the enviable position having a monopoly on how wine is distributed in each state. This, for obvious reasons, has made them enormously powerful and wealthy. As the numbers of wholesalers in America has dwindled, usually as a result of buyouts and mergers, that enormous power has concentrated in a handful of distributors that operate in multiple states. 

Additionally, because there are such a small number of alcohol wholesalers in each state that must, by law, be used by producers to get their wines to retailers and restaurants, the wholesalers are under no pressure to provide high quality service, as they would be if they were subjected to competitive market forces.

A number of consequences flow from these circumstances:

-In most states few wholesalers are responsible for “marketing” hundreds, if not thousands, of wines, which they are unable to do for all the brands with any care or success

-Retailers and restaurateurs are at the mercy of the small number of wholesalers who provide them with wine. The retailers and restaurants must choose only from the wines that wholesalers provide. This is despite the fact that there are many other wines they’d like to carry on their shelves and menus but are by law prevented from purchasing because they must deal only with wholesalers.

-Restaurateurs and retailers, just as in pre-prohibition times, often feel obligated to not criticize and follow the directions of the wholesalers for fear they will be “cut off” from the limited supply they actually have access to.

In essence, the corrupt circumstances that the three-tier system was meant to clean up after Prohibition ended now exist again, only with the wholesalers in charge.

While the corrupt circumstances of pre-Prohibition are with us again, much else has changed. Today there are upwards of 5000-plus wineries in the United States, with producers located in every state. America has become a wine-drinking nation with per capita consumption continually rising over the years and with America poised to overtake France in total consumption.

Yet, just as more wholesalers are needed to handle the demand and the growing number of producers, their number has been reduces to usually no more than three or four distributors in each state handling all distribution. In some cases, such as Texas, two wholesalers (Glazers and Republic) control 99% of the market.

An ‘hourglass” scenario has been created whereby the wholesalers occupy the squeezed middle of the glass. This position of enormous control has generated massive profits and has made them so powerful they are now able to completely control not just the distribution of wine, but the laws that are created to govern the distribution of wine.

Since 2000, Wholesalers, their political action groups and their associations have spent nearly $60,000,000 in campaign contributions on the state level. In addition, millions of dollars more have been spent on lobbyists on the state and federal level.

In 2006, for example, in Texas, alcohol distributors contributed more than $3,750,000 to political candidates and politicians. The only economic interests that outspent alcohol distributors in 2006 were Attorneys and Law firms, Oil & Gas, and Home Builders. Alcohol wholesalers outspent all unions combined in Texas, securities and banking interests, and insurance interests. Alcohol wholesalers in Texas outspent the combined contributions of gambling interests and casinos, retailer interests, all food and non-alcoholic beverage interests, tobacco interests, and tourism interests.

It is difficult to correlate campaign contributions with favorable treatment in the halls of government. However, it should be noted that in numerous states, legislation that can only be called favorable to alcohol wholesalers is regularly introduced and passed.

This trend is particularly clear in the areas of consumer access to wine. Alcohol wholesalers have proven to be advocates of the consumer, but only as long as the consumer is purchasing alcohol that wholesalers first made money on by distributing it to retailers and restaurants.

Throughout the 1990s and 2000s, as the number of wineries in America skyrocketed, consumers became interested in buying the wines produced by these new producers. The products of small, specialty wineries in particular were coveted. However, a large number of these wineries could not find a wholesaler to distribute their wines. And even when they were distributed, wholesalers in individual states usually only bought very small amounts of the wine.

Yet with the advent of the Internet and the consumer’s ability to use search engine technology to locate the wines they wanted from wineries and retailers, it became possible for a wine lover to track down the wines they wanted. However, purchasing directly from wineries and retailers located outside the state in which the consumer resided meant that wholesalers in those states where wines were being shipped into would not make any money on the transaction. Alcohol wholesalers responded to this development by instituting a massive campaign to stop direct shipments of wine.

At alcohol wholesalers’ requests, a number of state legislatures passed felony laws aimed at vintners and retailers who were shipping directly to the consumer and who were filling the growing demand for wines that wholesalers were incapable or unwilling to distribute.

The all-out attack on direct sales of wine by the wholesalers came with dire warnings that if it were allowed to continue minors would eventually start ordering alcohol over the Internet—even though that meant paying the additional cost of shipping and waiting at the door for the delivery in order to hide the purchase from their parents. The Wine & Spirit Wholesalers Association, a national association of alcohol wholesalers headed by one-time pro-tobacco activist Juanita Duggan, led the campaign to prevent consumers from obtaining the wines that wholesalers could not or would not supply.

The wholesalers were met by stiff consumer and winery-led opposition. Wineries and consumers argued that wholesalers were merely fighting to preserve enormous profits made from being at the center of a monopoly-based system that could no longer serve a market that had evolved considerably since the end of Prohibition in 1933.

Eventually wineries led by the newly formed Coalition for Free Trade, and consumers led by an advocacy organization called Free The Grapes followed a litigation strategy that focused on using the Commerce Clause of the Constitution.

Throughout the 1980s and 1990s, states besides California began to sprout their own wine industries. Oregon, Washington, New York, Virginia, Michigan and many other states found themselves with burgeoning wine industries. The states, wanting to cultivate these new industries that added value to agricultural pursuits, attracted tourism, and brought prestige to the state, enacted exceptions to the three tier system that allowed its wineries to sell directly to consumers rather than forcing them to always sell to wholesalers. By doing this, the new wineries were able to produce greater revenues for themselves by selling their wine at full retail price, rather than reducing the retail price by half when sold to a wholesaler, who then tacked on their cut when they sold to retailers, who in turn tacked on their cut when selling directly to the consumer.

However, this “direct-to-consumer” exception in the law was rarely extended to out-of-state wineries.

Legal challenges to this blatant discrimination against out-of-state wineries started popping up around the country. In court battles across the country the argument was made that a state may not allow its own wineries to ship to its state’s residents, yet prohibit out-of-state wineries from doing the same. It was a matter of the Commerce Clause of the Constitution and its demand that states not hamper interstate commerce, trumping the states’ ability to regulate the distribution of alcohol based on the second paragraph of the 21st Amendment.

The issue finally made its way to the Supreme Court, which in May 2005 rendered a 5-4 decision favoring the wineries and free traders in its Granholm v. Heald decision.

There was an immediate assumption that states across the country would loosen their laws to allow consumers to buy wine from out-of-state wineries. Many reports heralded a new era in consumer access to fine wine.

While a number of states did change their laws, the era of free trade in wine was not quite at hand.

If wholesalers found the courts a difficult venue to try to protect their economic interests, legislatures proved a more fertile ground for them. From 2005 through 2007 states legislatures began re-writing their wine shipping laws. In the course of doing so many of the laws contained wholesaler-requested restrictions that kept direct shipment of wine limited.

Some laws allowed direct shipment, but only if the winery produced very small amounts of wine. These “production cap” restrictions were aimed at California, Washington and Oregon, where most wineries resided. The production caps were usually set just high enough to include the largest of a state’s wineries (often no more than 5,000 cases annually). The caps prevented medium and large wineries from shipping into states that had these restrictions and forced them to stay in the three-tier system if they wanted to sell wine in that state.

Other types of restrictions were also created at the behest of wholesalers in a variety of states. Wineries and consumer advocates have begun to challenge them in court, setting off a new round of court battles.

In the meantime, alcohol wholesalers across the country began to work to exclude retailers from shipping direct to consumers altogether. In many cases the prohibition they sought on retailer-to-consumer sales were pushed as part of legislation that opened up states to wineries. California, Texas, Ohio, Oregon and Illinois all passed or have attempted to pass legislation that at once allows out-of-state wineries to ship into their state, but exclude out-of-state retailers from doing the same.

While no good estimates are available as to the amount of wine that is purchased direct from retailers and shipped over state lines, many observers of the wine industry agree that far more wine is being purchased by consumers via the Internet from retailers than direct from wineries.

Retailers, led by the Specialty Wine Retailers Association, are now fighting the wholesalers largely on the same legal grounds as wineries did. In many cases in-state retailers are still allowed to ship to consumers while their out-of-state brethren are prohibited from doing so. Wholesalers argue that the principle of a level playing field for both in-state and out-of-state interests explained in the Granholm decision does not apply to retailer-to-consumer transaction, but only to winery-to-consumer transactions.

Lawsuits challenging discriminatory legislation were introduced in Michigan, New York and Texas. While positive outcomes have resulted from these lawsuits, this has not guaranteed positive changes where consumer access to wine is concerned. In Michigan, for example, a Federal District Court Judge ruled that the state unconstitutionally discriminated against out-of-state retailers by barring them from shipping wine to Michigan consumers, but allowing in-state retailers to do so. Immediately, the Michigan Liquor Control Commission, working in concert with the Michigan Beer & Wine Wholesalers Association and supportive legislators who had received significant campaign contributions from Michigan wholesalers, introduced a bill that barred all shipping of wine to Michigan consumers by retailers, whether located in-state or out.

This move in Michigan highlighted another issue affecting the cause of retailer-to-consumer shipping: collaboration between alcohol regulatory agencies and wholesalers. In the case of Michigan, the Michigan Liquor Control Commission lobbied for passage of an anti-shipping bill, advocated that it be passed quickly and without debate, and made arguments in favor of the bill without presenting supporting materials. It should be noted that alcohol regulatory agencies are not generally thought of as policy-making bodies, but rather agencies that carry out the will of the legislature. This kind of alliance between agency and wholesaler is not unusual.

In the case of the retailers’ battle against the wholesalers, a new dynamic has emerged. Unlike the wineries’ battles that usually had the support of wineries across the country, retailers often take a provincial position, with the hope of keeping out-of-state retailers from shipping into their own home state and thereby protecting themselves from competition. Also, many retailers are not willing to fight on behalf of free trade in wine for fear they will be retaliated against by their state’s wholesalers who supply them with products. Ironically, the situation is identical to that which existed with Tied House retailers prior to Prohibition, but with the pressure now being put on by the wholesalers rather than by producers.

The power that exists in the hands of a very few (no more than 10) alcohol wholesalers operating in markets across the country cannot be underestimated. In nearly every state few wholesalers control the entire apparatus of alcohol distribution. Legislatures continue to enact laws that favor wholesalers to the detriment of retailers, wineries and consumers. In nearly every state wholesalers are in the top ten industries for campaign contributions. Between 2000 and 2006, America’s alcohol wholesalers delivered $60 million dollars in campaign donations to state political campaigns, dwarfing that contributed by either retailers or wineries.

What’s most clear is that wholesalers are using their power to maintain a system of alcohol distribution created to address a society, culture and market that existed three-quarters of a century ago. This United States no longer exists. Yet the system it created is still in place, to the detriment of wineries, retailers and particularly consumers.

Theocratic Hogwash

Churchstate I understand federalism, that political philosophy in which power is divided between a national and state governments. It's the concept that helps keep local communities in control of what are usually deemed local matters. I support it too.

It should be noted, however, that it is federalism that allows purely religious concepts and ideas to become embedded in local policy making and law.

In Georgia there is a bill moving through the legislature that would allow local communities to vote in referendums on whether Sunday sales of alcohol should be allowed at retail in their localities. Currently, Georgia bans all Sunday sales. Some folks don't like the idea of letting stores and individuals decide if they should buy their beer and wine on Sunday:

"If we sell more alcohol, more people are going to die," said Tom Rush, a pastor at the First Baptist Church in the town of Social Circle (GREAT name for a town.)

I'm a big fan of over the top rhetoric. When presented well it's really something to see. But in this case I think Pastor Rush just wasn't trying. At least he cold have suggested we not allow Sunday sales "for the kids."

But what would have really been interesting is to listen to the good Pastor explain why sales of alcohol should be banned on Sunday, instead of, say, Thursday or Monday. Why Sunday? Why couldn't he have given a solid defense of the idea of incorporating Baptist theology into public policy? The reason of course is that while he wants to impose his brand of faith on everyone, he's not that comfortable talking about imposing his brand of faith on everyone, including atheists, agnostics, and non-Baptists. And I say good for him. At least he knows he's on shaky moral and political ground by advocating this kind of nonsensical, self serving theocratic hogwash.

I should look into it but I'm willing to guess this kind of religiously-motivated law has been tested at the Supreme Court. And I'm willing to guess that at some point the Court said that such legislation is just fine as long as the law in question has a secular purpose expressed in its intent. You know, something like, "Children will die if we don't ban sales of alcohol on the Lord's Day".

Updating The Wine Supply Chain

Winesvines  

Updating The Supply Chain
Wines & Vines Magazine, May 2009

This was published in last month's Wines & Vines Magazine and it's every bit as relevant today as it was 30 days go.

Take home quote:

"We live and work in a new world that requires new wine regulations. Yet without a cooperative political effort by retailers and wineries, needed change won't come. And if it doesn't, the next economic downturn won't hurt nearly as many businesses--because there won't be nearly as many around."

Wine and the Nominee to the U.S. Supreme Court

Sotomayor How interesting that the Granholm v. Heald Supreme Court decision of 2005 will play a small role in the confirmation process of Justice Sonia Sotomayor to Associate Justice of the Supreme Court.

At this point it appears the decision will play only a small role. But here are the details.

In 2004 Justice Sotomayor was part of a three judge panel of the 2nd Circuit Court of Appeals that found New York's discriminatory posture toward out-of-state wine shippers to be constitutional in the case of Swedenburg v. Kelly. This case was eventually appealed and joined to a similar case out of Michigan and heard before the U.S. Supreme Court. In a 5-4 decision, the Supreme Court overruled the Sotomayor panel stating that New York's form of blatant discrimination against out-of-state wine shippers violated the Commerce Clause of the U.S. Constitution.

Clint Bollock, formerly with the Institute For Justice and who was arguing on behalf of wine lovers in the Swedenburg case, has written an article claiming that though Sotomayor's position on the issue was bad for wine lovers, it is nonetheless and example "of a restrained judicial impulse".

Bollock does not elaborate, but it's notable that this decision will be used in other venues to bolster Justice Sotomayor's credentials as a moderate.

Setting aside the Constitutional issues, it's interesting to note that support for discriminatory policies gives indication of one's "moderate" political tendencies. This sounds right to me. After all, if you look at those characters who, in the past, have lobbied and worked for more free trade in wine, you'll see they were often branded as "radicals" looking to upset a decades old apple cart claimed to have served us just fine.

Constitutionally, Sotomayor's Swedenburg decision can be seen as an example of giving deference to the states over the federal government, federalism over statism. In the ultimate Granholm case, the issue came down to balancing the meaning of the Commerce Clause's requirement that the federal government controls interstate commerce and the 21st Amendment that gave the states the right to regulate the sale and distribution of alcohol. Judge Sotomayor sided with the 21st Amendment and the states.

From where I sit, I'd argue that the Swedenburg case demonstrates, perhaps, an anti-free trade bias on the Justice's part. Her decision in Swedenburg curtailed free trade, helped keep trade barriers in place, and favored a narrow understanding of the Founders desire to see interstate commerce uninterrupted by state-imposed roadblocks.

It will be interesting to see if the Swedenburg case comes up in the confirmation hearings and how it might be used. If nothing else, the nomination of Judge Sonia Sotomayor gives the direct shipping issue a small push into the sunlight again.


An Open Letter to Robert Parker, Jr.

Recently at the eRobertparker forum, Mr. Parker himself suggested that he could have no impact in changing laws concerning consumer access to wine. He wrote: "I would have a better chance of raising the dead from their graves than changing a totally corrupt system where the beer and liquor distributors have their respective politicians right where they want them...in their pockets....and then factor in 50 separate states....yeah....totally disgusting and about as anti-wine consumer as it gets....but let's not ignore history....those with the deepest pockets buy the legislation that protects their interests....always has worked like that...and always will."

I respectively disagree.

----------------------------------------------

Dear Mr. Parker:

Even wine drinkers need heroes.

You, above all, should know this as you are perhaps the greatest hero to wine drinkers for your constant advocacy on their behalf. And for your efforts you have rightfully gained fame and recognition along with the respect and power that comes with dedication to an idea.

But for all the work and effort you've put in to being the eyes, ears and palate of the American wine drinker, let me respectfully suggest that your work is not done.

Even after the narrow victory in 2005 at the Supreme Court in the Granholm v. Heald ruling, many wine drinkers are stymied by onerous conditions placed on their ability to obtain wine. They are limited in the amount of wine they can obtain by direct shipment. Some states place highly restrictive conditions on wineries who want to ship wine to adult wine lovers, making it more profitable to simply not do so. Most states still make it illegal for wine lovers to have wine shipped to them from out-of-state wine retailers, meaning that the vast majority of Austrian, Australian, French, Italian, New Zealand, German and Spanish wines that show up in the pages of the Wine Advocate are impossible to obtain since these wines are not distributed in the states where the wine lovers live and they may not seek them from outside their borders.

The effort to free wine lovers and the wine industry from the grip of ancient and archaic laws that empower and protect only the shrinking wholesaler tier of the industry continues. Free the Grapes remains to fight on behalf of wineries. The California Wine Institute deploys talented lobbyists across the country. Specialty Wine Retailers Association looks to change the landscape for retailer-to-consumer shipping.

But where is the true voice of wine consumers? This is where you come it. This is where you must come in.

In some states, wine lovers have organized. In Michigan "Wine Consumers Across Michigan" fought wholesalers. In Illinois the "Illinois Wine Consumer Coalition" has formed. In your home state of Maryland "Marylanders for Better Beer & Wine Laws" fought the good fight in opening up the state for fair access to wine—and lost.  But these are shoestring organizations that fight for funding and attention. They and wine consumers in every state need a powerful, respected, educated and respected voice to speak on their behalf.

You should be that voice. You, with the recognition, respect and reputation for consumer advocacy that you have earned can do wonders to shine the light on the corrupt system that leaves free trade in wine wanting, punishes consumers for the sake of politicians retaining campaign contributions, and leaves a small shrinking clique of oligarchs controlling which of the now hundreds of thousands of wines Americans may taste and buy.

The power of your voice is needed in the halls of government where positive wine legislation often fails for want of exposure and gravitas among the laws' supporters. Your pen is needed in the editorial pages of the New York Times, Washington Post, Wall Street Journal, Newsweek and Time. Your presence is needed on the sets of "Good Morning America", CNN, FoxNews and the "Daily Show With Jon Stewart". In all these places your voice and your advocacy on behalf of wine lovers is needed to finally draw widespread attention to a corrupt system and frustrated wine lovers and consumers that have been controlled and conspired against.

You, Mr. Parker, can and should be the hero to wine lovers that steps up and changes the debate, that alters the debate, that gives impetus to a new chapter in the slow moving story of wine drinkers rights and the false system that governs those rights.

The vast majority of the wine industry will get behind your effort. More importantly, your effort to raise this issue will inspire wine drinkers across the country to follow your lead, speak out more loudly and work for change. They will follow your lead and commit coin to the effort. They will follow you to rallies and write letters at your urging. It is true that small groups of dedicated people can move mountains. This is how it has always worked and how it will always will work.

It's time for a hero to step up, Mr. Parker. And you are the right person for the job.

Sincerely,

Tom Wark

Paging Mr. Orwell

Georgeorwell Forgive me for being a deconstructionist so early in the day. But sometimes I can't help myself.

At the recent Wine & Spirit Wholesalers Association Annual Convention that organization's leader told the gathering of wholesalers the following:

“Within the industry it is no secret that we are the most vibrant, innovative and consumer friendly – yet responsible and accountable –system of distribution in the world. And now our voice is being heard."

First things first. Wolf was referring to the wholesale tier of the American system of alcohol distribution. This is the sector of the American alcohol distribution system that might otherwise be referred to as "The middlemen". They buy wine from suppliers, mark up the price, and resell it to retailers and restaurants. They used to be darned good brand builders. Today they are darned good truck drivers. They still build brands as long as the brand provides hundreds of thousands of cases.

The other thing to know in order to place Wolf's statement in context is that in nearly every state, wholesalers are not required to demonstrate their value. Rather, their existence between the suppliers and those who sell to consumers is actually mandated by law. Put another way, whether needed or not by the suppliers and retailers/restaurants, they must be paid. Pretty sweet, eh?

On to the deconstruction.

I had to look up the word "Vibrant". I'm almost positive the Mr. Wolf is using this definition: " vigorous; energetic; vital" to describe American wine wholesaling. I have to presume that he is referring to the vibrancy with which the wholesale tier is consolidating and becoming smaller and smaller in number while individual wholesalers are becoming bigger and bigger, controlling more and more of various markets. There is no question that the bigger wholesalers are both energetic and vigorous in the eating of their own.

"Innovation" is a term we most often use to describe the implementation of new ideas and new processes. Can it really be true that wine wholesalers are innovative? Have they designed and implemented a new way to make a left turn with a truck or a new way to back up into a receiving dock? These are the folks who resist innovation in wine distribution at every turn, insisting that the same processes and ideas that were institutionalized in the 1930s not be disturbed in any way. They opposed winery-to-consumer direct shipping. They opposed retailer-to-consumer direct shipping. They oppose self distribution wine by suppliers to retailers and restaurants. They oppose the idea multi-location retailers warehousing their wines in a central location. They oppose wine in grocery stores. These things are innovative. The WSWA opposes them. Maybe Mr. Wolf, when referring to "innovation", is referring to the installation of that little knob on to the steering wheel that allows turning the steering wheel to be done with less effort. I'm not sure.

"Consumer-Friendly" almost always means making the lives of consumers more convenient and giving them a more powerful position in the commercial process. However, I think that Mr. Wolf is suggesting that wholesalers bring to market a large array of products, giving consumers greater choice. And they do bring to market a large array of products. It's just that they oppose consumers having access to products they DON'T choose to bring to market. This anti-consumer disposition on the part of wholesalers wouldn't be such a bad thing if consumers had easy access to the products that wholesalers didn't want to bring to market. But they oppose that—in all their consumer friendliness. It should also be noted that wholesalers have ZERO contact with th consumer. They don't sell anything to consumers. That's the job of producers, retailers and restaurants. The motto of wholesalers, where consumers are  concerned, has always been: "If we don't distribute it, you don't need it." And yet, Mr. Wolf is able to claim that wine wholesalers are "the most consumer-friendly system of distribution in the world." Paging Mr. Orwell!

I recently read that "The only thing more dangerous than an idea is a belief". Does Craig Wolf really BELIEVE that wholesalers are vibrant, innovative and consumer friendly? Did the wholesalers in the room at the WSWA convention really believe this about themselves and their industry? If they do truly believe these things, can we expect the wholesalers to use more of their state-subsidized profits to insure that their brand of vibrancy, innovation and consumer friendliness continues to drag down consumers and the wine industry?

Wine and Money

As a follow up to a post on the total amount of campaign contributions alcohol wholesalers and distributors gave to Illinois State politicians in 2008, below is a list of TOTAL STATE CAMPAIGN CONTRIBUTIONS BY ALCOHOL WHOLESALERS AND DISTRIBUTORS BY STATE.

Factors such as the state of the economy reduced the amount given from the last election cycle. These figures come from www.followthemoney.org. The total is $8,594,204. Sixty-four percent of this total is attributable to contributions in CA, FL, IL, MI and TX alone. These amounts do not include the money wholesalers and distributors spent on lobbying, which amounts to millions more.

AL    35,500
AK    900
AZ    99,358
AR    17,070
CA    1,011,156
CO    6,400
CT    ?
DE    33,050
FL    789,246
GA    381,831
HA    ?
ID    16,800
IL    1,588,484
IN    282,462
IA    84,425
KS    63,749
KY    58,350
LA    5,000
ME    554,805
MD    14,450
MA    86,450
MI    523,073
MN    31,650
MS    ?
MO    56,130
MT    5,450
NE    10,571
NV    130,838
NH    31,000
NJ    388,863
NM    41,151
NY    225,401
NC    147,298
ND    8,840
OH    283,650
OK    9,075
OR    299,983
PA    105,275
RI    32,450
SC    126,675
SD    1,900
TN    291,443
TX    1,557,606
UT    34,150
VT    3,800
VA    ?
WA    107,046
WV    45,300
WI    136,484
WY    ?

Illinois & Wine Politics

I have been for quite some time convinced that the single most important factor in determining whose interests are represented by the Governing Class is campaign contribution. I believe this is the case whether you consider the issue of Gun Control, Taxation, Environmental Policy and, especially, Alcohol regulation.

To that end, I thought it time to use a few posts to shine the light on how campaign contributions by alcohol interests are dispersed in various key states.

In this post we take up the State of Illinois

ILdistributors

WHO GIVES?
The break down of how much campaign contributions were given by sectors of the alcohol industry in Illinois looks like this:

Wholesalers/Distributors     $1,588,484
Beer Producers                   $243,162
Wine & Spirit Producers      $96,958
Liquor Stores                       $17,659

LARGEST SINGLE CONTRIBUTORS
The most prolific contributors to state political campaigns from the Alcohol Industry in Illinois in 2008 included the following:

Associated Beer Distributors of Illinois (wholesalers): $1,164,609
Southern Wine & Spirits (wholesalers): $179,550
Wine & Spirit Distributors of Illinois: (wholesalers): $162,900
Anheuser-Busch (beer producers): $157,912
SABMILLER: (beer producers): $78,250
DIAGEO: (wine & spirit producers): $66,450
Judge & Dolph (wholesalers): $50,500

Illinois represents one of those states where control of the alcohol regulatory structure and process has been completely co-opted by the alcohol wholesalers. As in most states, the Illinois legislature sets policy where alcohol is concerned and the Illinois Liquor Control Commission carries out the will of the legislature. Where alcohol policy is concerned, Illinois alcohol wholesalers control legislative policy.

Consider HB 2462, a bill that would allow Illinois residents to have wine shipped directly to their door from out-of-state wine stores. Illinois residents may have wine shipped to them from in-state wineries, out-of-state wineries and in-state wine stores; but not from out-of-state wine stores. There is literally no sensible argument that can offered to oppose HB 2462 unless hypocrisy is deemed "sensible."

Yet, this bill will not get out of committee this year. After it was introduced it was assigned to the House Businesses & Occupational Licenses Committee. The sponsor of HB 2462 quickly had it pulled from this committee because it became clear that even without any debate, it would fail to be approved by this committee and sent to the floor of the Senate for a full vote by the Illinois House of Representatives.

The only significant opposition to this bill comes from Illinois alcohol wholesalers.

It should not be a surprise that the the Associated Beer Distributors of Illinois is the single largest campaign contributor to members of the House Businesses & Occupational Licenses Committee. Among the other largest campaign contributors to this committee's members are Southern Wine & Spirits and the Wine & Spirit Wholesalers of Illinois.

It has long been known that Illinois is one of the most politically corrupt states in the Union. In this case, that corruption is represented by the fact that a very small industry, controlled largely by two alcohol distributors, has been granted control of the state's alcohol regulatory structure in exchange for campaign contributions. The losers are clearly the citizens of Illinois.

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