CONTEMPLATING THE THREE-TIER
After watching August, Paul and Richard earlier in the day, we dusted ourselves off and managed to grab a seat at the Three Tier Status Report panel at this year’s NABCA conference. Moderated by Rick Garza, deputy administrative director at the Washington State Liquor Control Board, the panel included a wholesaler, a retailer and NABCA representative. The overall message was as you would expect: wholesalers are a good thing, but we need to make some changes.
WHOLESALERS BRING EQUILIBRIUM. The first presenter at the podium was Brad Vassar, executive vp, general manager of Southern Wine & Spirits. You probably won’t believe this, but Brad is for wholesalers. Anyways, he spoke mainly about increasing wholesaler value and the ways in which wholesalers are a necessity.
The main focus for today’s wholesalers, says Brad, should be to ensure there is a place for them in the future. Compared to countries that don’t have a three-tier system, “wholesalers bring the most selection, the best prices and have more freedom in acquiring their products,” he said.
He warned that shipments from tasting rooms have increased $1 billion in sales and that “it will continue to grow.” Wineries are gaining higher margins by selling their brands directly at the full retail price, he said, and have adopted the attitude of, “‘Yeah, I want my consumers to have great access to my products, but on the other hand the money isn’t bad either.’”
“I challenge anyone to say they can distribute a product as efficiently as we [wholesalers] are,” said Brad. “Wholesalers and brokers have brought equilibrium to the business although it can always be better and it will change.”
“Upsetting the three-tier system would upset the existing delicate balance.”
He encouraged wholesalers to continue improving themselves in the eyes of the suppliers and retailers and to provide innovation in local markets. The most critical issue however, is underage drinking – even more than direct shipping litigation, according to Brad.
“We have to invest significantly behind that [underage drinking] because if there is anything that could bring this industry to a lower place, it would be issues with underage drinking.”
During the question and answer portion, someone asked Brad why wholesalers insist chaos would ensue if the three-tier system was brought down. Here is the gist of his reply:
“Smaller suppliers and smaller retailers would be disadvantaged as other retailers get larger. The system in the UK decreases the selection. If you’re going to do direct shipping you need to do it everywhere...on-premise and off-premise, and you’d have a tough time finding a supplier willing to do that.”
NEED TO LOOSEN REGULATIONS. Lucy Daniels, vice president of legal for Logan’s Roadhouse restaurant chain, told the audience that she supports the three-tier system but thinks some tweaking is in order.
“We agree with the three-tier system. We’d like to have a higher level of modernization that wasn’t even comprehended in the 1930’s, and we believe there will always be a three-tier system.”
Drawing back in history, she pointed out that suppliers used to be very abusive to retailers before the three-tier system was created, and that wholesalers were meant to serve as a buffer. However, she thinks modern society has outgrown many of the laws drafted in those days.
She expressed concern about the cost of alcoholic beverages and said the distributor tier can help make things cheaper.
“One of our main concerns is the safe sales of alcohol in restaurants and the business and economic impact...We would like to loosen the regulations so the purchase of these products are treated like our other restaurant purchases.”
JUSTIFY WHAT YOU’RE DOING. James Goldberg, NABCA general counsel started his speech with the following statement:
“We are dealing with a system that was drafted 70 some odd years ago and has had very little change since then... it’s like putting a square peg in a round hole. It just doesn’t fit.”
“If you don’t somehow explain and justify why you’re doing what you’re doing, you’re going to get into a lot of trouble legally.”
He claimed states are still trying to determine whether indirect discrimination is as illegal as direct discrimination in the Granholm case. Simply speaking, direct discrimination is allowing in-state wineries to ship directly to consumers while barring out-of-state wineries from shipping directly. Granholm ended that practice by determining that in-state and out-of-state wineries must be treated the same.
Indirect discrimination has to do with gallonage caps and face-to-face sales requirements. The plaintiffs in many direct shipping cases argue that volume caps and face-to-face sales are just another way to protect in-state wineries without blatantly doing so.
“This litigation is going to be considered in a number of areas...unless the states and the legislature steps back a minute and takes a look at their legislation until they recognize where their discrimination exists.”
WHOLESALERS BRING EQUILIBRIUM. The first presenter at the podium was Brad Vassar, executive vp, general manager of Southern Wine & Spirits. You probably won’t believe this, but Brad is for wholesalers. Anyways, he spoke mainly about increasing wholesaler value and the ways in which wholesalers are a necessity.
The main focus for today’s wholesalers, says Brad, should be to ensure there is a place for them in the future. Compared to countries that don’t have a three-tier system, “wholesalers bring the most selection, the best prices and have more freedom in acquiring their products,” he said.
He warned that shipments from tasting rooms have increased $1 billion in sales and that “it will continue to grow.” Wineries are gaining higher margins by selling their brands directly at the full retail price, he said, and have adopted the attitude of, “‘Yeah, I want my consumers to have great access to my products, but on the other hand the money isn’t bad either.’”
“I challenge anyone to say they can distribute a product as efficiently as we [wholesalers] are,” said Brad. “Wholesalers and brokers have brought equilibrium to the business although it can always be better and it will change.”
“Upsetting the three-tier system would upset the existing delicate balance.”
He encouraged wholesalers to continue improving themselves in the eyes of the suppliers and retailers and to provide innovation in local markets. The most critical issue however, is underage drinking – even more than direct shipping litigation, according to Brad.
“We have to invest significantly behind that [underage drinking] because if there is anything that could bring this industry to a lower place, it would be issues with underage drinking.”
During the question and answer portion, someone asked Brad why wholesalers insist chaos would ensue if the three-tier system was brought down. Here is the gist of his reply:
“Smaller suppliers and smaller retailers would be disadvantaged as other retailers get larger. The system in the UK decreases the selection. If you’re going to do direct shipping you need to do it everywhere...on-premise and off-premise, and you’d have a tough time finding a supplier willing to do that.”
NEED TO LOOSEN REGULATIONS. Lucy Daniels, vice president of legal for Logan’s Roadhouse restaurant chain, told the audience that she supports the three-tier system but thinks some tweaking is in order.
“We agree with the three-tier system. We’d like to have a higher level of modernization that wasn’t even comprehended in the 1930’s, and we believe there will always be a three-tier system.”
Drawing back in history, she pointed out that suppliers used to be very abusive to retailers before the three-tier system was created, and that wholesalers were meant to serve as a buffer. However, she thinks modern society has outgrown many of the laws drafted in those days.
She expressed concern about the cost of alcoholic beverages and said the distributor tier can help make things cheaper.
“One of our main concerns is the safe sales of alcohol in restaurants and the business and economic impact...We would like to loosen the regulations so the purchase of these products are treated like our other restaurant purchases.”
JUSTIFY WHAT YOU’RE DOING. James Goldberg, NABCA general counsel started his speech with the following statement:
“We are dealing with a system that was drafted 70 some odd years ago and has had very little change since then... it’s like putting a square peg in a round hole. It just doesn’t fit.”
“If you don’t somehow explain and justify why you’re doing what you’re doing, you’re going to get into a lot of trouble legally.”
He claimed states are still trying to determine whether indirect discrimination is as illegal as direct discrimination in the Granholm case. Simply speaking, direct discrimination is allowing in-state wineries to ship directly to consumers while barring out-of-state wineries from shipping directly. Granholm ended that practice by determining that in-state and out-of-state wineries must be treated the same.
Indirect discrimination has to do with gallonage caps and face-to-face sales requirements. The plaintiffs in many direct shipping cases argue that volume caps and face-to-face sales are just another way to protect in-state wineries without blatantly doing so.
“This litigation is going to be considered in a number of areas...unless the states and the legislature steps back a minute and takes a look at their legislation until they recognize where their discrimination exists.”
posted at 1:45 PM
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