The Real Bottle Shock: A Monopoly is Trying to Control Your Wine Cellar
Written By: Mark Shay on Fri, Sep 26th 2008
Since 1931, when the 21st Amendment reintroduced alcohol to the United States, the wine market has operated in a somewhat balanced three-tiered system where producers are required to use licensed distributors to bring their product to retailers. Under strict regulation, modest competition has managed to occur. Unfortunately, legislators in 1931 could hardly have predicted the scope of modern consumerism.
These days, interstate commerce is common. Shopping malls draw many out-of-state consumers, and catalog/mail orders have flourished with the advent of credit cards, home delivery, and the Internet. For Wine, the marketplace has become increasingly vibrant with the number of wine consumers now exceeding 39 million, domestically. Over 5,400 wineries exist in 50 states and 300 new ones start each year. Consumers' thirst for variety and adventure has made the American wine market one of the most active in the world. The US now ranks as the world's 4th largest producer of wine and will soon be the world's largest consumer. Wine sales in the USA are $30 billion per year.
Retail has remained vibrant as well. Wineries have built a bumper business through their tasting rooms and wine clubs, and, partially due to the 2005 Supreme Court case called Granholm vs. Heald, are able to ship their product directly to consumers in 45 US states. An estimated $2.8 billion in wine sales is direct to consumer through wineries. Boutique wine stores flourish with unique collections of these artisan wines, and rare wines are all the rage in the nation's leading restaurants.
But underneath these apparent good times lies a developing monopoly in distribution that threatens the free market we covet. Over the past few years a rapid consolidation is occurring in the highly regulated liquor distribution industry. States decide, through licensing, who can deliver alcohol to retailers. Increasingly, one company - Southern Wine and Spirits - is controlling these licenses.
Through crafty partnerships and collaborations (http://biz.yahoo.com/iw/080812/0424406.html), Southern is building a monopoly - one that is backed by government regulation. In a number of states, wine retailers must get inventory from distributors. If the distributor elects not to carry a product, prices it out of range, or demands an excessively large quantity be purchased, the retailer and ultimately the consumer suffer. In a free market economy we would expect a market response, such as Internet sales from someone like Amazon.com, but Southern is petitioning states to increase regulation on online sales and shipping. These big distributors lobbied states to the tune of $50 million last year, attempting to squash a consumer driven market. The 2005 law is slowly loosing its impact as state after state apply new rules, licensing and nuisance fees that in essence restrict trade for small wineries and specialty merchants.
If you are a fan of wine and enjoy the variety of America's growing craftsmanship, then take a stand. Support the work of the SWRA's "Wine without Borders" (http://www.specialtywineretailers.org/blog/) and the "Free the Grapes" (http://www.freethegrapes.org/) campaign. It would be a shame to have onerous regulations, manipulated by a monopoly, cripple the rise of the American wine industry.
Mark Shay is the founder and CEO of ClassicWines.com, a Chester, PA based online home to people passionate about wine.
