In 1983, when I acquired Frank Kane’s Weekly Letter, now Kane’s Beverage Week, there were typically 10 wholesalers in any one state distributing alcohol beverages. Typically, those wholesalers did not cover an entire state. In the late 1980s, encouraged by major suppliers seeking efficiencies, wholesalers began consolidating. The result is that today there are two major national distributors — Southern Glazer’s Wine & Spirits and Republic National Distribution Corp. — with operations in nearly every state, The third largest wholesaler, Breakthru Beverage, is in just 13 states.
That’s not a problem, according to Wine & Spirits Wholesalers of America in a filing with Alcohol & Tobacco Tax & Trade Bureau as part of President Biden’s focus on increasing competition in many economic sectors. While ignoring consolidation in the wholesaler tier, the filing makes several valid points.
The three-tier system prevents one tier from having “outsized leverage over another . . . balancing social responsibility with business growth,” WSWA said in its filing, adding the alcohol marketplace is a success story.
“The U.S. sports an unparalleled array of alcohol companies and products. No other country comes close to having the dynamic alcohol marketplace that exists in the U.S. We have more types of products and more brands from more companies—and at more price points—than in any other country, even considering the U.S.’s relative size. There are no
retail alcohol stores in other countries that have the selection that is regularly seen in alcohol retailers across the U.S.,” WSWA says in its filing. It adds:
“Even within the U.S., compared with any other beverage categories such as soda or fruit juice, wine and spirits contain hundreds more companies entering the market each year.”
WSWA’s filing notes that wholesalers “help foster competition in the alcohol marketplace,” providing logistical services that enable wine and spirits producers of all sizes to distribute their products efficiently and more cost effectively beyond their local area.”
The independent distribution tier enables producers to focus on their core competency, making products, WSWA says. “Specialization of labor and the division of labor results in greater efficiency.” Wholesalers “offer a network of retailers in the markets they represent,” the filing says, and this, in turn, enables administrative savings because wholesalers take on inventory from producers and store it in the distributors’ warehouses, which “reduces carrying and transportation costs for producers and retailers alike.”
WSWA acknowledges in its filing that “monopolistic market power in consumer goods industries, such as technology, healthcare, and finance, can be found in market share dominance. This market share dominance may limit access to new participants and may raise long-term consumer protection and pricing concerns.” But, it adds, “some amount of consolidation is a natural business evolution and not de facto anti-competitive. Consolidation creates economies of scale and efficiencies, which can result in overall cost savings.”
Producer DTC sales “are not a panacea and have already created public health and
safety, state tax revenue, and other problems across the country,” WSWA says, adding:
“The reality is that producer DTC privileges, which wineries have enjoyed in many states since the early 2000s, are not a catalyst leading to significant growth of the industry. Wine is losing share to spirits and, even taking into account on-site and DTC sales, wine growth has been flat (+/- 2%) while spirits sales have soared.”
Producer DtC ” solely benefits companies that have the money to compete in a virtual marketplace. Let us not forget, without a strong independent distribution tier, a pay-to-play environment thrives, only benefiting large, well-funded companies.”
“Wine and spirits wholesalers thrive when they sell a variety of brands from a wide range of companies. It is in their commercial interest to constantly look for quality products from new companies at different price points to bring to their retailer customers. U.S. consumers want and expect the value, choice, and variety that the current industry structure provides,” WSWA says.
The filing goes on to provide a robust defense of TTB’s Trade Practice enforcement, asserting that it helps create a level and fair playing field. And it recommends addressing the evolution of retailers who have grown so large that they “can use their market dominance to push industry members to commit trade practice violations with no fear of federal consequences. Therefore, we respectfully suggest Congress consider the inclusion of retailers so they are also accountable to trade practice violations.”
Also, WSWA notes that there has been a blurring of the tiers as both producers and retailers increasingly take on activities traditionally performed by the other. Another issue raised by WSWA is private labels in which “retailers take on the role of a manufacturer directly or indirectly through agreements with producers to develop private-label products they then sell on their own shelves, often under trademarks they control. Retailers use market knowledge they obtain through selling third-party products to determine what private-label offerings they will develop.”
Michelle Korsmo, WSWA’s president/CEO, signed the filing along with the heads of 17 state wholesaler associations.