While most consumers hurried to finish taxes by the April 15th deadline, something sinister was afoot in the United States House of Representatives. At the behest of the powerful National Beer Wholesalers Association (NBWA), and in response to a recent U.S. Court of Appeals ruling that the state’s cap limit on wineries’ direct shipping to Massachusetts residents is unconstitutional, Representative Bill Delahunt (D-MA) introduced legislation (House Resolution 5034) that rolls back the clock to the days right after Prohibition.
But Mr. Delahunt doesn’t worry about being held accountable for his stupidity; in March he confirmed his retirement from Congress at the end of this term. Just about the time his Congressional subcommittee was having a little “under the radar” tea party kegger hearing with the wholesalers and state regulators.
Talk of a bill first surfaced when a Congressional subcommittee held a hearing with little notice on March 18. During the session, wholesalers and state regulators argued that the three-tier system is under attack and that the U.S. faces “an alcohol epidemic” if Congress does not intervene and prevent deregulation of alcohol sales. The hearing took many in the wine industry by surprise, and no winery-, retailer- or consumer-advocacy groups testified. – Wine Spectator, 4/16/2010
Apart from Influence Peddling, Why is HR 5034 Bad Legislation?
Under the oft-used guise of “protecting our kids” and “putting an end to frivolous lawsuits” the cleverly named “Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010” would allow individual States to control all distribution of alcohol, beer and spirits; exempt sale of such from the Commerce Clause; and allow states to discriminate against out-of-state wineries, in favor of those operations within the State, effectively taking away consumers’ freedom to purchase wines from out-of-state.
State “Control” of Distribution
During Prohibition, distribution and control of alcohol fell to organized crime. if you recall from our “To Hell with States’ Rights” post:
Production, importation and distribution of alcoholic beverages — once legitimate business activities — were taken over by criminal gangs, who fought each other for market control in violent confrontations which often included mass murder. – Another Wine Blog, 2/26/2009
When Prohibition was repealed, and in an effort to break the distribution system that was now Mob-controlled, States set up all sorts of barriers, including residency requirements, that have since been ruled un-Constitutional. States set up regulations for a “three-tier system” with producer, wholesaler/distributor and retailer as different entities, allowing for distribution to be spread out among a number of players so no one group or groups held absolute control. So that’s a good thing, right? State regulatory agencies have set up a system that prevents corruption, right?
Well, in theory, yes. But just as in a number of industries, the control of the entire industry is now in the hands of just a few companies. It’s difficult to determine exactly who is at the top, because at least two of them claim to be the largest distributor in all of the United States. One of them, Southern Wine & Spirits of America, Inc., has reported annual sales in excess of $7 billion, which puts them at over 19% of the total domestic wine and spirits wholesaler revenues. A total of six of the largest distributors control over 50% of the wine and spirits market in the United States.
Let me repeat that. Six (6) companies control distribution of over half the wine and spirits in the entire country. And if such a small number of companies control all that potential State tax revenue, who do you suppose is really in charge? Especially given that most of the heads of these companies sit on the boards of the same PACS and lobbying organizations that line the coffers of the state politicians as well?
Control of Distribution Means Control of Consumer Choices
Ever wonder why you can’t find some of the wines we talk about on Another Wine Blog in your local grocery store, wine shop or beverage retailers? One reason might be that many of our favorite wines are produced in smaller quantities. Just like hand-crafted beer, small boutique wineries focus on small lots which allow for greater control over the fruit that goes into the barrels and the process of making that wine. It’s perhaps like the difference between an album by Leonard Cohen and the Jonas Brothers. Or perhaps the difference between a Robert Mapelthorpe and a Thomas Kinkade.
And that leads us to profit margin. A company can maximize its profits if it can place many bottles of smaller selection of wine. Fewer choices means more people buy what is offered, especially when it comes to a retail store. Those wines they do carry in small quantities usually go to restaurants, who resell that wine to you the customer at three to four times the retail price. So, that good Rhone-style blend you now purchase through your winery for $18 will cost you $45 at the restaurant. And it’s the same exact wine!
Within the coming days, we’ll talk about how this hurts the small businessman; and exempts this one powerful cartel from the Constitutional provision that governs every other product shipped via interstate commerce. You can read the current text of the bill here. If you’re on Facebook, you can join the fight here at STOP H.R. 5034.
But if you’ve read enough and want to do something now, contact your congressional representative to insist he or she protects your right to purchase wine! Go to FreeTheGrapes.org to learn more. Or use this handy FreeTheGrapes.org site to automatically generate a letter to send to your U.S. Congressional Representatives in both the House and the Senate.