The Debate is Over Says the Wine and Spirits Wholesalers
New Study Reveals Critical Role Wholesalers Play in Distribution of America’s Wine and Spirits
A newly released study concludes that bypassing or eliminating traditional beverage-alcohol wholesalers is likely to negatively impact alcohol suppliers, local retail businesses and consumers, and possibly collapse a highly successful system.
Dispelling the Myths of the Three-Tier Distribution System is the most comprehensive analysis conducted on the current economics of the three-tier distribution system and the potential effects of allowing large chain stores to bypass that system.
Written by David S. Sibley, renowned economics professor at the University of Texas at Austin, the study provides in-depth economic analysis of the three-tier system with emphasis on the least-understood tier—the wholesale tier. A key finding is that wholesalers contribute to a competitive, innovative and thriving market by promoting and marketing the brands they sell and by educating retailers and consumers on those products.
“The verdict is in and these findings prove that the wholesaler is the critical link in the distribution chain, and without wholesalers, the entire system would break down. There is no doubt that the sustainability of this system is critical to everyone—suppliers, retailers and consumers,” said Wine & Spirits Wholesalers of America President and CEO Craig Wolf. “The report also exposes fallacies perpetuated by a 2003 Federal Trade Commission (FTC) study and gives us the ammunition to end the debate about the value of the wholesaler in today’s marketplace,” Wolf added.
The Federal Trade Commission report Possible Anticompetitive Barriers to E-Commerce: Wine questioned the need for a middle tier in an e-commerce world. “Sibley’s findings underscore the fact that the FTC report contains unsubstantiated assertions that aren’t holding up in court,” Wolf pointed out, referencing the recent 7th Circuit decision in Baude v. Heath.
What’s more, the Sibley study details how wholesalers of wine and spirits help create the vibrant regulated marketplace that exists today by significantly contributing to the economy through jobs, stimulating local economies and providing essential tax revenue at the federal, state and local levels.
The nation’s wine and spirits wholesalers provide good jobs with great benefits to about 88,500 people, paying $3.7 billion in wages annually. This middle-tier generates an additional $6 billion in economic activity, which does not even include the nearly $5.5 billion in federal and $2.7 billion in state and local excise taxes on the products that are distributed by the nation’s wine and spirits wholesalers.
In the study, producers, wholesalers and retailers were interviewed in order to shed light on the indispensible role of the middle-tier in building brand equity and promoting and marketing the wide array of products available to the consumer today. Bacardi U.S.A. President and CEO John Esposito views the wholesaler as an integral part of the execution of their national marketing strategy. Reinforcing Esposito’s position, Buffalo Trace Distillery President and CEO Mark Brown indicated in the report that they rely on wholesalers to perform the lion’s share of their marketing and promotion.
The study also documents how wholesalers support state regulators in their oversight of the alcoholic-beverage market and manage the competing needs of producers and retailers. Producers must ship a large quantity of products to hundreds of thousands of bars, restaurants, hotels and package goods store nationwide. Retailers require frequent deliveries of a wide variety of products to meet consumer demand.
By consolidating the distribution process, wholesalers create efficiencies and cost savings in the delivery process that could never be matched by individual suppliers and retailers. “As the report articulates, the sale of wine and spirits from the supplier directly to the retailer would significantly alter the economies of scale and the scope of the current safe and efficient distribution system,” said Wolf. “Costs would increase for all participants currently doing business in the three-tier system and consumers would suffer as a result of fewer product choices and less convenience.”
The study also notes that the three-tier system provides many end-user benefits that consumers in most countries do not enjoy, including: tremendous choice among various alcohol segments; wide product variety at reasonable prices; new products designed to satisfy changing consumer preferences; and exceptional product safety due to the regulated and efficient supply chain.
“People abroad are dying from tainted alcohol. And in this U.S., we’re no longer guaranteed product safety when it comes to many foods and the toys we buy for our children But because of the three-tier system, wholesalers have helped ensure the safety of alcoholic beverages for consumers for 75 years,” said Wolf.
The Wine & Spirits Wholesalers of America (WSWA) is the national trade organization representing the wholesale tier of the wine and spirits industry. It is dedicated to advancing the interests and independence of wholesale distributors and/or brokers of wine and/or spirits.