Retailers Hit Back at Wine Distributors
When Tom Wark of the National Association of Wine Retailers (NAWR) read this week's interview with Dawson Hobbs of the Wine and Spirit Wholesalers of America, he was spurred to write a rebuttal on his blog. We reprint that rebuttal below.
"I am always surprised when individual wholesalers or their main trade and lobbying group, the Washington DC-based WSWA fails to chime in on key issues." – Liza Zimmerman, correspondent for Wine-Searcher.
I'm not. After all, when forced to respond to key issues to the wine and spirits industry, wholesalers are forced into a terrible situation – they either must tell the truth of their protectionist ideology (which never goes over well) or lie. That's not a good choice to be forced to make.
I have a feeling Liza may have a better understanding of why the WSWA usually fails to respond to the media after her interview with Dawson Hobbs, the WSWA's senior vice president of government affairs.
I don't know Dawson Hobbs. He seem like a nice, good old boy. But he's a wholesaler lifer, having worked in WSWA's government affairs department for over a decade (before that, the NRA). In his interview with Liza, he chose not to take the path of answering questions based on the wholesalers' protectionist ideology. He takes another path.
Consider the following from Liza's interview with Hobbs:
HOBBS: "Some types of changes in technology and consumer demands have raised issues that didn't exist when we were founded ... WSWA members are adapting to the marketplace with three-tier compliant innovations such as our member LibDib."
LibDib (Liberation Distribution) is a new wholesale company that offers producers' beers, wines and spirits on a virtual platform and has attracted producers who could not find distribution via WSWA's members. In fact, LibDib was founded by a former wine producer who was fed up with the inability and disinterest of the state-mandated wholesale tier in various states to represent her brand. So she went around them and started her own wholesale company. In other words, LibDib is a direct response to the incompetence of Dawson Hobb's members. It is not an example of WSWA members adapting to a changing marketplace. Hobbs knows this.
HOBBS: "It is likely that without the current regulatory structure the US alcohol market would lose some of its innovation. Preventing vertical monopolies gives small and new brands a chance to get on retail shelves."
Every single innovation in the American wine and spirits marketplace has been due to the inability of the state-mandated wholesale tier being unable to respond to changes in the marketplace. Directs sales and shipping? Producers can't get represented by wholesalers who don't want to represent small producers. Virtual wholesaler like LibDib? Producers can't get distribution by traditional wholesalers. Drizly? Consumers want convenience and wholesalers have no way of providing convenience to consumers. Hobbs knows this.
HOBBS: "The average wholesaler warehouse includes anywhere from 7000 to 15,000 different SKUs. Retailers carry exponentially a greater number of brands because they are served by all wholesalers."
Retailers carry exponentially more brands today because consumers demand access to a diversity of products, and retailers carry a more diverse collection of brands in spite of wholesalers. Wholesalers have absolutely nothing to do with the increase in products in the market over the past two decades. Hobbs knows this.
HOBBS: "Study after study has confirmed that removing the wholesaler tier would increase costs for suppliers by charging them for the sales, marketing, collection, delivery and distribution costs. It would also increase costs for retailers who would face a barrage of sales people from hundreds or thousands of companies."
No one has ever suggested that the wholesale tier ought to be "removed". This is a red herring. What people have suggested is that producers using wholesalers to get product to retail and retailers using wholesalers to obtain their inventory not be mandated by law. Hobbs knows this.
HOBBS: "Many states allow this type of 'self-distribution' by supplier, the vast majority of whom recognize that once they reach a certain volume they can't handle any more business above that level and they then need a wholesaler partner to enable them to continue to grow."
Didn't Hobbs claim that studies show not using a wholesaler would increase costs for suppliers? Now he's admitting that in some states producers who don't use wholesalers do just fine up to a point. Hobbs knows this.
HOBBS: "Winery-to-consumer shipping laws were designed to give consumers access to products from small wineries that weren't available nationwide because of their limited production. Retailers shipping products from state to state doesn't serve this same goal."
Retailers shipping interstate serves exactly this same purpose. Consumers buy from out-of-state retailers because wines produced in limited amounts can't be found locally. Hobbs knows this.
HOBBS: "If a product is produced widely enough to be available at retail then a consumer can likely find it at a local retailer."
The vast majority of wine products available in the United States are not available in every market, despite being distributed in a limited number of markets. In fact, all the wholesalers in any given state combined only carry a small minority of products available in the US. Hobbs knows this.
HOBBS: "Allowing widespread, interstate retailer shipping would allow retailers in areas with low storage and labor costs to undercut the prices of retailers in higher-cost areas."
Not if you add in the cost of shipping wine across the country. Hobbs knows this.
HOBBS: "There are significantly more retailers than wineries in the country and no state has the enforcement capability to audit that many retailers to ensure that taxes have been paid and that the product has traveled through the appropriate supply chain prior to arriving to the consumers."
Ninety-nine percent of American wine retailers don't ship wine interstate. This is why, in every state where both out-of-state wineries and retailers are allowed to ship in to consumers, it is wineries that hold the vast majority of wine shipping permits – because nearly 100 percent of wineries in the country ship interstate. Hobbs knows this.
The very first rule – the one that is inviolable – when talking to the media is a simple and clear one: Don't make false claims. The reasons for this rule are obvious and important. Your lies will be uncovered. When your lies are uncovered, people stop trusting you. When you lose the trust of others, you become a liability. On top of all this, lying is immoral.
Liza's effort to get the Wine & Spirit Wholesalers to tell the truth is laudable. Wholesalers remain an important part of the wine and spirits industry, and play a key role as movers of boxes. Yet as she wrote up Dawson Hobbs' answers to her questions, I have to believe she developed a better understanding of why wholesalers don't often chime in on issues of the day. When they do, they end up sounding like Dawson Hobbs. They end up spouting nonsense and lies. They end up getting fact checked and looking very bad.
What's really important to know, however, is that all these consequences appear to be a better option to wholesalers than telling the truth about why they do what they do; everything wholesalers do, propose and support is meant to support a state-mandated system that relies on anti-competitive rent seeking, allows wholesalers to continue to be the laziest sector of the wine and spirits industry, and by design is anti-consumer.
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