SWRA Releases Eye-Opening Report on Wholesalers’ Political Influence

Posted by | Posted in Wine Politics | Posted on 07-12-2011

Today, the Specialty Wine Retailers Association released an eye-opening report – “Toward Liquor Domination” — on the political spending of alcohol wholesalers.

The numbers are shocking. Since 2006, wholesalers have spent more than $82 million on state and federal campaign contributions and lobbying, dwarfing what’s spent by the rest of liquor industry. Among the report’s findings:

– Over the past three election cycles, wholesalers have spent more than $15.4 million dollars on contributions to federal campaigns.
– At the state level, wholesalers have contributed more than $58 million to political campaigns over the past three election cycles.
– At both the state and federal level, the wholesaling industry has spent roughly twice as much on political campaigns as the rest of the alcohol industry, combined.

All this spending makes sense, as the industry’s existence — which is a relic of Prohibition — depends on political support.

When Prohibition was repealed in 1933, states were given the power to regulate booze within their borders. While some states (like Pennsylvania) decided to take over the sale and distribution of liquor completely, most created a “wholesale tier” to sit between producers and consumers.

At the time, the push for both models was understandable. Before prohibition, many bars were owned by brewers or distillers. The prohibitionists blamed these “tied houses” for all the ills associated with drunkenness. And during prohibition, a good chunk of the nation’s booze was controlled by the mafia. So retailers and temperance activists together pushed for a separation between producers and consumers.

Of course, the state-created middle tier — an artificial middleman — quickly became enormous. As SWRA’s new report states, “In 2009, Forbes Magazine estimated that the top five wine and spirit wholesalers produced $22.65 billion in revenue.”

The wholesalers undoubtedly recognize that without a regulatory structure that literally mandates its presence, many beer and wine producers would cut out the middleman and sell their wares directly to retailers — just like Coca-Cola and Pepsi. So it purchases influence and access to make sure producers remain legally obligated to use the wholesale tier.

But beyond protecting this legal requirement, as the SWRA’s new report makes clear, wholesalers have “been very effective in gaining political sup­port for a number of other protectionist measures.”

These include, as the report details, 1) Bans on Central Warehousing, which prohibit retail stores with multiple outlets from stocking their stores from one central  warehouse; 2) Bans on Self Distribution, which prohibit local producers from selling and delivering their products to retailers and restau­rants — even if those retailers and restaurants are literally down the street; 3) Franchise Laws, which prohibit alcohol producers from firing their wholesaler and hiring a new one; 4) Producer-to-Consumer Direct Shipping Bans, which prevent consumers from ordering wine directly from producers, for personal consumption; 5) Retailer-to-Consumer Direct Shipping Bans, which prohibit consumers from ordering booze from out-of-state retail shops;  6) Primary Source Laws, which prohibit retailers from purchasing wine from any agent accept a wholesaler. (In practice, these laws prohibit restaurants from purchasing wine from collectors, wine shops, auction houses, etc.)

Laws like these — which are really just a handful of the pernicious policies promoted by wholesalers — put the lie to wholesalers’ constant claim that their industry exists to promote temperance and simplify tax collection.

The wholesale industry, like every industry, is interested in maximizing and protecting its profits. There’s one huge difference, though: The wholesale industry simply wouldn’t exist (or, at the least, would be very different) if it weren’t for politicians.

So how do we, as wine consumers, challenge the influence of wholesalers?

It isn’t through stricter campaign finance laws. (In fact, the one part of the SWRA’s new report I take issue with is where laments that “there appears little chance that the American political system will reform its campaign financing laws” and criticizes “recent Supreme Court decisions.”)

Businesses are affected by political actions. And businesses — correctly — have profits to protect. That’s why most industries are happy to rent seek, manipulating the legislative process to quash competition.

With so much money at stake, money will always find a way into the process as businesses attempt to influence lawmakers. If not through direct contributions, then through lobbying. If not through lobbying, then through advertising, massive PR campaigns, and well-funded advocacy groups.

As one of my favorite economists, George Mason University’s Don Boudreaux, once stated, “The only way to free politics from the influence of money is to free our money from the influence of politics.”

In other words, it’s up to us — wine consumers — to take offense to politicians’ insistence that they have the right to tell us how to spend our money.

If I own a small craft brewery in Wisconsin, why can’t I sell my products directly to local restaurants? If I own a small Pinot Noir house in Sonoma, why can’t I ship my wares to consumers in Massachusetts? If I own a boutique wine shop in New York, why can’t I sell booze to Maryland’s oenophiles?

Laws that prevent such basic freedom and commerce are absurd. They’re anti-consumer, anti-choice, and simply un-American.

It is valid, of course, to lament the fact that wholesalers — like most industries — are more organized than regular consumers. It’d be very difficult for wine consumers to dedicate $82 million dollars to campaign contributions and lobbying. And money does, undeniably, buy access. Wholesalers can organize fundraisers, solicit contributions from other affected parties, and make it a point to interact with elected officials as often as possible.

But consumers do have money. And we’d stand to save quite a bit of it if wholesalers were weakened. It is estimated that because of wholesalers, consumers pay 18 percent to 25 percent more at retail than they otherwise would. And we can vote, challenge laws in court, and organize. Put another way, wine consumers desperately need the American Wine Consumer Coalition to become successful.

If you’ve made it this far, I urge you to read “Toward Liquor Domination.” Kudos to Tom Wark for putting together such a great study.

And remember: Wine consumers deserve a free market in wine, one in which any adult can purchase wine from wherever he or she wants.

Comments (4)

  1. David,

    Good post. We really noticed the consumers taking notice of things when the CARE Act was first introduced last year. I think they might have been taken for granted in the past and that bill really awakened a sleeping giant.

    Michael Kaiser

  2. Yes, what Michael Kaiser said.

  3. […] 0 commentsin Nanny State,Personal Liberty Tweet Terroirist blogger David White has posted a good commentary on the Specialty Wine Retailers Association report on alcohol wholesaler spending: “Toward […]

  4. […] blogger David White has posted a good commentary on the Specialty Wine Retailers Association report on alcohol wholesaler spending: “Toward Liquor […]