Editor’s Note: The following is an article by Vizcaya Wine Imports owner Alfred Dauphin. It raises disturbing issues regarding the state of wine and liquor distribution in the United States, and asks whether antitrust laws are being violated and what the consequences will be for the average retailer and consumer when one company monopolizes an industry, or a small group of companies creates a competition-killing oligopoly.
ONE IN A MILLION… I remember this quote from a book I read over forty years ago: “Only one man in a million is not worth knowing, but then he is, because he’s one in a million.” Once in a while you meet a fool, and he is certainly worth knowing, so you can see him coming, and run!
THE SCARE TACTIC – Informed of the judgment of the international experts, Mr. Peter Principle would not budge. We saw, however, signs of tremor when he was told that the samples should go to the owner of this famous chain of stores just for the latter’s information and confirmation. Mr. Principle warned me that his boss would not be happy with me. To which I replied that his boss was neither Pope nor Queen of England. “Off with his head” (mine) was not a likely scenario. And deep down, I wanted his boss to know that he was not suited for that position. A taster he is not.
THE STRATEGY – Can it be that this man has other motives? Can it be that he is competent and playing possum? Might it just be a question of an inability on his part to be plain spoken, and say no, whatever the quality of the product? Is it easier to malign someone else’s product? No, it’s simpler than that: I’m afraid that in too many cases, the people who choose alcoholic beverages for retail stores are not properly trained and competent. A true wine or spirits lover is a dedicated, passionate individual about his craft, one can even say his “art”. Dedication in this business is truly “spiritual” – forgive the pun.
THE CLOSING OF THE MARKET – What is going on with retailers and distributors today? More than any other explanation, it is the inevitable consequence of the archaic liquor laws of the United States.
• We have fifty States each with different liquor laws, different costly licenses, taxes, procedures, eligibility, etc.
• A three-tier system in most of these, where retailers are not allowed to be importers or distributors.
Each “tier” (importer, distributor, retailer) must make a profit. And each government agency – customs, federal, state, and local must get its cut of taxes. The result is product that winds up marked up more than 300% from the production level, when the consumer finally buys it, while at the same time forcing each “tier” to share in a consequently compressed profit margin per tier. Many wind up conducting business on a 10 % net profit margin or less.
WHY SHOULD THESE ARCHAIC LAWS CONTINUE TO EXIST? – When all these factors are put together, what results is an extremely oppressive situation particularly for retailers and smaller importer/distributors. The inherent mechanism of three-tiers and local laws limit the possibilities of growth for most of them. They wind up confined to their respective States and localities, while the big distributors (usually better financed) are able to roam across State lines, and become part of giant oligopolies with 6 and 9 billion dollars in sales for the two biggest. The rest get declining slim pickings.
So, what so some retailers do differently to get out of the rut? They obtain the sizeable financing that give them the ability to establish themselves in several States. This way they can pay for all the different required licenses, hire the staff to keep up with the legal compliance requirements of each State, open up the gigantic liquor and wine stores (a la Home Depot) that allow them to offer thousands of wines, liquors, and beers. AND (very important) allow the longevity and the pricing to blow away the competition of smaller stores. They appear, mom and pop shops disappear. Same story as Home Depot, Walmart, BJs, Amazon, etc. Just a sign of the times, sadly.
CONSUMERS VICTIMIZED? – What are the consequences for the consumer? That is the question that should concern us most, after all. He has to travel further, for one — No more Mom and Pop store around the corner. At first, he rejoices in amazement at the variety of bottles glittering before his eyes at the retailer behemoth. And he walks inside the store, and he walks, and he walks (It’s as big as Texas), and attempts a while to read the labels, eventually has to find somebody to guide him to his favorites… And winds up more often than not steered to a private label usually called a “Winery Direct” or just plain “producer direct,” I suppose, for the spirits. And you are supposed to believe that this qualification automatically insures a better price, or that the retailer has cut to the bone to do you the favor of an otherwise unobtainable bargain.
The big retailer now goes, much more than before, directly to the producer, pays a minimal fee for a captive distributor to clear the product into the US market, and sets a much more profitable margin. Is that a crime? No, it’s self-defense against the big distributors. But that makes it harder for the small retailer and distributor to survive, for they are often prevented by regulators to combine resources.
This practice completely negates the purpose of having a legally-imposed three-tier system set up to prevent inequality of opportunity. Whereas it should at least give small entrepreneurs a chance at a business that government, since Alexander Hamilton, started to consider an indispensable source of taxes to pay for the debt incurred by the Continental Congress. Nowadays, it just continues to fuel government spending. The three-tier system is no longer fair and accessible. It’s gone.
PAYING THE PIPER – The quest for ever higher profit and market conquest viewed as a simple numbers game dictates the hiring of nincompoops like Mr. Peter Principle, doesn’t it? Incompetence does not cost much at first, only in the long run. But in addition to diminished quality, those giant stores cost a lot of to operate, the traffic is not sufficient to cover cost, and many consumers are annoyed at having to organize an expedition in order to take advantage of the selection. The giant store does not create new business, it just gobbles it up at others’ expense. I don’t believe that these race-to-the-bottom outfits can afford the salaries true professionals of high level of expertise would command. So, sling your backpacks, bring a snack, and go with an open mind, but go with caution, because you might find the experience a bit overdone, and stale.
JUDGING FOR ONESELF – THE BEST WAY – See our medals and critiques received from international experts on both sides of the Atlantic. They’re openly displayed on our website – www.vizcayawine.com, and the critiques rendered by the rum experts (full of praise) are all over the internet. We have true rum lovers on our side. Giant liquor stores on the other hand can take a wonderful business model and turn it into a bric-a-brac of private labels with no identity, and therefore no pedigry, no reputation – perhaps good, perhaps not as good as what could be offered.
TO JOIN IN ONE’S OWN DESTRUCTION? – Producers had better beware as well. Who gains recognition in a market of private labels? Obviously the owner of the labels. In this case it’s the giant retail store, whatever it’s forgettable name. So if you are a producer who doesn’t care about his brand, the giant’s maw is your game! The scenario does not allow for sentimental feelings of true professionalism. It’s a matter of profit, not of quality first. It’s a matter of market dominance, not of looking out for the fine wine and spirits lover, it’s a matter of flooding the market with ads and hype about the giant’s prowess. It’s a matter of choking off attempts by producers to share in the bounty. “Whack a mole?” Exactly!
REGULATION, SI, STRANGULATION, NO! – Thank providence for the internet! We’ll see if the likes of these giants can manage to dominate it too. Because there are still quite a few resisting independent retailers out there who offer real quality service to their customers, and are also eager to feature authentic, innovative product. Shop those stores! The giant ones are becoming facades a-la-dollar-store, the wine and spirits business itself – one big oligopoly.
KEEP AMERICA FREE! – A free enterprise system and a free market are not supposed to allow conditions that prevent entry. The regulators are either asleep at the wheel or complicit. So do yourselves a favor, if you care about your freedom and that of the small entrepreneur: ask for Dzama rums every time you go to your retailer, if you are a quality rum lover, if you are a lover of freedom. That would be a worthy contribution to the preservation of free enterprise, and good taste.