Small wine, beer, spirits producers seek freedom to bypass wholesalers
If all goes according to plan, Scott Hanson and his family will open their distillery to the public next month in Carneros, where customers will be able to sample his award-winning vodka made with organic grapes.
Hanson said he is eager to showcase his Hanson of Sonoma brand in the new facility just off Highway 12, hoping to capitalize on all the tourists and wine enthusiasts who travel the road and are looking to take home something besides another bottle of cabernet.
But all he will be able to offer them is a tasting, and even those are capped by California law at six per customer and only a quarter-ounce per sample.
To add insult to injury, his customers will be able to walk nearby at the complex to buy beer and growlers at Carneros Brewing Co. and stroll to the Ceja Vineyards and buy its red blend or pinot noir.
And if Hanson or his staff were to instruct customers on where to buy his vodka, they would have to direct them to two or more unaffiliated retailers, according to beverage law attorney John Hinman. The requirement stems from so-called “tied house” laws implemented after Prohibition to cut down on the rampant bribery and predatory business practices by major producers at the time.
“It’s truly a disadvantage,” said Hanson, who got into the business at the urging of his two sons, Chris and Brandon, with the notion that selling grape-based vodka in Wine Country could be a hit, especially as the custom spirits business made major inroads in the $23 billion U.S. industry.
“As a small brand building your brand and business, you would like to have a customer be able to take a bottle home and give it to their neighbor,” Hanson said. “You want to have them talk about it and say, ‘I just discovered this brand,’ and share it with people.”
Hanson and his approximately 70 fellow California distillers may have some relief soon as Assemblyman Marc Levine, D-San Rafael, has introduced a bill that would allow them to sell up to three distilled spirits per person per day at their facilities.
But Levine’s bill faces the politically powerful wholesale industry. While not as well-known as some lobbying groups, alcohol wholesalers carry great sway in the legislative rooms of Sacramento with their high-powered lobbyists and political donations.
“It will be very interesting to see how the wholesalers react,” said Tom Wark, a wine industry communications consultant who has battled against distributors. “These wholesalers make political arguments that are as disingenuous as they come.”
Their money, however, has helped create support in the political arena. From 2010 to 2014, the alcohol beverage industry provided $3.9 million in donations to California political parties and politicians running for the state Legislature, according to the National Institute of Money In State Politics. The three biggest givers during that time frame were distributors: the California Beer and Beverage Distributors, a trade group, provided $1.4 million; Southern Wine and Spirits gave $1 million; and Tustin-based Young’s Market Co. spent $738,000.
Wholesale industry officials did not comment for this story prior to deadline, despite repeated attempts.
Not an attack on three-tier system
In an interview, Levine stressed that his bill was not an attack on the three-tier system - the vertical supply chain of independent producers, distributors and retailers - that states developed in the aftermath of the 21st Amendment in an effort to crack down on the abuses of the early 20th century.
He contends his bill is a minor tweak to the law, one that makes little sense to oppose in light of the growing popularity of the farm-to-table food movement and the economic strength of the craft beer movement.
“The three-tier system works effectively, but my legislation ensures that it is not so rigid that it could break or be attacked,” said Levine, who has so far received $17,122 from the alcohol industry in political contributions, including $7,500 from wholesalers.
The industry has not taken a public stance on the bill. Beer, wine and spirits wholesalers essentially contend the system that transported $189 billion in products in 2011 is not broken, so it doesn’t need to be revamped. Furthermore, they argue that excessive tampering could revert back to monopolies and corrupt sales techniques that plagued the country before Prohibition. Instead, they proclaim they’re the honest broker because they serve both producers and retailers, driving competition and consumer choice.
The wholesalers’ argument has gotten much tougher in the era of the sharing economy, where disruptive technologies have transformed industries from taxis to music to newspapers. In addition, consumers have gotten much more savvy over how much a bottle of wine costs through websites such as wine-searcher.com and where to learn about different craft beers at sites such as BeerAdvocate and RateBeer. One new smartphone app, Drizly, allows home delivery of booze from a retailer in selected cities; the company notes it is not part of the three-tier system, though it is “bringing value to each tier.”
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