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Why are the most ardent defenders of a free market so dead-set against DTC?



Republicans and Democrats alike take campaign contributions from liquor wholesalers, as you can see from this data compiled by The Center for Responsive Politics, but perhaps the poster child for alcohol distribution companies is the Republican Senator from Texas, John Cornyn, who heads CRP’s list.

Our system of wholesalers and distributors is, of course, an anachronistic relic of the Repeal of Prohibition. As Tom Wark cogently pointed out last week in his blog, the original reasons for creating this “third leg” between producers and buyers might have seemed logical in the 1930s, but today, the system has become a “self-serving…monopoly” that “provide[s] the means for wholesaler coercion of producers and retailers.” The effect of this, as we all know, is that smaller wineries too often find themselves shut out of distribution channels, forcing them to try to sell their products directly to stores, restaurants and individuals. DTC is in fact the Holy Grail for wineries for the simple fact that the three-tiered system so ignobly makes fair distribution impossible. Wineries, especially small family ones, find themselves thwarted at every turn by a wholesaler industry that desperately wants to keep its monopoly intact.

Now, Cornyn is the senior senator from a state, Texas, which is one of a handful of American States, all of them in the so-called Bible Belt, that still has “dry” counties—those in which the sale of alcoholic beverages is illegal. This is a dreary leftover of the “temperance” movement in America, a religious-based crusade that began quite early in our country’s history, picked up steam throughout the nineteenth century, and finally resulted in the calamity of Prohibition, which, for fourteen years (1920-1033) made the sale and distribution of alcoholic beverages, including wine, illegal, except in the rarest of circumstances.

What people should understand about Cornyn, who also is against almost any form of gun control including background checks, is that politicians like him are the reason why liquor wholesalers continue to hold so much power over what the American people can and cannot drink. When Tom Wark says today’s lawmakers tend to support this wholesaler manipulation and control of the alcohol beverage marketplace,” he must have had John Cornyn in mind.

Politicians often claim that their votes can’t be bought even if somebody contributes a lot of money to their campaigns. (I know, I know, Hillary says the same thing about her Wall Street donations.) But an analysis of where Cornyn gets his money shows an outsized presence of liquor distributors, almost all of them based in Texas. When Dallas-based Andrews Distributing, one of Texas’s biggest beer wholesalers, contributed to Cornyn, what did they get for it? How about Texas City-based Del Papa Distributing, or Corpus Christi-based L&f Distributing, or Amarillo-based Budweiser Distributing? The list goes on and on.

Why would any reasonable person be against direct sales from small family wineries to whomever wants to buy their wines (as long as they’re of legal drinking age)? Tom Wark points out the many reasons why the three-tiered system is antiquated. But it’s more than that: it’s also anti-democratic (with a small “d”) and thus anti-American. It’s ironic that people who argue with such passionate conviction about the virtues of a free market should side with one of the nation’s most monopolistic trusts, the liquor wholesalers. “Let the free market work,” Cornyn endlessly yammers—and yet, when it comes to putting his money (or rather, the distributors’ money) where his mouth is, Cornyn is conspicuously silent, a lacuna that helps to crush the very free market he praises.

The ironies pile up. A fund-raising company called the Aristeia Group held a “wine tasting reception” for Cornyn that asked for a minimum contribution of $1,000 for PACs and $250 for individuals. What is Aristeia Group? Well, in a single year, 2014, they gave more than $281,000 to “Texans for Senator John Cornyn,” but they also gave large amounts of money to the Rand Paul Victory Committee and the Alamo PAC, whose Federal Election Commission statement lists only a single individual “Leadership PAC Sponsor,” John Cornyn. And where does Alamo PAC get all this money to donate to its favorite politician? From the interests and lobbyists who attend the many BBQs, breakfasts and “dove hunts” they sponsor, every one of which lists as its sole beneficiary “John Cornyn.” Your cost of admission: at least $1,000 per event. A sweetheart deal, and we can only guess at the things Cornyn is forced to do for his benefactors.

Well, the tight little circle of PACs, campaign contributions and lobbying isn’t limited to any one political party, like I said, but a peek behind the murky scenes into the Cornyn-Aristeia-Alamo PAC-beer distributors cabal should be enough to make even die-hard free marketeers bewail the extent to which the true “free market” has been demolished, in the alcohol distribution industry and no doubt in others. Returning to a truly free market of wine distribution should be a non-partisan no-brainer, but for some reason, we’re not seeing it, and I wonder if we ever will, as long as some of these politicians are drinking off the teat of distributors.

  1. “Our system of wholesalers and distributors is, of course, an anachronistic relic of the Repeal of Prohibition. … The effect of this, as we all know, is that smaller wineries too often find themselves shut out of distribution channels, forcing them to try to sell their products directly to stores, restaurants and individuals. DTC is in fact the Holy Grail for wineries for the simple fact that the three-tiered system so ignobly makes fair distribution impossible. Wineries, especially small family ones, find themselves thwarted at every turn by a wholesaler industry that desperately wants to keep its monopoly intact.”

    As Wine Spectator pointed out:

    ““West Coast Wineries Are Up for Sale — Quietly”

    (Summary: A wave of recent deals show investors see opportunities in wine, while owners see an exit strategy.)


    SELECTIVE EXCERPTS: “… While small wineries can succeed by selling most of their inventory direct to consumers and large producers have muscle with wholesalers, those in the middle — annual production of 5,000 to 15,000 cases, for example — can’t get much attention from distributors unless the brand is hot.”

    On a weekly or biweekly basis, sales reps for distributors schlep a chill bag of wines to present to wine merchants and restaurateurs.

    Those chill bag wines comprise a single digit number of new releases from existing wineries, and wines from newly represented wineries entering the distributor’s “portfolio” (a.k.a. “book”).

    They are not the “best” wines, simply the wines being promoted that calendar month. (Wines that sales reps have a quota to sell.)

    Sales reps don’t have the time to present every winery in their book.

    For a wider and deeper sampling, wine merchants and restaurateurs need to demonstrate some initiative and attend the quarterly or semi-annual portfolio tastings hosted by the distributor – when hundreds of wines and beers and spirits can be sampled on a single calendar afternoon (typically in the ballroom of a large hotel in town).

    Here in Los Angeles, wine merchants and restaurateurs are notorious for not attending trade tastings. They prefer/insist that the reps come to them.

    Consequently, “our fair city” is repeatedly bypassed by wine industry trade associations for presentations in San Francisco.

    A small winery being the 40th or 50th Chardonnay in a distributor’s book does them little good. The odds of a sales rep presenting it to a wine merchant or restaurateur for sampling in any calendar month is vanishingly small.

  2. It’s sad that you are slowly politicizing this blog. I have no issue with you attacking the anachronistic “Third Leg”, but singling out John Cornyn (R) (and bringing up a totally unrelated issue – gun control), while leaving the rather slimy Chuck Schumer (D)untouched shows bias.

    Isn’t that what facebook is for?

  3. Bill,
    I was hoping Steve would have compared all 535 federal lawmakers and all state lawmakers.

    But, well, you know…

  4. So Bill, do tell, what has Schumer done to the wine industry?

  5. Texas allows DTC in any area that it is legal to sell wine. I live there and have lots of wine delivered to me. What influence does a U.S. Senator have on state liquor laws? And if the distributors have so much influence, why are there still dry counties? Your criticism of Cornyn doesn’t make sense.

  6. Bob Henry says:


    They say in baseball that you can’t tell the players without a score card.

    Conducting a quick Google search, would you be:

    (1) ‎Owner/Operator at Creston Valley Winecrafters (Creston, British Columbia, Canada)?


    — OR —

    (2) a [former] UC Davis graduate student who studied malting and brewing, and chastised the institution for its “modest facilities”?

    Source: “Institute of Wine Granted [$35 Million] Funding [By Robert Mondavi],” Lodi News-Sentinel, November 14, 2001, Page 10?


  7. Justin McInerny says:

    Prohibition was a far cry from being simply a “religious based crusade”. Prohibition had exceedingly broad based support among many divergent groups. Its early proponents included feminists such as Susan B. Anthony because alcohol abuse resulted in domestic violence and lost wages, Klansmen because immigrants and minorities supposedly liked to get drunk and cause problems, doctors because alcohol abuse caused health problems, industrialists such as Henry Ford because alcohol abuse decreased production and increased on the job injuries, many Christians were opposed to alcohol on religious grounds. Nor was prohibition necessarily rooted in the Bible belt, the first state to enact statewide prohibition was Maine in 1848.

  8. I could not help but giggle when I misread “The cronies pile up”…..

  9. Ron Marsilio says:

    I find it curious that you accuse distributors of monopoly, when the very creation of the Three Tier System was to prevent monopolistic tendencies that had existed prior to Prohibition.

    Seems that you are just transferring the egregious practices of the “middle man” back to the producers. At least with distributors, the consumer has access to a variety of products.

  10. Steve is trying his best to point out Republicans (Rand Paul included) for getting paid. Steve, can you please point out to us just how California Senators are helping small family owned wineries and grape growers in California? Since wine industry is such a big chunk of the state’s numbers. Just how and when did California Senators help small guys including grape growers who had their water cut off? Who was actually leading that effort, see any Rs next to their names? And the problem is only getting worse last time I checked (an hour ago).

    Why is Texas so relevant to you all of a sudden when HUGE problem is right here right under your nose?

    Some attorney hack in IL has been suing small wineries left and right on some fake pretense for a few years now, WAY worse for small guys than what Cornyn is doing in Texas, and yet not a word from you. At least Cornyn’s actions do not force small guys to spend large sums on legal fees defending themselves against frivolous lawsuits and Cornyn’s actions do not stop small guys selling direct. How do you think IL votes, historically?

    And, oh, BTW Steve, can you please tell us how Texas wine industry is THRIVING right now if Cornyn, by your logic, has so restricted the business? Texas wine industry is doing GREAT by ALL accounts, grape growers do not complain about lack of water and more wineries are opening with extremely few reports of failures. Texas restaurants PROUDLY feature and ADVERTISE they carry Texas made wines, unlike most in California with so called wine experts (read: somms) insisting that California grown meats and veggies no way no how can be matched up with California made wines. There is a HUGE story right in front of you you guys in press refuse to touch. I’ve been looking at Texas for the past few years now, the only shame is that Pinot Noir is not for the climate.

    But for a small family owned winery in Texas its just logistics, not that much different than selling in California. When in California one may need to have a rep in NorCal, one in LA area and one each in Central Valley, San Diego and Palm Springs (5 in total), same small winery in Texas may need to deal with 6. Again, deal with larger boys in either state and cut the number down. But not that much different when all is said and done. And yes, dealing with a number of entities in Texas is still way better than dealing with just Southern in some other state. At least your car will not get torched.

    Just how did Cornyn, although I disagree with many of his actions and views, restricted DTC by your account and write up? I simply don’t see how. There is a large lawsuit led by WalMart and Costco in Texas right now, that one may open a lot of doors when all is said and done. One must go outside of Costco to buy wine/spirits in many other states, not just Texas, why point out just Texas and Cornyn?

    I just hope you do way more due diligence next time you broach a subject. This one is seemingly way beyond you, I’m just curious how and why you decided to jump in.

  11. Margaret Davnport says:

    Hi Steve;

    Has anyone ever tried to look behind the curtain, so to say, to investigate how the large wine companies lobby against DTC or foster policies that benefit only them without regard to people producing less than 50-100,000 cs.
    It’s also wishful thinking for most people to think that 15,000 cs can easily be sold direct each year.

  12. GregP:
    “Some attorney hack in IL has been suing small wineries left and right on some fake pretense for a few years now. . . How do you think IL votes, historically?”

    That’s an odd non sequitur. “Some attorney hack” has done stuff you object to, and because he comes from a state that votes Democratic, you think that’s a “point” for “your” side?

  13. Jim B.,

    No, you misread it, but that’s par for the course given the subject.

    I really objected to Steve’s take on someone in Texas, who really did not do ANYTHING when it comes to small family wineries and their ability to ship DTC while conveniently overlooking some hack in IL doing a LOT of damage with state’s support to stop DTC channel. Recall that Steve decided to tie up Rs into his take on the subject, I nearly pointed out that Ds do WAY more damage IN REALITY. In California, local to Steve. FACT.

    Where was Steve and all other wine writers when a whole bunch of small family owned wineries lost good chunks of money with Oakville Grocery sold to someone who specifically structured the deal in such a way that small guys would not be paid? Where is Steve and other wine writers when some self appointed wine hack states California wines do not go with food giving business instead to anyone but locals? Just to point out why I find Steve’s decision to talk about Texas wine business so bizarre when other, WAY more pressing REAL ISSUES take place right next to his house.

    Have no idea what your beef is since Steve made it his POINT to take on Rs and made that point political, Sen. Paul included as well as 2A issue. Should I guess your political affiliation (not that it isn’t clear by now). There are bad apples on both sides of the aisle, strange that you and Steve only complain about one side while VERY conveniently forgetting about the other. Predictable, though, by now. Very much so.

    You and Steve should take a road trip to Central Valley and see how much of this “Texas bad” issue resonates with those whose living CALIFORNIA Ds have destroyed. Intentionally so I should add.

    And to point out ONCE MORE, just how Cornyn’s actions have done damage to DTC in Texas? MAIN point of Steve’s take on the subject, one he completely misses in the end. Small wineries have NOT been affected one iota by Cornyn’s actions. AT ALL. Who cares just how many markets there are in Texas when one can ship DTC regardless? We have to deal with multiple sales channels in California, SAME EXACT WAY small wineries do in Texas. No difference. “But Cornyn is on the take”. Sure. And so is EACH AND EVERY other state Senator out there, Boxer and Feinstein included.

    In the, sadly, immortal words by now, “What difference does it make?” Right?

    Steve pointed out his dislike of Texas wine market moves, I posted some points I PERSONALLY found very PRO small family owned wineries in Texas, including PROUD display and support of local wine products, something that is lacking in California in general. What is it in my take on Texas wine market did you find objectionable?

    Did anything Cornyn do somehow interfere with Steve’s current employer’s business in TX for Steve to, all of a sudden, pay so much attention to Texas happenings? The least Steve should have done was compare both Texas and California business structures, he would have seen very striking similarities when it comes to distribution. From small family owned winery’s perspective Texas has actually better climate, IMO. At least one doesn’t hear “Our food ONLY works with imports”, a HUGE PLUS to small guys right there.

    Oh, and BTW, I am NOT a Republican. People like Cornyn are the reason.

  14. Gee Greg, that’s a lot of words to avoid answering the question of what was the relevance of which party the “hack attorney’s” state tends to vote for.

    If I wanted to object to your points about the Texas wine market and/or the alleged sins of California politicians, I would have. I decline your invitation to take the straw man position you ascribe to me (and Steve) that “only Republican politicians are bad.”

    I asked about that one statement because it seemed quite nonsensical. Yet you provided no response or explanation to that point other than to say that I “misread” you, then went on to rant about things I didn’t say except in your mind. But sure, I’m the one with a reading comprehension problem.

    By all means, explain to me your little quip about who Illinois votes for. And be sure to use LOTS of BLOCK CAPITALS because that really makes you sound persuasive and not like an angry crank.

  15. Bob Henry says:

    GregP and Jim B,

    While I have noted each of your comments over the preceding months to Steve’s blogs, a little “self disclosure” might be beneficial here.

    What is your vocational or avocational connection to the wine industry?

    (Better to clarify who has a dog in this fight . . .)

    ~~ Bob

  16. Bill Haydon says:

    Interesting that you use one small firm that found a comical loophole to extort money from wineries to tar an entire state’s approach to small wineries..

    Actually, Illinois is Tom Wark’s libertarian wet dream: DTC allowed, DTT allowed, no price controls, no restrictions on chains or supermarket sales. The state of Illinois doesn’t seem to be putting up any roadblocks to small California wineries.

  17. Justin McInerny says:

    A little thread drift here, my apologies. I like the point which Bob Henry raises concerning contacts with the industry. If I have a dog in the fight as Bob says then I disclose my relationship. I feel that my comment above did not concern my business, hence I did not note that I am a boutique beer and wine retailer in DC’s Maryland suburbs. Back on topic, I am stridently opposed to the three tier system. Montgomery County, Maryland has a fourth tier – the County itself which has to touch practically every drop of beer, wine and spirits sold in the county. I am working to change the law on this. Meanwhile, Maryland has had DTC (wine only) for a few years. The wine must be from a domestic producer. Can not be bought from a retailer.

  18. Ron Marsillo, the point is that the consumer would have even greater access in a free market.

  19. RJ, the point is, you don’t know and I don’t know precisely what Cornyn’s influence is, because the entire system is shrouded in secrecy. Besides, a sitting United States Senator has influence throughout the country, not just in his or her state.

  20. Justin,

    I find your comment intriguing. Please elaborate.

    Are your alcoholic beverage orders shipped to a Montgomery County, Maryland government agency-controlled bonded warehouse, which then releases them to you — forcing you to do your own pick-up and delivery?

    ~~ Bob

  21. Justin McInerny says:

    County has monopoly on wholesale of beer wine and spirits. County has 25 retail stores which sells, beer wine and spirits. County also has a warehouse, a fleet of trucks and 450 employees. County buys product from all over the world. County has thousands of “stock items” mostly big brands, Miller, Gallo, Diageo etc. Independent retailers can only sell beer and wine. Restaurants and bars can sell beer wine and spirits. Independent retailers/restaurants/bars order from the county, the county delivers to retailer/restaurant/bar. Independent retailer/restaurant/bar can get other “stock” brands by placing an order with third party vendor. The third party vendor delivers it to the county. County pays vendor regular wholesale. County marks up the product about 25% then delivers it to retailer/restaurant/bar. It’s a challenging way to do business. I hope to change it.

  22. Justin McInerny says:

    Meant to say “independent retailer/restaurant/bar can get other “non stock” brands by placing an order with third party vendor.”

  23. Because… $$$.

  24. Bob Henry,

    I have no connection to the wine industry other than enjoying (some of) its product.

  25. I am not in the wine business, for full disclosure. However I am friends with some in the retail and distribution business.

    As a Texas resident, my main issue with the 3-tier system is the limits the distributors can place on the success of a smaller domestic winery, echoing comments made above. Who will spend the effort to market their wines? Texas is a large wine market but fairly immature in sophistication and knowledge. most people are buying wines from grocery stores and large large liquor stores and spending $20 or less per bottle. assuming the retailer is making money and the wholesaler has margins, that doesn’t leave much to make its way back to the producer, especially some 10,000 case a year producer. It is also unlikely the large wholesaler supplying those stores really cares much about the small niche producers.

    I am a huge fan of Northwest wines. The selections of those wines I see in Houston, the 4th largest city in our country, is a pittance of what is available on the West coast. Thankfully, a few small distributors are emerging with intent on distributing the small producers, but it is difficult for them to crack the markets and will take time. and due to local laws, I can’t order from retailers in Portland or Seattle, only the wineries themselves.

    a secondary complaint, and this is more just the nature of free markets I guess, is the ability of the large wholesalers to control who gets the products. the small retail shop I frequented couldn’t get certain wines or bourbons or scotches. all that went to certain retailers who bought the quantities of the 100,000cs wines, etc. I’m certain the same kind of thing happens in restaurants, too.

  26. Bob Henry says:


    Wine Dude and I have exchanged e-mails over his frustrating experience buying from government-run stores in his home state of Pennsylvania — and his swearing off future purchases.

    Turning our attention to Maryland, do savvy Montgomery County wine enthusiasts drive across the state’s border and procure elsewhere?


    On buying wine in supermarkets in Texas.

    From The Wall Street Journal “Off Duty” Section
    (January 16, 2015, Page Unknown):

    “Supermarket Wine: It’s Come a Long Way, Baby;
    On the road in Texas, Lettie Teague overcomes her preconceptions about supermarket wine selections, discovering better quality and service than expected—along with some great values”


    By Lettie Teague
    “On Wine” Column

    (And see the 62 comments her column garnered.)

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