How do you consider the three-tier system in the wine world of the US to be functioning?

The three-tier system in the wine world within the Untied States is quite the mess, in my humble opinion. After 20+ years of working in this industry, I’ve seen the three-tier system in the US to be ever increasingly shrinking into a select few wholesalers that have been gobbling up everything in site, so they can own more and more shelf space. This ultimately serves fewer and fewer wine companies, which then serves fewer and fewer people with high quality options.

How do you consider the three-tier system in the wine word of the US to be functioning? Is it working for you as a wine company?

As I write this, I’m first reminded of the Rotary Four-Way Test, and I’m now going to spin off that. When I was in radio as a PR agent, I was able to join community groups. Rotary served me well, and I served it well within their 100 percent attendance program, making up missed Rotary meetings in my own town, to attend other meetings all over the country.

There are many guiding forces within this group, and many highly principled people. These principles have been developed over the years to provide members with a strong, common purpose and direction. They’re the foundation of their relationships with each other and the action they take in the world.

Let me also qualify what I’m about to write… There are many small wholesalers. They, too, are struggling against the oppression of the oligopolies. Our economic system doesn’t allow for any monopolies; however, it’s been constructed to benefit the top three to four companies. We have systems of oligopolies… Think of the car industry, for instance. It became dominated in the US by the big three. That worked well enough, until they began to cut corners in quality of products and workmanship. Then, European brands came into the US, and shook up Detroit et al. Now, many of those European and Asian brands have joined forces in the US…  and the recalls are massive… We’ve not been served by the oligopolies.

Nor are we served by the oligopolistic competition that’s been set up by our wine, beer, and spirits wholesalers. Let’s look at the Rotarian four-way test.

Rotary’s Four-Way Test

The Four-Way Test is a nonpartisan and nonsectarian ethical guide for Rotarians to use for their personal and professional relationships. The test has been translated into more than 100 languages, and Rotarians recite it at club meetings:
Of the things we think, say or do

  1. Is it the TRUTH?
  2. Is it FAIR to all concerned?
  4. Will it be BENEFICIAL to all concerned?

You will now see that the three tiered system was not set up by anyone with the principles set forth above…

  1. Is it the TRUTH?
    • In the sense of telling all citizens what’s actually available for commercially produced beverages, no, it’s far from the truth.
    • Go into any supermarket and try to find wine produced by an artisan winemaker, outside of the state where the wine’s produced.
  2. Is it FAIR to all concerned?
    • You be the judge. Is the following a fair trade practice?
    • Wholesalers are no longer in the business of building any brand. They’re in the business of stacking shelves from those who are willing to give the biggest discounts, and offer their sales reps monetary incentives for pushing those wines upon a retailer.
    • Let’s think aobut the 80 to 20 percent rule.
    • In this case, there is very little goodwill for anyone left out of the three tiered system. And, that’s the 80 percent of wineries NOT be served with this system; while the 20 percent club are served really well, continuing to become ever expanding bohemouths of themselves.
    • Better Friendships? They exist exclusively within the 20 percent, while they dominate the time and energy of retailers and restaurateurs.
  4. Will it be BENEFICIAL to all concerned?
    • It benefits the wholesalers, who are selling only wines to you from wine companies that have been forced to line the oligopoly pockets.

What are your choices?

  • Find your voice
  • Find a group that will allow your voice to be heard
  • Vote with your pocketbook

We can become the 80 percent of electorates that force a change. Do you care that you can’t get your hands on some of these wines that have been created by the gods, because the wholesale system is out of control making decisions for you?

Are you in? Join this group: National Association of Wine Retailers (NAWR)

Through NAWR Associate Membership, individuals and businesses that may not be retailers, may be just starting out as wine retailers or may merely support the principles that guide NAWR can join with liked mined concerns in supporting NAWR goals. Associate Membership provides the same networking opportunities as full retail membership, provides access to NAWR communications as well as access to NAWR sanctioned events. Associate Members do not possess a right to vote on association matters as laid out in NAWR bylaws.

How do you consider the three-tier system in the wine world of the US to be functioning?



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16 Responses to “How do you consider the three-tier system in the wine world of the US to be functioning?”

  1. This is nice blog, Thank You.

  2. Sundance says:

    It functions about as well as our congress. It makes a few people rich which standing in the way of progress.

  3. David Vergari says:

    Kudos. Tom Wark also wrote an excellent article about the three-tier system recently. The responses were particularly enlightening–especially the ones from individuals who were for the three-tier arrangement.

  4. Jamie says:

    We consider that 3 tier systems work better than 2 tier or 1 tier as it does the below:
    1) creates more jobs
    2) distribution and compliance is handled properly. For example bottom returns etc.
    3) protects payments – most franchise states have great laws that protects distributors

    but a mix of 1 tier and 3 tier works best. for example wineries, breweries etc who sell less than 1 million should be allowed to self distribute.

  5. Very well said Jo. It is totally broken. If you are a winery under 2500 cases it is not possible to even get distribution. Even mid sized wineries can only get distribution if they have their own sales staff to actually sell the wine to accounts. Last year Yahoo named the small Wine and Liquor store as one of the worst business to get in as everyone is just getting the same product. When 92 per cent of the wine sold comes from only 6 wineries it does not help either

    I have left all of our distributors except 3 good ones and sell only from the winery tasting room, direct to consumer, and a couple of accounts directly. Our business has never been more successful and we have never been happier with not having to constantly harass distributors about either sales or paying their bills. People are searching out wineries and buying the artisan wines as they are fed up. Why are Direct to Consumer sales growing so rapidly, the answer is easy distributors are doing a bad job. The small distributor that wants to do a good job cannot anymore as the big guys monopolize the accounts dollars, shelf space, and everyone’s wine list with incentives and in many cases liquor brands the account needs

  6. Rob Lansing says:

    As an executive with a family owned wholesaler, I actually agree with many of your statements, particularly about large national houses consolidating the industry to the detriment of smaller brands.

    However, I do have some differing viewpoints I’d like to address.

    First, you make a comment “go into any supermarket and try to find a wine by an artisan winemaker…” There are two flaws with this statement; 1. The vast majority of artisan winemakers don’t want their brands in grocery stores sitting on the shelf next to Kendall Jackson. The view is that this devalues your brand. In addition, if the grocer has a competitive retail, it can upset your on-premise and specialty customers. 2. Numerous grocers have tried adding artisan items to their sets, only to find that the grocery store customer doesn’t respond to them, thus valuable shelf space is taken by a non-moving item. Also, the HQ buyers for grocery stores are bonused on inventory management, sales velocity and margin. That type of criteria doesn’t allow the buyer to experiment with a niche item. I’ve seen far too many wineries basically approach accounts with “buy my wine, it’s good” as their pitch. Based on their customers and what they need to be successful in their jobs, this simply doesn’t fly.

    Second, incentives are definitely pervasive in the business. However, many successful artisan brands offer magnums or bottle lots as incentives to the wholesaler sales force and these are as well received as cash or other bonuses from the big wineries. A sales force at a good wholesaler is fully aware that a small brand doesn’t have the resources a larger one does, and they will respond to any gesture from the winery. There are many, many smaller producers that have figured this out, and it’s truly built their brand. As a winery supplier, your job is to educate and motivate your wholesaler. Many brands make the mistake of signing on with a wholesaler, then expecting sales to just come rolling in. It doesn’t work that way. You have to actively engage the wholesaler and bring them the tools they need to be successful with your brand. It’s a partnership.

    Third, the 80/20 rule may be spot on, but if you’re one of the 80% feeling lost and forgotten in the house of a big wholesaler, maybe the blame shouldn’t be on the wholesaler, but on the brand for not moving on to another house, large or small. You can only be as unhappy with your situation as your allow yourself to be. There are still lots of brokers and small wholesalers out there who specialize in building brands.

    Latly, you state that the system “benefits the wholesalers, who are selling only wines to you from wine companies that have been forced to line the oligopoly pockets.” That’s a pretty big blanket statement that may apply to the massive national chain restaurants like Applebee’s, Chili’s and that ilk, but otherwise it shows a lack of understanding what a good wholesaler can offer your brand.

    Wineries often talk about direct sales as being the end all cure, but when you truly evaluate that as an option you run into numerous problems. Logistics for starters. It’s not just shipping the product to the accounts, but setting up each account for invoicing, meeting the delivery windows, properly palletizing the order, and so much more. Your wholesaler handles all of these key details for you. Your wholesaler also provides warehousing, which is critical in that product is regionally available to ship within 24-48 hours in most cases. Most importantly, if you’ve done your job educating and motivating the salesforce of your wholesaler, you’ve now get a legion of salespeople on the streets creating new opportunities for your brand.

    Again, you make some very valid points regarding flaws in the system. No doubt there are issues, but there are also solutions. Honestly assess your current wholesaler situation. Are you educating the wholesaler on your brand? Are you a good partner? Are you truly motivating the sales team with regard to your brand? If the answer to all 3 is yes, then it’s definitely time to review why you are remaining with that wholesaler. If you answered no or wavered on any of them, then it’s likely time to rethink your approach.

  7. Jo Diaz says:

    Well said, Erich. We both know that system oh, so well.

    FROM: THE NAKED TRUTH ABOUT DISTRIBUTION, by Eugenia Keegan – Keegan Consulting and Ellen Brittan – Brittan Vineyards

    When I was selling in 1995 and 2011 comparative….


    Number of Wineries
    1995 = 1800
    2011 = 7000+

    Number of Distributors
    1995 = 3000
    2011 = 675

    *Brand Proliferation + Distributor Consolidation = Winery Frustration

  8. Jo Diaz says:

    Thanks, Janet, Sundance, and David for also chiming in. It’s a terrible frustration…

    But, I remember the days when Erich Russell was on the road continuously, and if he says he’s happier now and has found “the” way around dancing the light fandango, it seems like the most appropriate route for the time being.

  9. Jo Diaz says:

    Rob, thanks for you insights.

    Point well taken on the supermarket shelves. I can’t argue with it, and know that when I was selling 15 years ago, it was a different world. The restaurants were only beginning to have fits back then, so it seems it’s gone full circle for them really getting it. On the other hand, my grocery store (Big John’s in Healdsburg) has its shelves loaded with artisan wines. Perhaps it’s because it’s a store in wine country, and the people who shop there either live locally and don’t want to hit all the wineries for what they want, and trust Big John’s; or, because people who have come into the area to visit will also pick up wine to enjoy during their stay… Perhaps not necessarily doing the winery circuit. (Jose and I just went to Puerto Rico and spent very little time on the beach. Instead, we hit the museums. Instead of going to the Bacardi Factory, we bought what we wanted in the local supermarket where we were staying… We got localized.)

    Yes, on #2… I was an active engager, including taking university sales, PR, and marketing courses at the time, and gave all of my homework to every sales rep I worked with in about 10 states. They loved it and we all worked together on all of the concepts.

    #3, Moving on can be hard in states that won’t let you or have serious buyouts (like a million dollars). I know of one brand that tried to move on, and their broker/sales team got them blackballed from every state after that; and they’ve not completely recovered… It was like they had the bubonic plague.

    #4, If you’ve found that intermediate wholesaler… Like you seem to be, Rob… you found that lucky card in the deck. Another option that’s popping up is UPS Stores. They’re getting the licenses and they’re shipping. It’s the only way I can ship. I pay a premium for all the layers of bureaucracy that have been set up… But, I also know there are a lot of people in the generation stream, as Rob’s indicated, so I don’t mind.

    Great points, Rob… and – yes – the system really needs an overhaul. If we don’t bring that to the light of day, then it’s status quo ad infinitum.

  10. Ron Saikowski says:

    Distributors have no Code of Ethics. I have escorted winemakers to wine stores and bars which turned out to be orders for these winemakers. After several weeks of checking on the status of the deliveries, these distributors had not delivered most of those orders. The reason was that these orders were too small for ordering stock and delivering to the order makers. the wineries who had signed with these Distributors fired those Distributors and could not find anyone else who would legitimately take care of those wineries’ orders.

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  12. Dennis says:


    I have to agree with Rob.

    lack of sales or lack of focus on your brand may not be at the distributor. Several producers I have dealt with make selling their wine ( large and small) incredibly hard by refusing to provide selling materials (waitstaff cards, sell sheets, POS for displays) and a handful refuse to cover samples… imagine showing up to an account and talking about a fantastic wine from a ‘premire” wine area and then not being able to offer up a taste…hard to make a sale there
    Have to also speak to the ridealongs/workwiths/market surveys by the producers….usually they only want to visit “the hot area” or only A accounts please, where thye might have much better success calling on the B accounts that hand sell and interact as though their lively hood depends on the sale.

    while some aspects need repair, DTC isnt the silver bullet, as many of the 8000 wineries are not set up to handle the logistics of providing product over a million on premise accounts, 165K + wine and spirit stores, and the millions of consumers that purchase wines on a daily basis.

  13. Joe Jensen says:

    What good does joining the NAWR when the vast majority of wine retailers are buying the vast majority of their wine from the Oligopolies and they are happy to do it.
    In Illinois any of those Oligopolies can get their own wholesale license and they choose not to for a reason.
    Even small retailers get stuck playing the big boy game because it is the easy way out to take a deal and make some extra margin until they figure out that the big boys just tied up all of their cash.
    For those thinking retailers here in Chicago have any shortage of small production wine to buy, they are seriously mistaken since they have upwards of 125 small wholesalers in the market to buy small to medium production wines from.
    I applaud Erich Russell at Rabbit Ridge because they make excellent wines that are priced well and have found a mix that works well for them!
    Your representation that there were 3000 distributors in 1995 and only 675 is plain out false unless the 125 Illinois distributors hold 20% of the licenses in the United States. In NYC alone there is probably 200 distributors knocking on doors.
    As a distributor in the Chicago area I will gladly build my business with or without a three tier system because there are endless opportunities for a small company to selectively sell great small to mid-sized brands and make a living at it.
    Sure I have to compete in an unfair market where liquor brands pay for placements and all of the other bs that comes along with it but that will happen whether or not there is a three tier system because people with lots of capital behind them win most of the time regardless of what business your in.
    This is a societal problem not a three tier system problem and for my company there is a niche to be carved out and successfully serviced!

  14. Jo Diaz says:

    Thanks for weighing in, Joe.

    REGARDING: Your representation that there were 3000 distributors in 1995 and only 675 is plain out false …

    No, it’s not.

    A study about wholesalers was done by Eugenia Keegan and Ellen Brittan (Robert Brittan’s wife… Robert having built Stags’ Leap Winery for Carl Doumani, as Carl’s winemaker. Robert and Ellen are now in Oregon)… As is Eugenia Keegan. She was in California for years and is now partnered with David Adelsheim. Important names, important people.

    They conducted a research study in 2012 (anonymously gathered survey sent to wholesaler, so wholesalers could speak candidly).

    From one of their slides:

    Who was included?
    –401 Distributors surveyed
    –Sent personally to key decision makers
    –35% response rate
    •138 total responses
    •98% have at least 1 OR wine in portfolio
    –All sizes and geographic regions represented

    They then presented their findings to the annual Oregon Wine Symposium, entitled “THE NAKED TRUTH ABOUT DISTRIBUTION.” (I still have their copy.) They also presented it at the 2012 Oregon Pinot Gris Symposium, presented by Oak Knoll Winery (which I produced). I do believe Keegan and Brittan, as I know the extensive research they did. Perhaps Illinois hasn’t consolidated the way other states have with wholesalers. We have very few left on the West Coast. Yes, there are mom and pops still out there, and they may fall under the radar for serious analytics, because their portfolios only have a few wines, like New York, as you stated. I know a few and they have very limited portfolios. Importers are another animal, and many of them fall into the wholesale category, as well. Importers aren’t part of this study. When I talk to my sales people today, they deal with very – very few wholesale companies across the country. (I have a copy of the WSWA book, so I do know what you’re talking about… but these are the guys living on the edge and being squeezed out daily.)

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