Wine & Spirits DailyJanuary 11, 2008
Three Tier Battles - A Talk with Tom Wark and Craig Wolf
There has been a lot of back and forth between online retailers and wine wholesalers in the past week, so we sat down with Tom Wark, executive director of the Specialty Wine Retailers Association (SWRA) and Craig Wolf, ceo of the Wine & Spirits Wholesalers of America (WSWA) separately to get to the bottom of the issue. Both trade groups say they are working for the greater good. But the SWRA claims wholesalers are only out for the money, while the wholesalers claim their concerns are for minors and for state-based regulation.
WINE & SPIRITS DAILY: Why have the SWRA gone through the effort of investigating distributor political contributions in every state?
TOM WARK: Wholesalers have every right to contribute obscene amounts of money to politicians across the country. But when those contributions are accompanied in nearly every state by anti-consumer and pro-wholesaler laws, it's time to take stock of exactly what's behind those laws. That's what the "Wholesale Protection" report does.
The enormous contributions tell me that the wholesalers understand that a great deal is at stake and they are willing to spend what it takes to protect a regulatory scheme that functions to keep them awash in cash. In nearly every state law there exists a mandate that wholesalers get a kickback on nearly every bottle of wine that consumers eventually consume. This is what wholesalers are protecting by spending $50 million on campaign donations.
CRAIG WOLF: Everybody in this business should be, if they are not, involved in the political process...We know the SWRA is involved in political donations and we know they're funding lawsuits to the tune of millions of dollars. They're spending money in the way they deem fit for their agenda and so are the wholesalers who are putting up money to support candidates and elected officials who understand the importance of an accountable licensed system and protecting it. That is the American way. To try and vilify wholesalers in that way I think is absurd.
If you look at the report, they mix in beer wholesalers' money with ours and try to attribute all the $50 million to wine and spirits wholesalers.
Second of all, we lobby on any number of items that are important to our members beyond simple issues of direct shipping or threats to the three tier system. Unlike us, the SWRA has one specific goal in mind: deregulation of the system. Our money is not only to protect a very important system, but to protect our employees and their jobs, which are in the score of thousands in the country. We also, like every other industry, lobby in the areas of health care, workplace safety, employee benefits, etc.
WSD: I understand your contention, Tom, that Wine.com is playing a tattle tale, but shouldn't all online retailers be playing by the same rules?
TOM: Yes. And that's why I was very pleased to read the CEO of Wine.com saying that an open market for wine is best for the consumer, for the wine industry and for Wine.com. My hope is that Wine.com will join the effort by other retailers to create exactly these kinds of markets. But if they choose not to fight these pro-consumer, pro-industry battles by educating their customers and contributing to the effort, I at least hope they'll say "thank you" to those retailers and consumers who did fight the battle on Wine.com's behalf when the laws are changed.
WSD: In the past, the SWRA has argued that online retailers follow state laws and therefore should be allowed to ship directly to consumers. Has Wine.com's "sting operation" hurt the SWRA's argument that retailers are lawful and should ship direct?
TOM: I've yet to meet any wine consumer that believes markets should be closed to out-of-state retailers so that wholesalers can make more money. And by reading the various comments across the Internet and elsewhere on this issue by consumers, I think it's pretty clear that the only thing that has resulted from this episode is that consumers have been made further aware of the anti-consumer laws that have been put in place to protect wholesalers. So, no. This doesn't hurt our argument. It helps it. We are simply asking for the right to ship wine in exactly the same way that most states allow wineries to ship.
CRAIG: Wholesalers read the wine blogs. We know what's going on with the wine blog websites. If they think that when they make these statements about acting with impunity and violating the law and that nobody is going to find out about it, they're wrong. What's most shocking about all these conversations we're seeing by Tom Wark and other retailers on these blogs is that they're more concerned with not getting caught violating the law then they are with trying to effect change legally. We have no problem if they want to go into the legislatures to fight these battles...but what they're advocating for is to have their illegal conduct go unreported and unaccountable. They're not upset with the fact that their own members may be violating the law and jeopardizing their licenses. No, they're upset about the fact that they got caught.
Say what you want about Wine.com's business model and their viability. The fact is they're trying to operate legally and change the system. We don't agree with Wine.com trying to ship direct - we disagree with that - but we think they're going about it the right way. And we're happy to debate Wine.com and any other retailer about whether direct shipping is or is not a bad policy. But we're not out their vilifying people.
I guarantee you the wholesalers will make these statements by Tom Wark and the other retailers out there about their lack of concern for illegal sales available to every regulator in this country.
They can't engage in illegal conduct just because they don't like the way the system is.
WSD: It seems like the SWRA has really stepped up its activity and PR in the last year. Is that because the organization smells success?
TOM: Everyone smells success on the issue of retailer-to-consumer shipping. All one has to do is listen to the arguments that wholesalers advance in opposition to it and you realize that they do too. Direct shipping will increase minors' consumption of alcohol? Come on. The Supreme Court and the Federal Trade commission as well as nearly every alcohol regulator in America know that's absurd. Then when you hear wholesalers argue that the Granholm v. Heald Supreme Court decision only applied to retailers you further realize that there is a certain desperation...eventually it will be made clear that the principles explained in Granholm apply to wineries and retailers alike.
That said, in the last year we've stepped up our efforts to educate consumers, retailers, lawmakers and media. That hasn't been too hard to do when you have states like Illinois passing anti-consumer laws in the face of massive consumer opposition. We will continue to expose the protectionist arguments for what they are, continue educating and continue to stand up for consumers.
CRAIG: Look, welcome to the battle. Their advocacy for direct shipping is just the next in the chain of things we've been dealing with all along with direct shipping. We're happy to have this debate at the state and federal level. But that is where the debates should occur. Not in the courts. And certainly not by condoning illegal conduct. We're not out to vilify retailers or wineries. We understand they have a different perspective on things. We think they're incorrect, we think their policies are misguided. But we're not out to vilify them.
WSD: Tom, since presumably all of your retailers are buying their wine from licensed wholesalers, why do you think wholesalers are so against you?
TOM: Wholesalers don't have to pick and choose their battles because they are so flush with cash as a result of the protectionist laws that exist everywhere. As a result they play a zero sum game where they oppose even the most benign and reasonable pro-consumer laws. Any effort that in any way alters the state mandated, anti-consumer three tier system is opposed. Think about this: A retailer selling and shipping a bottle of wine to a consumer in another state is exactly the same kind of transaction as a winery selling and shipping a bottle of wine to consumer in another state. Exactly the same. Yet the wholesaler are willing to argue that it is so fundamentally different in some way that it must be stopped. That's just Fantasyland thinking. But, the wholesalers can AFFORD to think that way and advance that argument because there is no restriction on what they can spend to advance that argument. In the end, as always, the consumer looses to the Fantasyland Faction.
CRAIG: If wholesalers were simply interested in the bottom line, we would be advocating for more direct shipping by retailers. After all, every bottle sold by a retailer ultimately came from a wholesaler. But wholesalers don't believe in commerce at any cost. And as can be seen from the Wine.com investigation, the cost to the states is in lost revenue, lack of accountability and open disdain and disregard for their laws.
WSD: It seems like people in the wine industry are mainly bothered by the way Wine.com went about "tricking" its competition. What bothers you and other SWRA members the most about the Wine.com situation, Tom?
TOM: I can't speak for the various members of SWRA. But what bothers me is that Wine.com says one thing and does another. If Wine.com really believe what they say they'd be sending e-mails to their customers in every state where retailer-to-consumer shipping is illegal; they'd be cutting checks just like other retailers to support the legal efforts to overturn the laws that prohibit wine lovers from getting the wines they want. They'd not be letting others do the heavy lifting while they play a game of Wine Cop that has no effect on their long term profitability and does not benefit the American wine consumer.
CRAIG: I think it's wrong for the SWRA to vilify others who are simply pointing out that illegal conduct is occurring and should stop. Tom Wark is supposed to represent legally licensed retailers - and those retailers have an obligation to sell product legally. What kind of message does it send that he is more concerned about his members getting caught than he is about complying with the law?
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