Wholesaler’s roles are exaggerated in official court documents

[Erik Owens]

https://stevenunlimited.substack.com/p/wholesalers-roles-are-exaggerated?r=q2rgv&utm_campaign=post&utm_medium=web&triedRedirect=true

STEVEN HARRISON

MAY 07, 2024

I have become fascinated by reading the claims that wholesale associations make in court documents. It is in these documents that they show their true colors because they are fighting to justify their existence. Even with a growing three channel market, the associations try to prove that wholesalers are the ultimate answer to regulatory enforcement and are working to save states lots of work. Most recently, a wholesaler association said that the products that support the entire industry, “can be inherently dangerous”. One must wonder if the wholesalers that fund the associations actually know what the associations are stating in legal documents. As a wholesaler I would be mortified that a lawyer used the words “inherently dangerous” to describe products that I was storing and selling for my clients. 

I don’t know a single craft producer who would say they are creating “inherently dangerous” products, so why do wholesale associations believe this? I believe these associations are trying to complicate and spread fear into an already well-regulated industry, to position themselves as the sole solution. With this rhetoric, I feel anyone who supports these associations should disassociate themselves now. They are providing neo-prohibitionists with more ammunition, and their rhetoric is going to end up costing the craft alcoholic beverage industry an opportunity to continue its growth trajectory.  

As I have been heads down in court documents, I uncovered various claims made by wholesale associations that need to be addressed and brought to light: 

• Wholesalers advance “vital State Interests”. This includes ensuring producers do not dominate markets by having producer owned retail outlets. That is easy to manage without wholesalers, just prohibit retail outlets from being owned by a producer. A wholesaler is not needed to protect state interest. 

• Wholesalers ensure that “products are handled safely”. I am not even sure what that means and why that is unique to wholesalers. Are they saying that producers are not capable of handling products safely? When a product goes direct from a producer to a customer, through a third-party licensed shipping service, it is in safe hands from start to finish. The same cannot be said about retail delivery networks, where third party contractors deliver alcohol, with little to no training, yet wholesale associations would defend those models. 

• Wholesalers “serve vital regulatory, economic, and public safety functions that suppliers and retailers do not”. The wholesaler associations must be confused. They always make the claim that retailers take care of public safety issues by being stewards of the community. Wholesalers often contribute little to public safety or regulatory efforts. The bulk of regulatory work, including market oversight and testing, is handled by agencies like the TTB and state authorities. Their claimed economic benefits, such as tax collection and job creation, are aspects that any business could fulfill. Yes, they do create jobs, but those jobs will be there without a mandated three-tier system, and many more jobs will be added when the market can fully expand to its potential. 

• “Wholesalers have a singular ability to track alcohol products across distribution channels that producers and retailers do not.” This is simply inaccurate. Direct sales put the seller in a much better position to track transactions along with collecting and paying taxes. Once a retailer has the product, sells it for cash, then neither the retailer and certainly not the wholesaler have any knowledge of who purchased the product or where it has gone, so the claim as to “singular ability” is again simply not true. 

• “If an alcohol product is determined to be defective, the supplier or manufacturer can be tracked through a particular wholesaler, and the defective product can be removed from distribution”. Wholesalers do not know exactly where the product ends up. They know part of the story but quickly lose track of the products. Direct selling reduces this loss of tracking as the products can be traced back with minimal bureaucracy. 

• “The core mission of both VWWA and VBWA is the preservation and protection of Virginia’s three-tier system of alcohol distribution”. The associations go on to say, “[They] believe that the three-tier system provides the best method of insuring a more orderly alcoholic beverage market that fosters healthier competition and improved consumer choice.” The mission of these associations is to maintain the status quo because financially it is in the best interest of their clients, wholesale distributors. These associations have their beliefs of the industry, which are based on precedents set in the 1930’s. Modern technology has adapted nearly every industry to be better for the consumer, and subsequently better for the overall industry, but the alcohol industry and those in charge of its rules, refuse to change.  

• Wholesale associations claimed alcohol products “can be inherently dangerous and abused”. Well, that is nice to know that the organizations that represent companies that claim themselves to be “brand builders” are themselves calling the brands and their products “inherently dangerous”.

• Wholesale associations make the claim “These are not roadblocks arbitrarily erected by ABC to thwart commerce, but rather regulatory “speed bumps” in the transportation process to permit ABC’s agents the time to conduct mandated inspections of inventories and shipments at the licensees’ places of business.” I must ask, what inspections of inventory and shipments do the agents do? They have access to books and records for every licensed seller, but what are they looking at with the boxes and, even more confusingly, the shipments? The concept of direct shipping that the legislators mandated be in place as opposed to the wholesale tier was so products could go from point A to point B without wasting time and resources of government agents. 

We should discuss wholesale associations in terms of modernizing an industry and stepping outside of their lane.  

Wholesale associations fully exaggerate the real world. They are likely to be the ones responsible for making a system unmanageable for state regulatory departments rather than helping to streamline it. If the systems from obtaining a license to reporting were streamlined, enforcement would be a lot easier and there would be much greater adherence to the rules. 

Legislators and judges often receive half-truths from wholesale associations, and they must believe what they are told because they don’t have firsthand knowledge of the industry. The biggest change that needs to be explained to legislators in 2024 is the emergence of three channels and the rules of one channel do not govern that of another channel. Legislators should start using the “five whys” when considering changes, because if they do this, most of the proposed and actual changes that have been added to build barriers to protect a single sales channel would not take place. 

The beverage alcohol industry must modernize to grow and it’s up to us to give the lawmakers accurate market information.