June 5, 2018

CultureMarkets & Free Enterprise

Why Does Your Glass of Wine Cost so Much? How Regulation Takes The “Happy” out of Happy Hour.

By: Janene Schmitz

Have you ever ordered a glass of wine at a bar or restaurant and wondered, “Why does this tiny glass of cabernet cost $8!?” I’m a wine girl, and I’ve definitely had this thought on multiple occasions.

I’m sure it comes as no surprise that the alcohol industry is heavily regulated. We all know that you need to be 21 years old to imbibe and that different states have different laws on where you’re allowed to buy and sell alcohol. For example, in my home state of New Jersey you can only buy wine in a full liquor store. So when I first walked into a grocery store in Harrisonburg, VA, (where I went to school) and saw wine and beer for sale, I was pretty shocked. But it doesn’t stop there–these types of regulations on alcohol also affect what choices you have and how much you’re paying for it.

The wine industry is heavily regulated, particularly with regard to sale and shipping policies. To get a better understanding of these laws and how they impact consumers, I reached out to wine freedom expert, Tom Wark. He walked me through the three biggest consumer-hurting regulations currently impacting the market. Here’s what I learned:

1. Direct-To-Consumer Shipping Laws: Currently, while wineries can legally ship direct to the consumers in 42 states, wine stores and retailers may only ship wine directly to the consumer in 13 states and the District of Columbia. As a result, retailers’ access to the broader market is severely restricted, while consumers in the “no ship” states don’t have access to literally hundreds of thousands of wines.

2. “Three Tier System”: This system is how most states regulate the sale and distribution of wine. The three tiers include the producer, wholesaler, and retailer/restaurant. Under this system wine producers are only allowed to sell to a wholesaler (middleman). Retailers are not allowed to buy the same product directly from the producer (the winery). The wholesaler marks up the price of the wine and sells it to retailers/restaurants. The retailer/restaurant then sells to the consumer, also marking it up in the process. Not only does this significantly increase the price for consumers, but wholesalers are not required to represent a winery if it wants to sell into the state. This means that the market and inventory of wine are dependent entirely upon the choices of the wholesaler.

3. Franchise Laws: Some states have franchise laws. Under this law, if a winery contracts with a wholesaler to represent them and sell their wine to retailers and restaurants, it is nearly impossible for the producer to remove themselves from the contract with the wholesaler, except for “just cause”. This condition is almost impossible to prove, and means if a wholesaler does not do a good job of selling the producer’s wine, there is very little the producer can do about this. Again, the wholesaler has a direct impact on the inventory, to the detriment of producers and consumers.

So, there you have it–the makings of your $8 glass of cabernet. (And some fun-facts for your next dinner date.) Clearly, the wholesaler’s amount of influence on the market is a problem. They have a huge amount of skin in the game to keep the wine industry from implementing free market reforms to lower prices and expand choices across the country.

So what can we do? Well, luckily there are a ton of wineries that support changing these policies, and we can further support them through our consumption choices. Stay tuned for part two of this post for my freedom-loving wine recommendations!

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