Yes, The Three-Tier System Still Has Legs

Jul 05, 2023
A year after WSWA’s Michael Bilello sat down with Drinks Business, the three-tier system is still strong and direct-to-consumer shipping of alcohol remains dangerous

07/05/2023 WASHINGTON, D.C. – Over a year ago, Wine & Spirits Wholesalers of America (WSWA) Executive Vice President Michael Bilello sat down with Roger Morris of The Drinks Business to discuss direct-to-consumer alcohol shipping, the future of the three-tier marketplace, and the – at the time – newly released Treasury Report concerning Biden’s Executive Order promoting competition in the American economy. Earlier this week Morris released his article “Does the three-tier system still have legs?”


Morris does an admirable job attempting to present an unbiased look at the DTC issue, but he misses the mark by not including the perspective of retailers or regulators and, instead, speaks for them. The truth is retailers and regulators across the country rely on the three-tier system to maintain a stable marketplace and DTC is upsetting the balance in favor of producers – generally those large enough to have marketing budgets that can compete in a widely un-regulated e-commerce space.


Earlier this year Massachusetts Alcoholic Beverages Control Commission (ABCC) Chief Investigator Ted Mahony spoke to the WSWA State Advisory Council – a body made up of state association leads from across the country – and shared his team’s findings from a 2022 compliance check.


“The bottom line is that we have alcohol coming into our state from unlicensed entities and individuals throughout the country and the world,” said Chief Mahony in January. “We have had a great system in place in this country for over ninety years, that has provided a safe and secure system of the sale and delivery of alcoholic beverages. We have to get back to the basic understanding that this can be a dangerous product and the principle that alcohol should be sold and delivered by responsible entities and individuals that are properly licensed and trained. This should be the highest priority for state alcohol regulators.”


The results of the ABCC’s 2022 compliance checks of licensed DTC shippers serve to support WSWA’s “basic arguments” against DTC as outlined by Morris:

  • 96% of DTC licensees investigated accepted DTC orders and payment from a 15-year-old.
  • Despite 98% of the shipments delivered being labeled as “alcohol”:
    • 26% of the shipments were left at the door;
    • 43% of the shipments did not obtain an adult signature; and
    • ZERO verified the age of the recipient upon delivery (checked an ID).


Despite what Morris leads readers to believe, retailers across the country understand the negative impact of DTC as well. In a March 2022 letter to the Vermont state legislature Executive Director of American Beverage Licensees John Bodnovich wrote in opposition to a DTC bill saying, “Similar [DTC] legislation in other states has become endemic and disregards the consumer and community benefits of a robust, local brick-and-mortar retail marketplace in which spirits producers large and small can build brands in a competitive environment … Beverage alcohol retailers understand the need for competition and compete every day with fellow stores. They compete, however, on a level playing field in which competitors are playing by the same set of rules as other similarly licensed businesses … Direct-to-consumer supplier shipping of alcohol upends that playing field, throwing dissimilarly licensed operators into the same pool, and giving out-of-state alcohol companies – operating far beyond the arm of Vermont law enforcement – a ticket to anticompetitively sell products at a lower price than local agency retailers whose products are required to go through the Vermont alcohol regulatory system.”


What’s more, Morris gives voice to the irresponsible suggestion that “wholesalers are gaslighting regulators” when the reality is that producers who advocate for DTC to promote “innovation, competition and consumer choice” are lying to lawmakers about the impact DTC will have on the craft spirits community. In the ABCC’s 2022 compliance checks Chief Mahoney estimates that of the $66 million of self-reported DTC wine shipments coming into the Commonwealth, roughly 40% are coming from just 2% of the DTC licensees. The truth is DTC stifles innovation, competition, and consumer choice by creating an e-commerce marketplace that favors only the largest producers.


Even more outrageous, producer advocacy groups aren’t subtle about the fact that they understand the consequences of DTC and want it anyway. In 2022, the Distilled Spirits Council – a major advocate for direct-to-consumer spirits shipping – pulled its support of a DTC bill in the Iowa state legislature when a gallonage cap put in place to protect smaller producers from being outclassed in the DTC marketplace by major production houses became a source of contention.


“The amended bill would prohibit Iowa consumers from purchasing spirits and having those products directly shipped from a distillery, in or out-of-state, which produces more than 100,000 gallons annually. Our association supports legislation that ensures consumers can access products from all distilleries equally.”


Couched in language of limiting consumer choice, product innovation, and competition producers know the reality is that brand exploration occurs in the on-premise, not in the e-commerce marketplace. Innovation and competition withers when 2% of DTC licensees can monopolize 40% of the marketplace by outbuying digital ad space, paying influencers and celebrities to push their products, and relying on name recognition that drives most e-commerce alcohol sales. Meanwhile craft brands splitting limited resources between competing in digital and physical markets are left behind.


Bilello stands behind his statements in Morris’s piece and, while he admits the piece is not the timeliest interlude between interview and publication, believes WSWA’s views – like the three-tier system – have stood the test of time.


“The value of America’s wine and spirits wholesalers and the critical role distributors play in the three-tier system is the reason the U.S. marketplace is the safest, most dynamic, competitive, and successful in the world,” says Bilello. “The three-tier system are the legs of the U.S. alcohol marketplace and without them, it would not stand to serve consumers, place responsibility at the forefront, or set the global-standard.”