Bacon's Rebellion

Democracy Thrives in Sunlight

Another Blow to Free Markets

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by

James A. Bacon
in

Virginia’s 110 wineries have lost the right to sell their products directly to retailers such as restaurants, wine shops and grocery stores, the Richmond Times-Dispatch has reported. A letter from the state ABC board last week confirmed that the wineries, after a lengthy lobbying and legal duel with wine wholesalers, were limited to selling their wares directly from their farms. Reports Greg Edwards:

The loss of self-distribution is a bitter turn for the wineries. Some say the loss could end what has become a welcome success story for Virginia agriculture — three decades of growth by the state’s wine industry.

The regulatory issues are too complex to summarize here. I would refer readers to Edwards’ story. But the bottom line is this: The wine-and-beer wholesalers have upheld their state-sanctioned monopoly control over wine distribution in Virginia, preserving their monopolistic profit margins. The most immediate losers are the small wineries who can’t afford to hire wholesale distributors to handle their products. Other losers are wine lovers, such as myself, who enjoy buying local wines and now will be faced with a diminished selection.

If Virginia wineries go out of business, the roster of losers will expand to include everyone who appreciates the beauty of Virginia’s farmscapes. Farming is an endangered activity in Virginia. When farmers give up on farming, their land generally reverts to woodland or gets sold to developers. A consequence of upholding the wholesalers’ monopoly could be the loss of more picturesque fields, meadows, fences and farmsteads.

“There is no winner except the wholesalers,” said Mitzi Batterson, of James River Cellars, a Hanover County farmer who added that she expects to lose 25 percent of her business. Not quite true. There is one other winner: Virginia’s political class. By protecting the privileges of Virginia wine-and-beer wholesalers, legislators ensure a steady flow of campaign contributions. Anyone who thinks of Virginia as a commonwealth committed to free market principles is living in la-la land.

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18 responses to “Another Blow to Free Markets”

  1. Th.Jefferson Avatar
    Th.Jefferson

    I’m appalled on so many different levels right now

  2. Anonymous Avatar
    Anonymous

    Yes, it’s disgusting. The good ‘ole boy network is alive and well.

    This may be way off, but how can you live in a country that supports something like NAFTA and then be expected to live and do business in a state that makes decisions like this?

  3. Ray Hyde Avatar
    Ray Hyde

    How to save the rural areas – NOT.

    This makes me want to throw up. Does this apply to any other form of farm product wholesaler? No, of course not.

    I hope you will all vist your local vineyard this weekend, and buy a couple of extra bottles, to show your support.

  4. Anonymous Avatar
    Anonymous

    For some more background, The HooK had a great story and a letter of rebuttal earlier this year about this subject.

  5. Toomanytaxes Avatar
    Toomanytaxes

    The wholesaler’s letter reminds me of the Bell System’s arguments against competition from the late 70s and early 80s. There is no reason not to let competition, rather than the desire to protect the status quo, govern the market. Unless there are public health, welfare and safety reasons to limit the ability of a manufacturer to sell directly to the retail market. If wholesalers actually provide benefits to consumers (both retailers and individuals), the best ones will remain in the market. Customers will pay for the benefits they receive. But, perhaps, the market does not need wholesalers. It is truly a shame when any business fails, but business failure is a part of the market. There simply is no reason why Virginia’s government should enact laws or regulations that protect wholesalers against competition.

    At the same time, it is unreasonable to expect the winemakers’ story to be told unless they put some effort and cash into the process. Form a trade association; make your story widely known; find allies in Richmond and elsewhere. Perhaps, the only reason the wholesalers were successful is that they work a lot harder than did the winemakers.

  6. Anonymous Avatar
    Anonymous

    This is certainly sad, all the more so down here in SW VA, especially among the smaller wineries, some just starting up. There are some good ones.

    Another thing I’ve noticed regarding the wholesalers is this: What they sell to restaurants is often off limits to stores. I have on several occasions had a really good wine at a restaurant and then tried to buy it at a wine store, grocery store etc only to be told – over and over – that the wholesaler will not sell that wine to them. I’ve been told this enough to know that I’m not the only one asking. We’re not talking a $100 bottle of rare wine here – just a good moderately priced one. There may be more to THIS particular story than I know, but both this and restricting the direct sale are stupid squared for a state that is making progress as a good state for wine.

    Deena Flinchum

  7. E M Risse Avatar
    E M Risse

    I agree that the wine deal stinks.

    Now lets take on much of what Real Estate Agents, Lawyers and other pre-literacy and pre-Internet “agents” do.

    I know where I can buy a bottle of wine but not where I can get a lot of other things done that Commonwealth law protected middle people make us pay for.

    EMR

  8. Anonymous Avatar
    Anonymous

    Hate to take a contrary position, but the whine producers are starting to irritate me. They now face the same market conditions as the 10,000 other producers who might want to sell a bottle in Virginia, and if their product is good and at a fair price, they will make it. Much of their stuff is swill. Why pay $20 for a bottle of mediocre Virginia wine when $8 gets you a great bottle from Chile or Australia. I can’t believe the willingness to abandon the Commerce Clause of the US Constitution.

    Now if you want to argue that the entire wholesale system and ABC system should be dismantled, and a totally free market opened for alcholic beverages, fine — but stick it out to the logical conclusion. And be ready to choose from the 20 wines that Wal Mart, Food Lion and Kroger decide to offer you.

    By every measure — price, availablity, choice — the wine market is perfectly vibrant with the wholesalers in place. Now the Virginia Whiners no longer have their special favors and they have to operate like everybody else. Boo Hoo. (If their product is good they will do fine.)

  9. Anonymous Avatar
    Anonymous

    Wait, there is more (and I’m disappointed in Greg Edwards for not telling you this, because he had the info). Much of the so-called “Virginia” wine is nothing of the sort. Some of the better selling products are produced elsewhere and just bottled in Virginia. If it doesn’t say “Virginia” on the label the wine might be from out of state, not just the grapes. But that isn’t mentioned, is it — the fact that they want special privileges to sell a product that somebody else produces. You could look it up (Our Dog Blue, baby, look at the label.)

    You didn’t see the whineries offer a bill to eliminate the wholesale requirement on the major producers, the Gallos and other giant wineries. In a truly free market, those hobby and tax loss whineries wouldn’t last a fortnight. They want it both ways.

  10. Ray Hyde Avatar
    Ray Hyde

    Whew.

    “Some of the better selling products are produced elsewhere and just bottled in Virginia.”

    OK, so what? Isn’t thatpart of the free market, too? Won’t those products also fail unless the fill a market desire?

    As for hobby and tax loss wineries, or any other business for that matter, I suspect many of them start of as hobbies or back yard operations. I know of a couple of machine shops and excavating companites that started that way.

    Businesses don’t spring to life magically profitable from the first day. In order to have a “free market” the fledglings need to be protected until they get their wings.

  11. Jim Bacon Avatar
    Jim Bacon

    Anonymous 7:30, yes, I would advocate dismantling “the entire wholesale system and ABC system.” Preserve the alcohol taxes, if need be, regulate sales to minors, uphold public safety standards, that sort of thing. But the current system protects vested interests and punishes consumers.

  12. Anonymous Avatar
    Anonymous

    Ray, they have had 25 years of special treatment, advantages that violated the commerce clause of the constitution from day one. If you want to give them a leg up, find another way. The wholesalers were on the same side as the wineries during the litigation, seeking to preserve the special treatment. But the court ruled in favor of the plaintiffs (big out of state wine producers and big box retailers). Do what Jim wants, give them a totally unregulated market, let Wal Mart cut a deal with Gallo to corner the market, and the Virginia wineries are dead. Be careful what you ask for…They need to quit whining, form a coop and adapt. And they are going to need to increase the efficiency of their operations — flush out the fat that built up with under the protectionism.

  13. Jim Bacon Avatar
    Jim Bacon

    Anonymous 10:33, You raise issues that must be taken seriously. Let’s say Virginia moved to total deregulation of wine, beer and spirits. Let’s say Gallo cut a deal with Wal-Mart, Kroger and anyone else who sells wine. Would that really help the “whineries”? Do they sell many bottles to Wal-Mart and Kroger now? Isn’t their main market the restaurants and wine shops?

  14. Anonymous Avatar
    Anonymous

    The very, very small ones sell out of their pickup truck to the local restaurants and rely on that, but plenty also sell out of their delivery trucks to the grocery stores. That is their goal and some have made it. You see plenty of Virginia wines on the shelves in Kroger and Food Lion and Total Wine (some more Virginia product than others) and that is their ultimate goal. The small guys whining in the paper dream of making it bigger, I assume. Otherwise it really is a hobby.

    The laws in place prevent the retailer from buying direct from any wine maker, from even owning one share of stock in a producer. Yes, I do think you take that away and within a few years deals will be cut to reduce market choice. Look at the vertically integrated gasoline industry. How many megoliths now control that compared to the more vibrant market 30 years ago? The resulting wine might be cheaper, and if lower price is your total measure of success, that is your path. But when a decent bottle at Kroger is $2.25 or $3.50, how does that help the little guy make it in the cold hard world?

    Under the law as it now stands the whineries can still sell from their facility all they want (Virginia Gentleman or Coors can’t do that), they can sell at festivals, they can direct ship two cases to an individual consumer. Those that adapt will thrive working with wholesalers. The coop model deserves a try before we start doing the Chicken Little Dance.

  15. Anonymous Avatar
    Anonymous

    Anon 11:11-

    Your point about the vertically integrated gas market is well taken but the same thing can be said of the big breweries. There are a few big players and that’s it.

    Forty years ago there were dozens of regional beer breweries. Then, they all went out of business or were bought up by the big guys because they couldn’t compete. The big guys consolidated their brewing operations and produced enough beer so that they could distribute on a national scale. Then, it was all but over for any brewer that couldn’t deliver enough product to distribute nationally.

    Yes, those small/middle sized breweries that adapted to a mass-market distribution system survived. But, many were forced out of business because of a distribution system that is not equitable.

    The current distribution system in The Commonwealth only benefits two entities. Those folks that have the rights to distribute specific brands and the big breweries that make those brands.

    At the end of the day, the current distribution system in The Commonwealth is nothing more than a Cartel. The definition of which is, “A combination of independent business organizations formed to regulate production, pricing, and marketing of goods by the members.

  16. Anonymous Avatar
    Anonymous

    I think the beer market with its hundreds of micro brews and regional beers is a perfect example of the success of the current system. Without the same kind of segregation between wholesalers, retailers and producers, the market would be very different.

  17. Scott Avatar
    Scott

    I am with Bacon on this.

  18. Richmond Wine Consumer Avatar
    Richmond Wine Consumer

    To: At 11:03 AM, Anonymous said…

    This may be an old thread but I need to comment…

    Do you really believe that all of us wine consumers are going to buy only from Walmart and only Gallow in a free market? RONFLOL! Yes – I can see the lines for MD2020 now.

    In a free market choice is better – less choice is worse. I’m for consumer choice. Wine is a product with with many variations consumed by persons with varied tastes and budgets.

    Let’s be honest…we have a system that protects profits for wholesalers. They provide no benefit for the consumer what so ever. Some may remain in a true free market but only as needed by the market.

    Dismantle the whole darn thing – I called my delegate today and will do so again in the morning to make my views known.

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