Three-Tier Innovations: It’s Now a Little Easier to Drink the Wine You Want

There are lots of great wines being made by small producers all over the U.S. The problem is it’s hard to get your hands on them because of the three-tier distribution system. Happily, because of some innovative business models, we are beginning to get some work-arounds that will help get wines into the hands of consumers who want them.

If you’re reading this blog you probably have some idea about how 3-tier works. But here is a quick summary.When prohibition was repealed, the U.S. still had an interest in making alcohol hard to get, and they wanted to keep the mob out of the liquor business, so they purposefully designed an inefficient market, giving each state the ability to develop its own rules for distribution.

The three-tier system has three parts—the producers, who can sell their products only to a distributor, the second tier, who is the only entity that can sell to the third tier, retail stores and restaurants. With the exception of purchases made directly from the winery, a consumer can buy wine only from a retailer or restaurant. And a restaurant or wine shop can buy only from a distributor.Thus, in much of the country, ordering wine from an out of state winery is illegal and in every state ordering wine from an out-of-state retailer is illegal.

If you taste a wine in New Mexico on vacation and you want to buy it at home in Minnesota you can’t because the Minnesota distributor doesn’t carry it. That might be OK if their were lots of distributors in Minnesota who carry unique, boutique wines, but there aren’t. Because of industry consolidation most wine is sold by large distributors who want to deal only with large producers. Because they can buy large quantities from a large producer they get better prices, have fewer shipping hassles because they deal with only a few companies, and by working only with large producers they don’t have to worry about running out of a wine.

If you’re a small winery you can forget about getting a distributor. At best you can find only one of the increasingly rare small distributors but they lack the clout to get your wine on the shelf. If you’re a restaurant you basically have to buy from the same 20 or 30 wine companies everyone else is buying from. And because each state has different regulations governing the sale and shipping of wine across state lines, it is costly and time consuming for small wineries with limited staff to navigate these regulations. Only three states have reciprocal agreements that allow retailers to ship across the state lines without getting a separate license—Idaho, California, and New Mexico. Only 10 states allow retailers to even apply for a license to ship across state lines.

The system still exists because state law enforcement likes it,  the big distributors like it and they have lots of dollars to spend on lobbying, and the courts have ruled it is constitutional.

But two companies have come up with innovative solutions that are making it easier to get the wines you want.

VinoShipper, is an Internet platform that enables consumers access to wines from wineries who have entered into an agreement with VinoShipper. VinoShipper maintains their own shipping licenses for most states. When a consumer places an order, the winery actually transfer the wines to VinoShipper and thus can ship under VinoShipper’s license avoiding the hassle of dealing with each state’s regulatory regime.  This is great for consumers but doesn’t do anything for retailers or sommeliers who still must buy from a distributor.

LibDib (aka Liberation Distribution), a relatively new company operating out of San Jose California, was invented to solve the problem for retailers. It is an Internet distribution platform whose expressed aim is to level the playing field for small producers by efficiently connecting producers with retailers and eliminating many of the pricing and marketing practices of the big distributors. LibDib doesn’t needs a large sales staff or warehouse space thus bringing down the cost of distribution. There is no minimum purchase and any winery regardless of size can have their product distributed through LibDib.

Libdib’s operation is not restricted to wine. Spirits and beer are also available through their website. So far they’re operating only in California and New York but promise to expand soon.