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Posted: June 03, 2009

Decoding three tiers, 50 states & decades-old liquor laws

The wonder of wine importation and distribution

Cathie Beck—The Wine Wench

American wine importers and distributors are a funny breed — they’ve found a way to making a living while bowing to federal regulations, individual state law and something called a “three-tiered system.” Wine importers and distributors are those who legally acquire, then sell wines to U.S. distributors and retail outlets.

Those savvy importers are, however, no funnier than the nature of the beast called wine importation as a whole. It’s a bit of a wonder U.S wine drinkers ever see a bottle of wine — particularly an imported bottle of wine — appear in a neighborhood shop or liquor store. Most wine, particularly outside of the U.S., continues to be produced and packaged in small, often family-owned vineyards, and much of it has little or no marketing to push the product, including no Internet presence.

Yet importers prevail and Americans, thankfully, do see an array of French, Spanish, Italian and a host of other countries’ bottles on Colorado stores’ shelves. Ron McFarland is president and founder of L & R Imports, a wine import company specializing in New Zealand wines. For the last five or so years, McFarland and his wife have imported wines from seven different small New Zealand wine producers, selling those wines within sixteen markets throughout the United States, through distributors and retailers.
 
“If you can imagine, there’s a pipeline of wine that’s almost infinite in its nature that gets forced through a three-tiered system determined by law,” says McFarland. “It looks like this: A Colorado or any domestic winery is the first tier — they’re the producer and they can sell wine directly to consumers at the cellar door. But if they want to expand their distribution, by law they must sell to a licensed wholesaler in that state — that’s the second tier. Finally, the third tier is the retailer or restaurateur. The wholesaler sells to them.”

If the wine originates outside of the U.S., a fourth layer is added to the chain, and that’s where McFarland comes in as importer. “It then becomes producer, importer, wholesale and then retail,” says McFarland.

Likewise, Tom Lane is a French and Italian wine importer, who also works with New Zealand wineries. “In talking about what an importer does,” says Lane, “it’s important to note that there are various roles. The one I play is a very low-overhead kind of way, which ends up getting wine into the pocket of a consumer. 

“When it comes to transporting and selling those wines, it’s complex,” he adds. “The three-tiered system is a tax system to benefit the state. That’s why there is a resistance to Internet sales to consumers or anyone else. When wines get shipped by UPS, for example, a state doesn’t get its tax share on that sale."

Three-tiered distribution system aside, each and every state has its own laws concerning wine and liquor sales. So, in addition to ensuring that all parts of the three-tiered processed are adhered to, wine makers and distributors (and importers) must know and abide by the fifty variations of state law. “And the states differ in their law,” says Lane. “For example, Florida and Kentucky are famous for their laws concerning wine sales. California wineries can’t ship wine to those states because of their protective laws by the states to protect their tax gains. Utah operates as a theocracy; consumers in that state must buy through one store only. In Pennsylvania they have a ‘closed’ system, meaning everyone must buy from a state liquor or wine store.

Nick Trior owns and runs The Wine Company, a small retail specialty wine store in Greenwood Village. In specializing in off-the-beaten-path wines, Trio waxes a bit pessimistic on consumers trying to bypass the three-tiered system and simply purchasing wine from a favorite vintner — any wine drinker’s ultimate temptation. “Shipping wines from overseas is particularly problematic,” says Trior, “and the cost is very high.”

Furthermore, says Trior, smaller, overseas wineries that only produce a few thousand cases a year, often don’t want to cross the hurdles necessary for exporting to the U.S. “A lot of those tiny wineries have great success in their local area so don’t have much incentive for getting their wines here,” he says. “They have many hurdles they must cross in order to distribute here. They must get labels printed with the U.S. government warning on it, plus determine whomever will be importing on their behalf into the U.S. Clearly, if the winery is having good local success, they are not motivated to go through all of that.

“It is possible,” Triot adds, “but there are a good bit of hassles and government red tape for the producer and for the importer. And there are security concerns. It’s getting harder to ship over here because of homeland security issues.”

As if all of those barriers weren’t enough to make it difficult to get the special or small-vineyard/non-marketed wine to the table, Colorado is fairly restrictive in who can retail sell wine. “Multiple licenses for wine retailers (stores) are not permitted in Colorado,” says Lane, “which is why we don’t have a wine shop in every store.

“For example, Albertson’s Grocery owns County Line Liquors,” he adds, “but Albertson’s has the license to just the one store. By law, Colorado’s supermarket chains can’t sell wine. But that’s not necessarily a bad thing.

“National supermarket chains are interested in national marketing programs,” says Lane. “They are interested in mass marketing. The ones who do sell in other states have buyers who could care less about quality; they’re interested in the price. Those supermarkets are more attuned to what the great cereal and juice companies are selling, they’re involved in the big, big brands and are not attuned to family-owned shops.

“On the other hand,” Lane adds, “in Colorado we have an enormously successful wine culture. It’s a very broad seeking, quality seeking wine culture that is not replicated by the other 49 states. We have a well-traveled, educated population in Colorado. A lot of people here have been exposed to things from all over, so we have a wine drinking population interested quality, disproportionately from most other states.

“Even in the mountains,” says Lane. “In almost every case, with almost every retailer selling wine in this state, there’s a professional on the premises. And those professionals develop a level of expertise well beyond the level of expertise in the everyday supermarket in most states.”

But many a wine drinker would like to combine food shopping, including and maybe especially higher-end food shopping, like Whole Foods, with their wine purchases. Yet Lane says that combination would wreak havoc with both the food and wine retail industry. “The range of choice of wines Colorado has would diminish if we went the way of California, where they do carry wine in grocery stores,” says Lane. “You’d see a lot of wine stores go out of business here, if every grocery store in their neighborhood sold wine. Supermarkets might have some good wine, but those markets would not have the range and certainly would not have the informed, expert wine staff we presently have in Colorado wine stores.”

So, how does the consumer get that great Spanish cabernet from the family-owned vineyard outside of Barcelona to their Colorado dining table? Scrappiness seems to be the name of the acquisition game. “The cheapest way,” says McFarland, “is to simply buy it when you find it. It’s a nightmare to try to find out where a wine you discover in another country can be found here in Colorado. If you find a wine in a restaurant, it’s hard to track. If you’re at a winery, you might be able to find out if there’s a U.S. distributor and get in touch with them.

“But think of the logistics,” he adds. “You’re on vacation, the wine tastes great, but you can’t carry it on a plane anymore, largely because of weight restrictions.”

“There is a site, www.winesearcher.com,” says McFarland, “and while it’s not absolutely current, you can type in a brand, and retailers who have signed up and listed their inventory will appear, which could tell you some retailers you can connect with to find the wine.

“Beyond that?” he adds. “Take a photo with a digital camera of the label and go home and email the winery. If they email back, with a U.S. distributor, hopefully, that distributor hooks you up.”

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Cathie Beck, a/k/a The Wine Wench, can be reached at: TheWineWench@comcast.net. Please forward any and all wine events, wine-related news items directly to her.

Enjoy this article? Sign up to get ColoradoBiz Exclusives. The opinions expressed in this article are solely that of the author and do not represent ColoradoBiz magazine. Comments on articles will be removed if they include personal attacks.

Readers Respond

Corncob...so what is your stance? By Keith Miller on 2009 06 03
Folks ask your retailer for that certain bottle and if they do not help you please go to another store. Be persistent!!! Why do you have to be persistent...Because most do not want to work hard...simple...lol and kind of sad. See I think grocery Stores will be good...They will filter out those who really do not belong in the wine business. Strong will survive! Keith Miller http://www.denverwineguy.com Hey I 27 years I have been in this biz...phew! By Keith Miller on 2009 06 03

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