In my previous post I tried to explain the definition of a wine club, and the difference between a retail wine club and a winery wine club. In this post I will try to explain the evolution of the wine club and why they exist in the first place. The fact of the matter is wine clubs are now basically loyalty programs, but that’s not how they started.

A (Very) Brief History of Alcohol in America

It’s 1933 and America’s great experiment, Prohibition, is failing miserably. Americans now disapprove of the 19th Amendment by an overwhelming majority. Organized crime has become more brazen and incredibly wealthy distributing illegal hooch from Canada, Europe, and the Caribbean. Moonshiners are showing off their get-away cars in a new sport called “stock car” racing. Citizens are poisoning themselves with “bath tub” gin and wineries are selling unusually high amounts of “sacramental” wine. The federal government has had enough. However, Prohibition was a part of the Constitution and, as we currently know with the ACA, turning it back won’t be easy. It will require another Amendment and many states are still quite satisfied with the status quo. Compromise will be necessary.

Reticent states insisted they should be able to control the flow of alcohol across their borders. Legally, interstate trade is protected under the Constitution–but these were desperate times. The solution came to be known as the 3 Tier system. It declared that alcohol production, distribution, and retail were to be separated entities giving states full control over distribution. Retailers would not be allowed to purchase alcohol directly from a producer, making each state’s distributor a gatekeeper. It was a strange “tail wagging the dog” compromise that was hastily drafted for ratification, albeit wrought with loopholes and constitutional hypocrisy. Some states like Utah and Ohio chose to handle distribution as a government function. Other states restricted distributor licenses to just a handful. Subsequently, 80 years later the system looks nothing like what was intended and is straining in the face of corporate deregulation and the internet.

A (Very) Brief History of Wine Distribution in America

After the end of Prohibition wine was largely made in bulk by brands like Gallo, Inglenook, and Almaden. With so few producers making relatively few large volume labels, it was easy for distributors to carry virtually every wine made. However, as early as the 1950’s small wineries in California like Robert Mondavi, Louis Martini, Beaulieu Vineyards, and others were producing small batch wines. Most of the country didn’t take notice until the famous Paris Tasting of 1976 when California Cabernet and Chardonnay suddenly achieved world acclaim. Small wine producers started popping up everywhere–particularly in California, which to date has over 1,500 wine producers. On the other hand, while the number of wine producers was exploding, the number of state distributors were doing the exact opposite. One of the loopholes of the 3 Tier system permits distributors to operate in multiple states, thus enabling mergers and acquisitions. A once small Florida distributor called Southern Wine & Spirits now controls the flow of alcohol in over 35 states. The result: thousands of wineries trying to get a relative handful of distributors to carry their products.

Introducing DTC Shipping

What we have here is a failure to distribute which, when you think about it, is just another form of prohibition. And like in Prohibition, consumers and wine producers often became partners in crime. With a nod-and-wink wine would be shipped marked as “olive oil” or some other non-restricted product. Punishment for such crimes–especially for the winery-could be severe, including loss of their wholesale license. Effectively banning the sale of their wine to the entire state! However, wine producing states started to realize it was unreasonable and just bad business to not allow their own small wine producers the ability to sell direct-to-consumer (DTC) when the consumer had no other means to purchase the product. “Reciprocity” deals, as they were called, were drawn up between states that allowed the free flow of wine between producers and consumers of limited quantities. Eventually, other states started opening up some form of direct shipping as well. Even though wholesalers and distributors effectively sought legislation to strike down reciprocity, the proverbial cat is now out of the bag and over 40 states now allow some form of DTC.

The Inevitable Collision

To say the least, wholesalers and distributors don’t like direct sales. They view it as a loophole to what is their constitutional domain. They have fought it tooth-and-nail over the years through lobbyists, law suits, and political contributions. However, consumer demand, producer frustration, and the enforcement of interstate trade laws have been slowly chipping away at their stronghold. Given their situation you would think they’d try to be more accommodating to small producers. In fact, again, they are doing just the opposite. They are shunning them in favor of working more exclusively with wine conglomerates. Why? Well, they actually have mutually exclusive motivations:

• For conglomerates, forcing small producers to sell out increases their own portfolio. Having more brands gives them leverage over distribution.

• For distributors, dealing exclusively with conglomerates enables them to access larger portfolios with less leg work and more bargains.

It’s a win-win…except for consumers and retailers. In many instances, wine shops and restaurants are forced into purchasing big brand wine since most of them are at the mercy of what the distributor carries. Meanwhile in stores wine aisles are looking more like cereal aisles. Lots of pretty labels…from just a handful of corporations. So the battle rages on, but inch-by-inch DTC is gaining ground. Since I entered the wine biz 5 years ago formerly stalwart distribution states like Pennsylvania, Massachusetts, and now Oklahoma have opened up. Fundamentally, 3-Tier violates interstate trade commerce law and everyone knows it is just one Supreme Court decision away from being overturned.

DTC = Wine Club

Oh yeah, back to wine clubs. Small batch wines are the least likely to be distributed for obvious reasons. They are also often the most highly rated available. Consumers clamor for these wines, but buying them takes timing. Many of these wines disappear weeks, or even days, after they’re released. Oh sure, you can get on an email list, but wouldn’t it just be better if you can have your favorite new releases automatically shipped to your door when they come out..guaranteed? This is why, as I alluded in the beginning of this series, I favor winery wine clubs over others. Retail clubs have to rely more on gimmicks to compete. I find some of their claims to be rather dubious:

• We search for hard-to-get wines. As I said before, if they’re not coming directly from a winery, they are sold on the open market. Look it up in your Delectable app…you’ll probably find it. Besides, just because it’s hard to find doesn’t mean you’ll like it.
• Our panel will select wines especially for you. Really?! An “expert” selects wine for someone they don’t really know. This is literally the blind leading the blind. Why not just go to your local wine shop and ask them for advice? At least you can actually meet the expert.
• We’ll select wines based on your sample ratings. Maybe you’ve seen this. They send you some sample vials of wine. You tell them which ones you liked and…Voila! Every wine after will be perfect. Like most, the first wine I ever tasted and liked was sweet and cheap. My taste has changed quite a bit since then…and continues to do so. Listen, if you really want to track what you like use my software YnoTasting. After all, it’s your palate.

Many retail clubs offer great wines and values, but the fact is only a winery wine club offers small batch, hand crafted wines that can’t be found any other way. In the end, wine clubs aren’t for everybody. They’re expensive and shipping can be a pain. However, increasingly wine clubs and DTC sales are the only champions of consumer choice in the wine industry.

In my final post on this subject I will discuss why small batch wines matter and how the craft beer boom may actually save the wine industry…if it doesn’t kill it first.