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How Antitrust Probes Could Make it Easier to Order Booze From Your Favorite Distillery
The Biden administration might accidentally drag America's archaic liquor laws into the 21st century.
If you want to get your hands on a certain bottle of wine in the United States, the process is fairly straightforward. You search up the bottle online, find a wine shop willing to ship, and have it delivered to your doorstep. You can also go straight to the source. If your favorite Paso Robles Cabernet or Willamette Valley Pinot Noir isn’t available at your local shop, you can order it directly from the winemaker, at least in the 46 states plus D.C. where direct-to-consumer (DTC) wine sales are permitted. If you’re tech-savvy enough to use Amazon, you have the necessary skills to easily obtain pretty much any wine you’re willing to pay for, provided it’s available somewhere in the U.S.
The same can’t be said for spirits. Most states remain firmly tethered to a “three-tier system” widely adopted during the run-up to (or aftermath of) Prohibition. At some point we’ll likely do a whole post solely on the three-tier system, as the history is fascinating and to this day it has an outsized impact on what you can and can’t purchase at your local bottle shop. But suffice it to say that most states require spirits producers to sell their inventory through a distributor, who then sells to a retailer, who then sells to you. Many states allow retailers to deliver spirits locally, and some even allow distilleries to ship spirits directly to customers within the same state. But generally speaking, shipping a bottle of spirits directly from a distillery to a customer remains verboten in the vast majority of cases.
This patently unfair distinction between wine and spirits evolved into a more significant pain point for smaller spirits producers over the past 18 months as online alcohol sales and delivery went from nascent convenience to widespread pandemic-era practice. And there are plenty of critics of the three-tier system and associated prohibition on DTC spirits sales who have long argued that the regime benefits large, nationally-distributed spirits producers while making it more difficult for small, independent distilleries to compete. So naturally it’s a very big deal that the Biden administration announced last month that Big Booze will join Big Tech, Big Pharma, Big Ag, and several other Big Sectors under the microscope as more than a dozen federal agencies seek to crack down on anticompetitive practices.
The DTC question is but a small part of all this. The scope of this anticompetitive scrutiny is broad, and the probe will likely focus most of its attention on widespread industry consolidation among both distributors and producers over the past few decades. The number of wine wholesalers in the U.S. is now a quarter of what it was in the 1970s. Three distributors — Southern Glazer’s Wine and Spirits, Breakthru Beverage Group, and Republic National Distributing Company — control something like half of that distribution market. Meanwhile, massive wine and spirits conglomerates like Constellation Brands, Gallo, and the like are, well, massive wine and spirits conglomerates. Each owns significant market share through dozens and dozens of brands.
Whether or not being big is the same as being “anticompetitive” under federal law is for someone else to determine, but the relative size and financial weight of these companies can indeed make it difficult for small distilleries to grow their distribution, or for new distributors to break into the extremely competitive market for wholesaling booze. As such, some in the industry are hopeful that regulatory overhauls aimed at increasing competition will include a lifting of the widespread ban on DTC retail for spirits producers. This would by no means undercut the three-tier system entirely. As noted, wine is already available DTC in most states and the role of distributors in wine retail remains firmly entrenched. But it would open up one more crack in the facade of a regulatory framework that’s outdated by roughly a century.
It would also prove a big win for both small distillers and consumers across the country. Whiskey nerds anywhere in the U.S. could order a bottle of very excellent Excelsior Straight Rye Whisky from New York’s Coppersea Distillery and taste it side-by-side with Blanco, Tex.-based Milam & Greene’s Port Finished Rye (which, by the way, just won Best of Show at the American Craft Distillers Association’s Craft Spirits Awards, primarily because it’s delicious). Neither of these relatively small operations has distribution at retail in all 50 states (or even most states), and for many consumers obtaining a bottle of either whiskey would prove a chore. But if those distilleries were allowed to connect and transact with customers regardless of location via the Internet, the U.S. spirits trade just might start to resemble a 21st-century retail industry.
There is, naturally, a catch. As the potential consequences of regulatory overhaul began to crystalize last month, the Wine & Spirits Wholesalers of America — a trade group that most definitely has a dog in this fight — fired back with a rather lengthy comment on the current trade structure of the U.S. beverage alcohol industry. TL;DR: The current marketplace is “dynamic” and there’s nothing wrong with the status quo. The group’s hot take on DTC commerce expansion — “Producer DTC is not a panacea” — was fairly boilerplate for a trade group whose members are the very middlemen that DTC spirits sales would circumvent.
But the WSWA did make at least one salient point. E-commerce, they said, is ultimately beholden to Big Tech, and any expansion of producer DTC would simply trade the influence of one set of deep-pocketed companies (Big Booze) for another (Google, essentially). The cost of search engine optimization still favors producers with big marketing budgets, so for small producers DTC sales won’t really alter the competitive landscape.
I don’t buy that argument entirely, as many consumers know exactly what they want and would order it by name if only they had the opportunity (that is, SEO is less of a problem if my search terms are “Milam & Green Port Finished Rye Whiskey” rather than “what is a good rye whiskey” or whatever). And producers aside, DTC sales would do a whole lot for consumers who would have far greater choice in a much more diverse marketplace. This is probably why a recent Distilled Spirits Council poll found 80 percent of consumers surveyed would like the option to buy spirits directly from distilleries.
However, I do wonder if such arguments, dubious or not, will be enough to sway our vast, monolithic bureaucracies to maintain the status quo rather than risk handing greater influence over yet another industry to Big Tech, which is the real target of all of this antitrust action in the first place. If nothing else, the whole episode provides further evidence — assuming you needed it — that the icy, impersonal tentacles of Big Tech touch absolutely everything and no one is safe. Enjoy your long weekend! —CD
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What We’re Drinking: Maestro Dobel ‘Pavito’
‘Pavito’ might come across as a bizarre handle for a tequila — it means “little turkey” in Spanish — but those well-versed in agave spirits know turkey has long played a role in tradition mezcal production (and remember, tequila is a sub-genre of mezcal). So it’s in fact a bit surprising that no one — at least no one we know of — has yet released a “pechuga” tequila as a commercial product. It’s less surprising that Maestro Dobel was the one to do it.
Hitting store shelves this week, Maestro Dobel “Pavito” starts as MD’s Silver tequila, which is double distilled in copper pot stills. It then undergoes a process traditionally employed by mezcaleros to craft a traditional mezcal known as “pechuga” that incorporates elements of a bountiful harvest into the distillation process. Fruits, herbs, and spices can be a part of pechuga production, but the process generally centers on proteins like rabbit or pork might be used, but more often chicken or turkey breasts (“pechuga” translates to “breast”). In typical pechuga production, finished mezcal may or may not be left to macerate with some fruit or spice elements for a time before going through a third distillation with the protein (and perhaps some botanicals and/or other aromatic ingredients) bundled inside the still as the liquid vaporizes and re-condenses. This process extracts oils and aromatic compounds from those added ingredients, infusing the resulting distillate with additional body, texture, and flavors.
Pechuga mezcal is typically associated with celebration or special occasions, and while not necessarily difficult to find it’s not exactly common either, making up a small percentage of total commercial mezcal production. Meanwhile, tequila made via the pechuga process is virtually unheard of. Maestro Dobel is in fact calling its Pavito “the world’s first pechuga tequila.” That alone might be reason enough for agave enthusiasts to track down a bottle. But it doesn’t hurt that Pavito is also very good tequila. Bright, herbal, and floral on the nose, it serves up peppermint, anise, citrus, and some cooked agave on the palate. This is breakfast tequila — light, lively, fruity, and slightly savory. Find one of these limited-edition bottles while you still can. $60
New Orleans Still Needs Help
I don’t need to spend a lot of words here explaining that the people of New Orleans and Southwest Louisiana are hurting right now in the wake of Hurricane Ida. So I’ll instead spend some saying that New Orleans is America’s greatest city, it’s done so much for our nation’s cuisine and cocktail culture that we’ll never be able to repay it, and every spare dollar helps good people stuck in a very bad situation get back on their feet. I’ll just leave these links here for those of you with some spare cash you’d like to put to work.