WARNING: ACSA Proposed Routes to Market Endanger Consumers, Market Competition

Aug 05, 2024
Washington, D.C.
Proposed “modernization” measures by the American Craft Spirits Association set the beverage alcohol industry back to pre-prohibition era standards.

The U.S. three-tier system of alcohol distribution is the safest and most diverse in the world thanks in large part to the regulations that maintain marketplace competition and place public health and safety at the forefront of our industry. The American Craft Spirits Association (ACSA)’s response to  Jake Emen’s recent article U.S. Craft Distilleries Are in Crisis (read WSWA’s response in full) seeks to deregulate and dismantle this global gold standard under the guise of “modernization.”

 

A Golden Era of Consumer Choice

Today’s American consumers have more choices from more suppliers at more venues and at more price points than ever before. The wholesale tier makes that choice possible. To underscore the value wholesalers provide globally, one only needs to look at international markets, which, without an independent wholesale tier, are characterized by fewer suppliers, tied houses, and less choice for consumers –and far fewer opportunities for craft suppliers. 

 

The independent wholesale tier sets the U.S. beverage alcohol marketplace apart from the rest of the world. Market diversity is thriving, and consumer demand has grown to increase the craft spirits marketplace by 14% in the last five years alone.

 

The Role of Wholesalers and Market Support

As stated in WSWA’s initial response to Emen’s article – there are in fact, no “national” wholesalers, though three companies approach this designation. And while ACSA may claim multi-state wholesalers have too much market share, two decades ago there were no wholesalers that served even close to a national market, limiting growth opportunities and market access. Instead, new market entrants sought distribution through individual state-by-state partnerships. State by state distribution remains an option today, with a range of small, mid-sized, and large distributors in most markets. But today, brands also have the chance to find multi-state players, increasing options in the market.

 

The fact is craft distillers have the option to focus on individual state markets with single-state wholesaler partners while also pursuing multi-state wholesale agreements that build brands into nationally recognized household names. Either way, as our WSWA’s Access Craft Distribution Playbook shows, it is the partnership between wholesaler and producer that builds a brand account by account, market by market.

 

Blaming wholesalers for the industry’s challenges is shortsighted. The focus should instead be on how the entire supply chain, including wholesalers, can adapt to changing market conditions and support each other in navigating economic pressures.  Working together, not scapegoating, is where we should be spending our time.

 

DTC: Not A Silver Bullet, Not An Option

ACSA continues to advocate for direct-to-consumer (DTC) spirits shipping as a necessary component for market growth, despite its well-documented recent decline and the risk it poses to public health and safety. As addressed in WSWA’s original response, data show DTC sales in the wine and spirits sector have been declining year over year. This trend suggests consumer interest and purchasing power are not strong enough to support significant growth through DTC channels alone. 

 

What’s more, the 82% of craft spirits drinkers ACSA references amounts to less than 30% of total survey respondents and were largely college-educated men under the age of 34 with a household annual income above $100,000 – which clearly does not represent the vast majority of American consumers.

 

Furthermore, ACSA makes no mention of the increased risk of underage access in a DTC marketplace. In 2022, compliance checks conducted by the Massachusetts Alcoholic Beverage Control Commission found 96% of DTC licensees investigated accepted orders and payment from a 15-year-old and zero common carriers verified the age of the recipient upon delivery. 

 

More recently, in February 2024 the Vermont Department of Liquor and Lottery (VT DLL) released a groundbreaking compliance report shedding light on significant hazards and regulatory shortcomings within Vermont’s DTC market. The report found that during the sting, investigators attempted 116 online purchases of beverage alcohol of which 40 shipments were delivered. Of those:

  • No purchase was delivered completely lawfully.
  • Age verification was conducted only 20% of the time upon delivery by a common carrier, compared to 85-90% of in-store purchases. 
  • Two deliveries were made to a minor without the common carrier asking for identification.
  • Only 50% of the products delivered were shipped by a winery holding a proper Vermont Direct Shipper license. Of those, 80% failed to submit the required report to the DLL.

 

To learn more about the economic pitfalls and the health and safety risks associated with DTC alcohol shipping visit https://www.wswa.org/DTC-know-the-whole-story

 

Modernizing Marketplace Trade Practices

Last July, WSWA submitted comments to the Alcohol and Tobacco Trade and Tax Bureau (TTB) on possible modernizations to trade practice regulations. WSWA believes there are opportunities to modernize the regulatory structure, and that TTB is the best place for that to happen. WSWA’s comment encourages TTB to look at opportunities to address the digital marketplace by creating regulations that embody the successful principles governing the physical “brick and mortar” landscape. Critically, any such regulations should avoid carve-outs from a system that, at its core, is about maintaining a level playing field.

 

WSWA Calls for Industry Unity over Finger-Pointing

As stated in WSWA’s original response, blaming wholesalers for the industry’s challenges is shortsighted. The focus should instead be on how the entire supply chain, including wholesalers, can adapt to changing market conditions and support each other in navigating economic pressures.

 

During times of economic stress, it’s natural to seek causes and solutions for declining sales, but finger-pointing and divisive rhetoric only serve to fragment the industry further. Instead, all three tiers of the industry need to band together to find collaborative solutions that address the economic realities affecting consumers. By working collectively producers, distributors, and retailers can better weather the storm and prepare to thrive when consumer spending rebounds. Deregulation serves only to feed future problems with much higher costs and consequences.