Thursday, March 9, 2017

Three-tier System & Sustainability

After Tuesday's class I got to thinking about the question Alyssa posed: who in the wine industry could (or would) play the role of Starbucks in pushing for a global sustainability certification system?

It seems to me that this is yet another area in which the three-tier system creates strange incentives. The disparate state regulatory regimes make it difficult (from a compliance cost perspective) for small players in the producer and retailer tiers to operate in multiple states. So if a small retailer is operating exclusively in California, and has modeled its business practices according to the Lodi Rules, what incentive does it have to push for a different national or global sustainability standard that would require it to alter its business practices?

Were it easier for retailers to manage the regulatory compliance issues (e.g., alcohol regulations were conducted at the federal rather than state level), it'd be easier for retailers to operate in multiple states due to reduced compliance costs. In turn, a nationally (or globally) uniform sustainability certification program would be preferable.

But accepting that the three-tier system is here to stay for at least the next decade, the question remains: who is the Starbucks of wine? Aside from Robert Parker, I think the two most viable candidates are: (a) large national retailers like Costco or Total Wine that have the resources to operate in multiple states; or (b) a third-party marketer like Vivino. (a) was discussed a bit in class, but a little more on (b): 3PMs operate outside the three-tier system, so have more flexibility to operate in multiple states (or, at least, their licensing requirements fall in a grey area). Given their national or perhaps one day global reach, they might very well benefit from and push for a uniform sustainability system (assuming adequate capital, which probably isn't a great assumption).

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