In a recent public appearance, Wine & Spirits Wholesalers of America executive vice president and chief executive Juanita Duggan reminded wine producers, industry executives and journalists that the three-tier system for distribution of wine, beer and spirits is thriving in the United States, and that the legacy of Prohibition lives on.

"Make no mistake about it, Prohibition did not end in our country in 1933," Duggan said. "The country simply gave the rights to the states to decide. Prohibition's legacy is alive and well in our country. It's hard for people to imagine that Arkansas, Tennessee, North Carolina and many others have completely dry counties."

Duggan was speaking at the sixth edition of Wine Evolution, a global wine marketing forum held annually in Paris. She was asked to respond to the influential wine critic Robert Parker's prediction of the total collapse of the three-tier system of wine distribution in the United States. In an October 2004 article for Food & Wine Magazine, Parker called the three-tier system "absurdly inefficient," said it "costs the consumer big bucks," and wrote that the "narrowly restricted approach (blame all the lobbyists funded by powerful liquor and wine wholesalers) is coming to a dramatic end--hastened in part by the comparative ease of ordering wine over the Internet."

"I hate to spoil the ending for you," Duggan told conference attendees, "but I think you can probably understand that I'm going to tell you, that's not the case."

"Morality" was a key theme in Duggan's discussion of the issues.

"I don't think any discussion of the U.S. market would be complete without some discussion of all the political and public policy issues that are occurring there, and what the basis for our system of regulation is in the United States," Duggan said. "Americans are very much driven by values and morality.... Our election in November showed exactly what I'm talking about, that this issue of morality and values still very much emanates from the United States. Even though there are supposed distinctions between red states and blue states, there is a very strong current, everywhere, of morality."

Beyond explaining to the largely European audience how culture, social mores and diverse religious points of view led to a 13-year ban of alcohol, Duggan outlined how the three-tier system for distribution was created upon Prohibition's demise. Not surprisingly, she touted its many successes to this day.

"The fact that alcohol is the only consumer product that is even mentioned in the Constitution is significant, and it has not only one but two Constitutional amendments," Duggan said. "That speaks directly to the divide of the public psyche, to America's schizophrenia with the product."

Duggan, previously vice president for federal relations with Phillip-Morris, pointed out that people in North Carolina "have a very different viewpoint about what the level of access to alcohol ought to be in their community" than do people in New York or California. She said the three-tier distribution system, "although convoluted, has proven to be a very effective and very efficient method of controlling what Americans see as a very socially sensitive product.

"Instead of thinking that our history is in the past and ended with the repeal of Prohibition, you need to think of it as being present," she reminded the audience. "In fact, our system serves as a gold standard for distribution because it has given birth to one of the largest, most dynamic and most competitive industries in the U.S."

Noting that the number of wineries doing business in the U.S. continues to skyrocket, that per capita consumption is increasing and that thousands of wine products are available in some markets, Duggan argued that most Americans support and embrace the three-tier system. "The public understands the distinction that alcohol laws and social mores are inextricably linked, and there's no support for upsetting the delicate balance that was achieved in the state regulatory process," Duggan said. "Americans just think that alcohol is a socially sensitive product, and they don't want to see it readily available."

With respect to the U.S. Supreme Court's pending decision on direct shipping, Duggan said the issue boils down to whether out-of-state sellers can be treated differently than in-state sellers. Quoting one of the judges, however, she said the issue is "really a question of ‘are you going to have regulated sales or are you not going to have regulated sales?'

"We're obviously hopeful that the court is going to agree with us and 30 other states that joined with us to argue that state governments do have the ability to prohibit unaccountable sales," Duggan said. "Let me say very directly to Mr. Parker, that the prediction of the total collapse of the three-tier system in the United States is simply not true. To paraphrase the great American writer Mark Twain, ‘The news of our death is greatly exaggerated.' Support for the American alcohol system remains very strong. It is the system that provides the right balance that Americans want and is part of our political reality. Ignore it at your peril because Americans want reasonable sales, restricted access; they want it to be controlled."

A wine producer asked Duggan about her position on wholesaler consolidation, "given a general feeling that it is creating a bottleneck and strangling access to the market for a lot of producers around the world that don't have the muscle to be heard from." She replied that the phenomenal growth of imports in the U.S. belies that viewpoint. "There are new products that are not made in large quantities, yet they have found a foothold in the United States and now they are a quarter of what Americans drink," Duggan said. "Our system of distribution is not preventing those people from creating markets in the U.S. The fact that we have a wine glut is not helping, the fact that there's been more and more acreage planted, and obviously there was news from France this week about the destruction of surplus volumes of alcohol: that's a very serious problem and doesn't have anything to do with the distribution network."

A reporter asked a question concerning a program at WSWA's convention that was designed to encourage attendance by small wineries. None of those particular small wineries that participated in the program and attended the convention secured distribution.

Duggan said WSWA offered these small wineries free registration to be on the exhibit floor. "We weren't guaranteeing anyone any distribution. I had lots of follow-up conversations with any number of those people, and one of the problems I encountered was that in terms of my association's membership, they were looking for smaller, more niche-oriented distributors, which are not the ones with whom we have a lot of relationships."

A reporter also noted that Costco has sued the state of Washington, claiming that the distribution system there violates anti-trust laws (see WBM, January 2004). He asked what the ramifications would be if Costco were to prevail in court.

"The issues that are at stake in the Supreme Court and that are at stake in Washington are inextricably linked," Duggan replied. "They are the same legal premise which is why you can't separate one from the other. If Costco wins that case, I think the biggest problem will be for the producers and suppliers. I don't think it's going to be as big a problem for distributors as it will be for producers who wind up in an environment where there are only a few brands and the price pressures are very severe, and they lose power over their brands and make a lot less money. I think that's a huge threat. I'm not sure how much the domestic wine industry in the U.S. has really contemplated that." wbm