How does the retail alcohol sales process work?

Tom Marquardt and Patrick Darr. (By Joshua McKerrow - The Capital) 9/27/12

Readers and friends often ask how the retail alcohol sales process works. They want a look behind the curtain of an industry that isn’t always transparent and is certainly wildly inconsistent. Frequent questions are: how do wine and spirits’ shops select their products? Where do retail stores buy their wines, or how are wines and spirits priced? Why are local laws incredibly variable between political jurisdictions?

Pat has worked in the retail wine and spirits business for the last 3 years and has some insight into these questions and others. He’ll try to answer some of these questions, starting with how wine is distributed and sold.

Every state and political jurisdiction has the power to levy laws about the sale of alcoholic beverages for off- and on-premise sales. This practice goes back to the repeal of Prohibition in 1933 when the federal government returned the rights to govern alcohol sales to local political jurisdictions, including states, counties and even individual towns. This has resulted in a hodgepodge of laws and regulations regarding alcohol sales that vary drastically across the United States. You can cross your state line and find an entirely different set of regulations – in fact, many consumers in restricted jurisdictions do cross state lines for more access or better prices.

There are some striking anachronisms. The Jack Daniels distillery is located in a dry county in Tennessee -- one of 26 dry counties in the state. Bourbon County, Kentucky, the home of the ubiquitous Jim Beam bourbon is also a dry county. Some states have dry regions, other states prohibit the sale of alcohol on Sundays or near churches.

Most states, like our home Maryland, follow a three-tier system – producers sell to wholesalers who sell to retailers. Everyone gets a cut. Some critics of this system claim that forcing retail stores to purchase their products from wholesalers limits the availability of choices to consumers. To address that concern recent legislation in many states allow consumers to purchase wine directly from producers and have it shipped to their homes without passing through their state’s three-tier system. However, there are restrictions on quantities.

On the positive side of the argument, competition among wholesalers has created an amazingly wide choice of alcoholic beverages for retailers.

An army of sales people from wholesale suppliers call on licensed retail stores every week, hoping to place their products there. Tasting their products, reading industry publications and considering requests from consumers are all used by retailers to make choices for their limited shelf space. Retailers are conscious of what will sell – obscure wines like gewürztraminer can sit on the shelf for years.

The pricing of alcoholic beverages by retailers is another widely variable practice. The rule of thumb is a 50 percent markup for wines, with beer and spirits taking a lower markup. However. frequent buyer/loyalty discounts and case discounts often erode retail markups. Some retail stores will advertise popular national brands at cost or close to cost to induce consumers to their stores as loss leaders. So it pays to comparison shop.

In a future column we’ll help you maximize your purchasing power and widen your choices. Meanwhile, if you have any questions, let us know.

WINE PICKS

• Niner Wine Estates Cabernet Sauvignon Estate Paso Robles Bootjack Ranch 2010 ($35). This is a terrific cabernet sauvignon with ripe cherry and cassis flavors and nose. A hint of oak and eucalyptus flavors develop in the glass over time. This wine is drinking well now with soft tannins and a lingering creamy finish.

• Montenidoli Vernaccia di San Gimignano 2011 ($23). This one of the few white grapes to hail from Tuscany, but it is one of our perennial favorites. Abundant citrus and mineral flavors with a hint of nuts. A lot of complexity and age ability for a moderately priced white wine.

• Tomero Malbec Mendoza Argentina 2011 ($15). This is a very deep and intense malbec that offers a lot for the money. Abundant dusty blueberry and blackberry flavors and nose in a nice oak frame. This is a very agreeable wine that matches well with bold flavored dishes.

• Domaine Terlato & Chapoutier Lieu Dit Malakoff Shiraz Pyrenees 2011 ($55). From the famed Australian Malakoff vineyard that yields a paltry 1 ton per acre of fruit, this wine is a great expression of what the shiraz grape is capable of producing. Intense berry fruit with a pronounced expression of black pepper creates a wine that is meant for bold red meat dishes, game and savory meat stews.

• Bonterra Cabernet Sauvignon 2012 ($20). This well-made wine is made from certified organically grown grapes -- 72 percent Mendocino County, 24 percent Lake County, and 4 percent Napa County. This very nice package exhibits bright cherry and cassis flavors with hints of vanilla and oak. Very pleasant.

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