After Prohibition, the federal government created the three-tier system of alcohol distribution to minimize collusion, prevent widespread alcohol abuse and, most important, to make money for itself. There's the supplier, which releases a given spirit; the distributor, the middle-man between supplier and seller; and the seller, who sells that spirit to buyers. Buyers range from bars and restaurants to consumers like you and me. (We don't count as a tier.)
Sellers are privately operated but heavily supervised state liquor agencies. "The state dictates the wholesale price of liquor as well as the allowable margins," explains one industry insider, who asked to remain anonymous. "Minotti's [Wine & Spirits] makes 3 percent on liquor sales to bars and restaurants and 6 percent to consumers, just like everyone else." As a result, most liquor agencies are cash-only to avoid credit card processing fees, and there's little incentive for them to be customer-friendly. That's not to suggest that the liquor sales business is small potatoes; it's anything but.
"Solon Wine and Liquor shut down a few months ago because Giant Eagle paid them to the tune of $2 million," the insider told me. "They even bought out the remainder of their 20-year lease." Why pay to be players in an admittedly low-margin game? Simple: Giant Eagle isn't trying to make money on booze. "They know that someone who comes into their store to buy liquor is also going to buy food, and that's a game they already know how to win."
Some states, like Ohio, function as both the seller and the distributor. They're called control states. Because the federal government prohibits suppliers and buyers from doing business directly, and because the state has bigger fish to fry, there's need for yet another party in the equation to manage relationships: the sales rep. Sales reps represent the marketing interests of the supplier. They set out to educate and influence buyers, who in turn ask sellers to carry a specific product, who then ask the state to bring that product in. Sales reps facilitate demand.
Playing the Game
The massive collection of hard-to-find bourbons at SOHO Kitchen in Ohio City is a triumph of perseverance. When a small amount of Sazerac 6-Year-Old Rye was accidentally released into the state last year, some immediately showed up on SOHO's back bar.
"I primarily read [state trade publication] Tavern News to stay on top of what's out there, and then I annoy the shit out of the folks at Bank Street Wine and Liquor on West 6th until they order it," says chef-owner Nolan Konkoski. "This is a lot of work, and anyone can do it. But most people don't."
Asked about his relationship to sales reps, who will often tip off buyers when a rare spirit is about to be made available, Konkoski says, "Sales reps pay a lot of money to the state to see who's buying what. And while I certainly know a few, we don't do enough volume here to garner much attention."
He's talking about buying power, and in the local liquor game, nobody has more of it than Winking Lizard. The Old Rip Van Winkle Distillery will be releasing its extremely limited Pappy Van Winkle line of bourbons to Ohio this month, and when they do, most of our region's allotment will go directly to Winking Lizard's Lizardville brand, according to my source.
"There's a legal gray area in which a supplier can, in effect, allocate product to a specific buyer," the source explained. "They usually clue people all the way up the chain when product is going to be hitting the state's loading docks, and the buyers and their liquor agencies time their orders accordingly."
I spoke to Bank Street Wine and Liquor this week, which hopes to order a case of each Van Winkle in the line as soon as they become available — a case, in this instance, being just three bottles.
"I guess we'll have to just keep playing the game and hope to make the right relationships to get the rarer stuff," Konkoski sighs.
The three tier system was meant to discourage collusion, but practically speaking, it has only discouraged small players like SOHO from participating in it. Maybe it's time we started asking our elected officials why places like the Winking Lizard get to buy Pappy Van Winkle while the rest of us don't.
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