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.
This article appears in Nov 13-19, 2013.
I did want to mention that, to their credit, The Winking Lizard at least never gouges on pours when they do offer the good stuff. I was lucky enough to have some Pappy 15 at Lizardville last year and they were charging $9, I think. Same margin as they charge on everything else. In other markets, you can expect to spend $25.
Ohio Liquor Control is mismanaged and probably is the reason your neighborhood liquor store doesn’t carry the products you want (or runs out of stock of the products they already have). A liquor store in Ohio can request items all they want from the state, but when the liquor truck comes, up to half of the order may be cut. They set such a very strict inventory for stores and it’s a very poor system for consumers. The commission independent liquor stores make on spirits is much too low while the state each year posts record profits.
Grocery stores like Kroger and Giant Eagle have been buying up as many liquor licenses as they can in the state and operate them at a loss; it’s just additional incentive to get consumer foot traffic. As a result, there is little incentive for the grocery store liquor managers to fight the state on inventory issues.
While I agree Ohio can do much better, using Pappy Van Winkle as an example of this isn’t quite fair. This item is the holy grail to whiskey aficionados. Even in “open” states (like Illinois) you are going to have this problem– this week in the Chicago area, customers literally followed the distributor trucks from the warehouse to the liquor store.
If it was not for Lizardville, Ohio would have one tenth of the rare whiskies currently available. Cheers to Lizardville for getting Pappy and sharing it with the public at a reasonable price. The alternative is 30 bottles or less of Pappy come into Ohio and Minotti’s or whoever sells them to one of their wealthy retail regulars who drinks them with his wealthy buddies at home. I would also guess that Lizardville pours a ton of Sazerac brands (owners of Pappy). Sazerac should be able to support one of their biggest customers by providing this limited offering.
Also, ask anyone in Washington how going Open worked out: higher prices and less selection. But you can buy a pint of Kamchatka at every street corner.
I have some follow-up, an interesting example of the bureaucracy actually being used to ensure fairness… sort of.
Old Rip Van Winkle 10 and 12 year along with Pappy Van Winkle 15 year were released to Columbus area agencies yesterday. By released, I mean that a sales rep went around to stores and hand-delivered 1 bottle to each of them. Yes, 1 bottle.
So how does that work, you ask? Part of a sales rep’s job, which I did not write about in the article, is to broker the transfer of booze between state agencies. If I am a bar or restaurant and am trying to get ahold of something that my liquor agency doesn’t have, I can call my sales rep. The sales rep can see whether those bottles are available at other agencies in the state and facilitate their transfer. Sometimes they even ferry the bottle over themselves. A paper trail is created that basically creates a world of hurt for the parties involved should the bottle not reach its intended recipient. So, the release yesterday was even more tightly coordinated than anticipated.
I know a guy in Columbus who managed to get a bottle of everything because he has a contact at a state warehouse who clued him off. All he did after that was call around to various Giant Eagles and have them hold bottles for him.
Ryan-
Shame on you and your article. It reads like someone who is ill-informed and simply barking off a soap box for barkings’ sake (and perhaps from someone who is mad he didn’t get any Pappy?). For instance, Giant Eagle in Solon did NOT assume the lease from Solon Wine and Liquor. The previous owner is on the hook for it.
I will say: I am a buyer for a large scale restaurant group. The amount of ANY highly-allocated item in ANY market (open or not) is a frustrating game. I operate in many states, and Pappy (not to mention Macallan 30, Hirsch Bourbon, Black Maple Bourbon, etc) is all tightly controlled. The state of Ohio is no different. Bad form to blame the limited amount of Pappy on the State; in fact, in OPEN states, you would find a WHOLE lot more favoritism and price gouging; at least in Ohio, the prices are protected. Try to buy a bottle of any of the aforementioned items from the monster retailers that get a few bottles in an open state, and find yourself paying mortgage-like prices. All liquor in OH is priced pretty fairly.
The Winking Lizard deserves the lions’ share of Pappy, because they indeed buy a MASSIVE amount of the other products that belong to Sazerac/Buffalo Trace. Good for them, and I agree that John Lane and his people do a VERY fair job of seeing to it that LOTS of people will get to try it. Better that 30 people try a shot of it than one person hide the bottle (or, more likely, sell on the black market for 10 times it’s value). And while it looks like these reps are playing “Bourbon Fairies” and distributing on their whim, they are actually (believe me, I know a lot of them) burdened with trying to please 10,000 requests with 60 bottles. They are really left with no choice but to manage the destination of these gems. I am certainly in support of all restaurants, but how is it fair that a single restaurant, that wants a bottle of allocated product get one, but does nothing or little to support the rest of that portfolio? Sounds like a fair-weather friend to me. I also know of several liquor store owners that got bottles specifically for customers of theirs (restaurants and retail customers) who then unscrupulously pocketed the bottles instead of selling them. That has nothing to do with the state, does it? That is poor moral choices by the liquor store owners. The producers of Pappy and its brokers should be able to control who gets the “goods”; reward those that support you. No different that getting a buy back drink at your favorite watering hole; they take care of you because you patronize them.
While I agree the OH system is archaic, asking an elected officials to manage the allocation of a product is likely just going to make them want some Pappy too. Allow the brokers reward those that support Sazerac and chalk this up to MASSIVE demand for a limited product. the fact that OHIO is a control state has NOTHING to do with the difficulty of obtaining or managing the distribution of allocated items.
Suggestion: go drink some Weller. MUCH easier to find, cheaper, and frankly, made by the same recipe and the same distillery.
How about a free market huh? The current system is ridiculous. The same is true of wine and it’s why wine prices are so much higher in OH than in other states like CA for instance. Let supply and demand dictate the price.
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