Is Bourbon Broken? Part 3 – The Distribution & Retail Problem
Another large reason that bourbon can be viewed as broken is the three-tier distribution system in this country. Unfortunately, we can’t do too much about the system. It is what it is. By law, the distillers have to sell to the distributors.
Welcome to Part 3 of our 4-part series exploring the question, "Is Bourbon Broken?". Make sure you read Part 1 – The Consumer Problem and Part 2- The Secondary Problem before proceeding with Part 3, as the posts are meant to be read in sequential order.
THE DISTRIBUTION PROBLEM
Another large reason that bourbon can be viewed as broken is the three-tier distribution system in this country. Unfortunately, we can’t do too much about the system. It is what it is. By law, the distillers have to sell to the distributors. Those distributors often then hold the liquor stores or restaurants hostage. They force them to buy X number of cases of Fireball or Wheatley Vodka just to get the opportunity to purchase one bottle of Pappy or a few BTAC bottles (just an example).
Then your local store is forced to buy product that they don’t want and that doesn’t sell just to get a few bottles of what EVERYONE wants. This creates even more problems for the liquor stores. Consumers are at the mercy of this system and there isn’t really a fix for it. There is so much money involved in this that I don’t see the system changing anytime in the near future. I don’t see a way to easily fix this problem. But that brings me to the problem that impacts us all the most.
THE RETAIL PROBLEM
Some handle it fairly, some handle it poorly, and some are borderline criminal. Again, I’m all for a free market. But just because a store has a bottle, doesn’t mean you should blindly support them. Ask yourself some questions. How do they treat their customers? How do they treat their regulars? Does your local store have a VIP program? How do they handle that? Is it fair? As a customer, the most important thing you can do is vote with your dollar. The only way you can make an impact on stores that participate in some of these shady business practices is to refuse to shop there. Every market is different but let me give you a few examples of some stores near me.
One local chain basically holds most of their allocated bottles back to flip them on the secondary market for a larger profit and openly admit it if you get the right employee talking. The few crumbs they do make available are marked up 50-100% of MSRP. Why would you give a local business your money if they treat you like this? I refuse to shop at their stores and will go out of my way to shop somewhere else.
There is another larger liquor store chain here locally that rewards spending. I can’t find fault in this practice. They are in business to make money. I will also say that on the whole, this is cheapest priced store in town with a large selection. They track their customers spending and their customers are rewarded for it. The managers at each store have the discretion to reward their biggest spenders as they see fit. They have relationships that have sometimes been cultivated for years and have spent thousands and sometimes tens of thousands of dollars a year with them. Let’s say you spend an average of $120/month at your local store. Do you really think you should get that BTAC bottle you want over the guy who spends $30,000/year? This store is the closest to where I live and I’m a regular.
"Some handle it fairly, some handle it poorly, and some are borderline criminal. Again, I’m all for a free market. But just because a store has a bottle, doesn’t mean you should blindly support them."
There is also a local smaller store here. They only have one location. They have worked really hard to become a player in the bourbon game here locally and are active and transparent in the local facebook group. They don’t have the buying power that some of the larger chains do but they treat their customers well and fairly. Some of their bottles are priced the lowest in town and some bottles are priced a bit higher. They also will let you taste from a very large selection of their open bottles. They started a weekly “Right to Buy” lottery where they rotate four or five allocated or hard to get bottles every week. The program is simple, you make a purchase, and you get an entry. The entries reset every week and when the weekly winner selects a bottle, a different bottle replaces it. They sell the bottles at retail pricing. As an example last week, the four bottles available were Blanton’s Gold, Elijah Craig 18, Elmer T. Lee, and a McKenna 10 yr BiB. This seems more than fair to me and rewards their customers. There are three grocery stores and at least 16 liquor stores closer to me than this store. It’s not close or convenient, but I shop here whenever I’m in the vicinity.
Then there is the large local chain that seems to tease the local bourbon fanatics just enough to keep them coming back while charging 10-20% higher prices than most other retailers in the city. This local retailer is actually the reason I decided to write this article. You see, a few days ago I got an email from their VIP Program announcing that they were doing a Charity Raffle for the “Right to Buy” one of 30 bottles of Col. Taylor Single Barrel bottles. The fact that Col. Taylor Single Barrel bottles now warrant a “Right to Buy” raffle is just another indicator of how broken bourbon really is. But here is where this whole situation slides even further towards the dark side. You see, the raffle tickets are $10 each and there is no limit on how many you can buy. If you win the raffle you have the opportunity to buy one of the bottles at $74.99. On the surface, I didn’t think much of it. It’s for charity, it’s for a good cause, and if you win, you get a chance to pay more than MSRP for a bottle. What a treat.
"This isn’t the way you should treat your customers, but people just keep lining up to keep bourbon broken."
Then I was discussing it with a friend of mine who called me and asked if I had gotten the email. I looked at the email again and something just didn’t sit right with me. You see, this retailer got sponsors for this event/charity raffle/promotion. Not a big deal on the surface at first glance. But if you think about it, they got two sponsors, and unless things have changed in the world, sponsors pay. So now this retailer is getting paid to put the sponsor brands/logos on this email. I would imagine that the retailer would recoup most or all of the cost of the 30 bottles of Col. Taylor that are to be used in this raffle from this sponsorship. Now, I’m not a wholesaler but if the MSRP of these bottles is $65, I can’t imagine their cost from the distributor is over $55. If that’s the case, the retailer has maybe $1650 into this promo that would be out of pocket before any sponsorship money was received. Still, not an issue for me until you get to the part that you don’t actually win the bottle, you still have to pay the retailer for the bottle, in person, at one of their locations. Bottle payments do not go directly to the named charity. Now top of that, the retailer will get to take a tax write off for the donation to the charity. Correct me if I’m wrong but this seems like a triple dip to me and comes off as more than a bit shady. Basically the retailer is getting paid for the product twice (once from the sponsors and again from the raffle winners) and taking the tax write off too! Also, just four hours after the email was sent, the retailer had already sold over 900 tickets. The raffle is selling tickets for a week. That will be a nice tax write off for this company. I’m not trying to start a whole thing here, but this doesn’t seem right to me. I asked 9 different people about their thoughts on this and every one of them thought the same thing.
Now if this were an actual raffle where you paid for a ticket and won the bottle, I wouldn’t have an issue at all. These raffles happen all the time for both charity and sometimes for profit. You see this all the time, buy a ticket to win a bottle of Pappy 23. Not the right to buy a bottle. This seems more like a “right to buy” lottery where you buy a ticket and the real winner is the retailer, then the charity. This isn’t the way you should treat your customers, but people just keep lining up to keep bourbon broken.