Monday, November 17, 2014

What you say in advertising is more important than how you say it, unless...

...you sell wine in California. A few weeks ago, the California Department of Alcoholic Beverage Control (ABC) cracked down on a few small wine and beer producers because they tweeted (well, actually retweeted) information about a retailer's (Save Mart) event that featured their products. What's wrong with that, you might ask? Don't most businesses want to inform their customers where their products can be purchased?

Well, a large, anonymous producer complained that these tweets amounted to advertising that violated the Tied-House restrictions published by the ABC in Chapter 15 of ABC Act. Tied houses have been restricted ever since the repeal of Prohibition. Tied-houses are retailers that are "tied" to a supplier by some sort of requirement to buy product. In the realm of alcohol beverages, that is a big no-no because such agreements supposedly undermine competition. One of the reasons to restrict tied-houses was (is) to prevent vertical (and horizontal) integration of business operations. This separation of business operations led to the required three-tier distribution system where producers, wholesalers, and retailers are segregated from each other.

Well, times have changed since 1933 and the business environment in which wineries, breweries, and distillers are operating no longer fit with the social environment in which their customers live.

For many reasons Colorado is behind the curve when it comes to the distribution of alcohol. In fact, the American Wine Consumer Coalition gave Colorado an F in its Report Card on Consumer Access to Wine. There is a lot to be desired for Coloradan wine lovers, but in the very specific case of  advertising trade practices, Colorado is ahead of California.

The future of business is social, but so is the present. The way consumers interact with each other and the way they want to interact with businesses is through electronic channels (more on that soon...). So, when I heard about the impact this out-of-date law had on a handful of California wineries, I wanted to see what Colorado's law stipulated. Yes, tied-houses are still outlawed and suppliers still cannot "pay for any advertising for or with respect to any one or more retail licensee by means of a radio or television broadcast, magazines, newspapers, pamphlets, or similar media, or by means of any sign not located on or in the licensed premises of the retailer which is advertised" (CO Liquor Rules 47-316(C)). However, a few lines later, social media is explicitly exempted as, "a supplier’s internet [sic] websites and electronic advertising messages delivered directly to consumers’ private electronic devices [emphasis added], shall not be construed as "similar media."

One of the ideas behind tied-house restrictions and mandating a three-tier distribution system was to increase competition. With more than 8,000 wineries in the United States (and that doesn't even count any imported producer), too little competition is not a problem. The big producers still find ways to out-compete the little guys, but turning in competitors for violating stupid laws out of sync with our modern times shouldn't be included. I'm glad that Colorado's alcohol beverage regulators at least recognize social media's part in our industry.

First Google Image Result for "Tied House." Maybe they should run a Twitter promotion...


  1. This is not unique to California, which those who have been writing about (not you, of course) would know if they had any perspective outside of their computer.

    I covered a bike race in a dry county in Texas in which a beer distributor complained to the TABC that one of the racing teams was sponsored by another beer company. The "offending" team had to remove all logs, advertising, and so forth from their jerseys, vans, and bikes before they would be allowed to compete.

    Another wonder of the three-tier system

  2. Why can't those complaining about this issue understand it is not the regulators who pass laws, it is the legislatures that pass laws. Want to fix it quit bitching about ABC and get to work on your state legislature. That might mean out contributing to campaign support from state licenseed wholesalers.as the price of admission.


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