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03.10.2010

An Open Letter to Warren Buffett, Wine and Spirits Distributor

Dear Mr. Buffett,

Congratulations on your purchase of Empire Distributing, and roughly 25% of the wine and spirits distribution business in Georgia and North Carolina that came with it. And welcome to the wine and spirits world -- we need more enlightened business people in this industry.

I can't say that I've followed your career with precision, but I've read a decent amount about you, and try to read the Berkshire Hathaway Annual Report every year. After all, I'm one of your shareholders, and I learn a lot from you and Charlie Munger.

In everything I've read, you strike me as someone who appreciates fairness, competition, and above all, the power of the marketplace to improve everyone's situation if it is left alone to work well. Given the choice between heavy handed regulation and deregulation, you strike me as a deregulation kind of guy, especially when it frees consumers to vote with their dollars.

I'm sure it hasn't escaped you that the wine and spirits distribution marketplace that you just bought into is seriously screwed up. For instance, we can start with the fact that you can't get any more than 25% of the market share in Georgia because of their particular state liquor franchise laws -- regardless of whether you offer better products, better service, and better prices to your customers.

Likewise you'll find yourself hobbled as you move into other states, and completely prevented from moving into others, thanks to state-run monopolies on liquor distribution, sweetheart deals that are designed to keep out competition, and all manner of regulations that will keep you from being able to serve wine and spirits drinkers that would certainly like to broaden their horizons and have access to different kinds of products that you might offer.

Of course, those facts can't have escaped you any more than the fact that in the past 20 years we've gone from roughly 7000 different wine and spirits distributors in this country to only 700. I'm not sure whether that was part of the growth potential you saw in Empire when you picked it up this week, but I imagine it factors in somewhere.

So let me get to the point. I think you now have the opportunity, and the obligation, to get on board with those of us who think the time has come to throw out the prohibition-era, antiquated laws we've got on the books and put something rational in place that benefits both consumers and business owners like yourself.

In short, I urge you to renounce membership to the Wine and Spirits Wholesalers of America, and instead support the efforts of those like Free the Grapes and the SWRA who are trying to turn this country into a real wine and spirits marketplace. We need a marketplace where companies can compete to meet consumer demands without meddling by state bureaucracies and cronyism. We need businesses more interested in growing the overall market, than using scare tactics and BS to protect their little slices of it.

All the analysts say that with this purchase you're betting on the Millennials as the largest wine drinking generation in decades. That seems like a pretty good bet to me. And since these young wine drinkers are more interested in a diverse, wide range of products and services, I hope you'll join those of us who want to expand choice and buying opportunities in the market.

Raising my glass to you,

Alder Yarrow

Posted by: Alder on March 10, 2010 9:44 PM: Filed under: Ramblings and Rants; Like this post? Share it! Digg it! - Add to del.icio.us - Add to Stumbleupon - Add to Reddit

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Comments (18)

Steve Raye wrote:

03.11.10 at 3:50 AM

Bravo! While I often think we all are talking to ourselves about this issue and not the folks who can make real changes, the fact is, you've got a signficant public voice and my guess is Mr. Buffett is actually going to read this post. As someone within the industry, my practical, cynical side says..."let me know how that works out for ya", but my optimistic side says..."maybe things really can change." Complementing the efforts of Tom Wark and Jeremy Benson, leveraging someone with significant financial and political power could make a difference. So what next folks? How can we take Alder's post to the next level? I'll be watching Mr. Buffett closely to see if he reacts.

1WineDude wrote:

03.11.10 at 5:19 AM

Good show, bruthah!

Thomas Pellechia wrote:

03.11.10 at 5:52 AM

Why not be more certain that he reads this--send him the letter directly.

Better still, invite him for an interview on this blog.

Carla wrote:

03.11.10 at 8:05 AM

Share the perspective, Alder! Mr. Buffett has potential to make significant inroads into issues for industry. Many Empire folks are great-hosted several of them few months ago in Stags Leap District. Best to them. Free The Grapes, NVV, SonomaVlyGrapes & Wine & others can assist. Thank you-

gretchen Lieff wrote:

03.11.10 at 8:06 AM

I was front and center last night at a lecture by Malcolm Gladwell and the subject was great American military leaders. Gladwell referred to Mr Buffett as a pioneer with an unparalleled sense of fairness. It's going to be interesting to watch what happens here. Thanks for framing the issue so well Alder.

Martin Silva wrote:

03.11.10 at 9:12 AM

Very well written.

El Jefe wrote:

03.11.10 at 10:28 AM

Very well put, you crazy dreamer!

Paul Mabray wrote:

03.11.10 at 11:00 AM

Let's coordinate a meeting with you, me, Tom Wark and Chris Edwards for a round table with Warren and team at VinTank Intergalactic HQ. I am sure that we can create solutions that will be healthy for wineries, wholesalers, retailers/restaurants and consumers. That would be a great think tank session and we can all do some good for the entire industry. I'm game.

Carolyn Madson, CSW wrote:

03.11.10 at 12:37 PM

The only problem that I see for Mr. Buffet in renouncing his membership in the Wine and Spirits Wholesalers of America is that he will miss Sarah Palin at the convention.

Alder Yarrow wrote:

03.11.10 at 12:41 PM

:-) I'm sure he's her biggest fan.

anonymous wrote:

03.11.10 at 1:16 PM

I heard that Warren Buffen bought a wine disributing company but just didnt know the name.

Blake Gray wrote:

03.11.10 at 3:11 PM

Unfortunately, I believe Buffett bought a distributor because he's a smart investor, and the near-monopoly status these companies have -- especially in Georgia -- is what makes them a good investment. I have read that he doesn't drink wine, so this is not a personal passion for him. I think he's unlikely to attempt to damage his investment's value.

Kimberly wrote:

03.11.10 at 3:13 PM

Well done. I work for a small retail wine store in North Carolina, and we get the bulk of our wine from Empire. Fingers crossed your letter has some impact. Expanding choice and buying opportunities is absolutely THE name of the game.

Alder Yarrow wrote:

03.11.10 at 4:00 PM

Blake,

Yes, I seem to recall Buffett not drinking either, though not entirely sure where I might have heard that. Clearly this purchase had little to do with any interest in their product, anymore than his purchase of Sees Candy had something to do with his love of chocolate. Buffett is a businessman who evaluates businesses for their cash position, earnings, and future earning potential. I'm sure this purchase was made PURELY on those grounds. The future earning potential, however, is the real question here. In order to significantly grow his investment, he'll have to branch into additional geographies I would guess, and in the interest of that he may find himself at least grappling with some of the concerns that I outline. I'm not naive enough, however, to believe that he's really going to change anything in the industry.

vajra wrote:

03.11.10 at 8:13 PM

Wow!! Such wonderful commentary...I’m impressed. Alder,..thanks so much for pitching the offer and articulating your position so well- you clearly speak for many, many folks I’ve spoken to over the past week. So much of what happens in Georgia with the DOR, TTB etc..is really unreal. Cronyism at its height indeed, it’s too bad that Warren probably won’t play a part in the mutiny that really should go down but its folks like you that make the stand that blow the ball up and set it rolling. I want to believe that the purchase has some sort of colorful intention but I won’t hold my breath- I suggest that you don’t either. Until then, we can continue to support the little guys that do it right and pray for the good peeps at Empire .

Rick wrote:

03.15.10 at 7:24 AM

Alder-
have you verified the 2000 to 700 numbers- this decline has been mentioned by a number of writers over the last several years, but to the best of my knowledge I haven't seen it documented. In Illinois there are roughly 50 members of the local distributor association (NOT WSWA), probably another 30 to 40 that aren't, so 7-14% in one state is possible, but not likely. The point is there is a huge range of sizes, types and philosophies represented in that number, from Southern down to little guys like me. A great deal of the good juice in Chicago wouldn't be known, let alone be available in this market if not for the small operators. There are a lot of issues regarding the 3 tier system, also a lot of inaccuracies and misrepresentation in the discusion.

Alder Yarrow wrote:

03.15.10 at 7:30 AM

Rick,

The numbers I'm quoting there were provided to me (and a bunch of other journalists who were listening at the time) by both Barbara Insel of Stonebridge Research Group and Vic Motto of Global Wine Partners on separate and unrelated occasions. These two folks are among the most respected "analysts" of the American wine market, so I'm taking their word for it.

Having said that, I don't know, for instance, what qualifies as a "distributor" in this equation. They may make some sort of distinction that I'm not aware of.

Alder

Stephen Weinberg wrote:

03.16.10 at 8:29 AM

If anyone can change the direction of the monopoly driven structure of distribution it is Warren Buffet. I'm glad he started with Georgia whose franchise laws are as antiquated as an abacus!!