How bad are law violations in the US wine industry?

Answer: sometimes pretty bad.

A couple of weeks ago, the AAWE (American Association of Wine Economists) Facebook page revealed that There are a few large offenders in the U.S. wine industry that have been fined millions of dollars for various violations (including kickbacks and bribery). This is definitely worth looking at in more detail. Indeed, last week I looked at accusations of Pay-for-Play in the wine industry (We all know that there is Pay-for-Play in wine reviews), which comes pretty close to the concept of kickbacks / bribery (although some parts of the wine industry see it as simply a cheap form of advertizing).

The database containing the violation data is from Good Jobs First. To get the list as related to wine, simply enter wine in their search field.

The current list has 157 violations, involving 112 different companies, and totaling more than US$24 million in fines, between the years 2000 and 2021. These fines relate to 15 types of violation, as listed in the first table below. Note that two-fifths of these fines relate to workplace or health violations, with another one-quarter involving wage violations. The latter are clearly seen as pretty serious, since they have the greatest average fine per violation (twice that of any other violation type).

For some reason, the violations were particularly common during 2016–2018, with nearly one-third of the incidents. The years 2008 and 2012 also had bursts of illegality.

The top five individual violations do stand out from the others, each involving a fine of US$1 million or more, as listed at the top of the next table. So, number 1 is a wage violation case, as, indeed, are four of the five largest — this is the sort of incident that does not attract much media attention, but which the legal system obviously sees very differently. The number two violation involved kickbacks / bribery, which is the sort of thing that always gets much more media attention.

It is always worth noting which companies are involved in the violations, as this reveals a particular management style or strategy. The bottom of the above table shows that various components of Southern Glazer's are repeated culprits, with 19 of the violations, for a total of more than US$12 million in fines (ie. 50% of the total fines). Well done!

Southern Glazer’s Wine & Spirits is the largest wine and spirits distributor in the United States; and it was the 11th largest private company in the United States in 2021. So, its presence on the violations list is not necessarily surprising, although it is disappointing. Clearly, there is a management issue here. Colony Liquor & Wine Distributors, on the other hand, was dissolved in September 2007, having been founded in July 1996. So, its four violations in  nine years of operation, two of them very serious, is quite extraordinary.

The Wine Group and Bronco Wine Co. are among the biggest US wine companies, and so, once again, their presence in the violations list may not be all that surprising. However, if we look at the biggest wine companies in the USA, by the number of cases produced (as listed by Wine Business Monthly), then E&J Gallo Winery, Trinchero Family Estates, Delicato Family Vineyards, and Jackson Family Wines do not appear in the violations list at all — so, bigger size creates more opportunities, but those opportunities do not need to be taken. Treasury Wine Estates appears once ($12 600), while both Constellation Brands ($69 770) and Ste. Michelle Wine Estates ($20 600) appear three times each. Clearly, the management style in these companies is quite different from those listed above.

We would have more violations to view, and not cheap ones, if we went back further than 2000. For example, the recently deceased Fred Franzia specialized in legal cases in the 1990s, usually involving label violations (ie. mis-representing grape sources). His Bronco Wine Co. (also highlighted above) paid millions more in federal fines for conspiracy to defraud, in that decade. Hopefully, the new president can keep things on a better track (Bronco Wine Company’s board of directors selects a new president/CEO).

As for the future, there are always potential rocky shoals. For example, it has been pointed out (Top things to know about alcohol advertising rules and the internet) that there are ongoing legal issues in the USA that need to be addressed:

Both federal and various state regulators have signaled their intent to ramp up policing of rules and regulations governing the advertising and marketing of alcohol, particularly when it comes to advertising on the internet. As suppliers increasingly move online, both in terms of direct-to-consumer (DtC) shipping and using social media to get their message out, it is critical for them to remember that these rules do matter and need to be followed.

You have been warned — the list of violations can only get longer!

We all know that there is Pay-for-Play in wine reviews

Jason Wilson recently suggested that Wine media is broken, because of kickbacks associated with wine reviews. His contention is that the monetization of published wine reviews is not always transparent to the end-user. As an example, he notes:

The president of a major public relations agency, one with a client list that includes wine regions, big brands, and importers, told me that his firm pays “about $25,000 a year” to a certain influential wine publication. This was not for advertising purposes, he said. Instead, this fee was “to ensure that our clients’ wines are reviewed” and to make sure “poorly reviewed wines aren’t listed” in critics’ tasting reports. That’s what he alleged. This “about $25,000” fee also allows the agency and its client to see reviews two days in advance of publication date, he said. He insisted that his firm is not the only one who pays this kind of fee to this publication.

Unfortunately, the general idea of making special payments in return for a favorable wine-review environment in a particular publication has long been reported. Indeed, it has been reported repeatedly by commentators for a couple of decades, now. There is, indeed, nothing new under the sun.

For example, back in July and September 2006, William R. Tisherman (under the pen name W.R. Tish) wrote two columns (Off the Vine) for Wines & Vines magazine: Glossy buying guides: Getting past the smoke & mirrors, and Dare we critique the critics? Why not? (Thanks to Bob Henry for providing me with copies of the original publications.) Tisherman notes that the tasting of wines for glossy magazines is only one facet of the wine-rating process, quite separate from the way that the results are presented in the magazine — and this distinction changes everything.

He looked at Wine Spectator, Wine Enthusiast, and Wine & Spirits, and was very critical about their lack of transparency, in terms of what was reviewed, and how. He was also very clear about the fact that Wine Enthusiast and Wine & Spirits used label reproductions to generate revenue — that is, the wine supplier paid to have the label displayed next to their reviewed wine. This effectively became a (relatively cheap) means of advertising for the wine suppliers; but this fact was not disclosed to the magazines’ readers. His bottom line, was that: "there is more to wine magazines than what's on the page."

As a different type of example, in December 2012, Gary Thomas (Wine review editor for Palate Press) and David Honig (Palate Press’ publisher) produced an article in Palate Press (Well known writer has “pay-for-play” wine review scheme), accusing Natalie MacLean of republishing other professional writers’ reviews without prior authorization (i.e. intellectual property theft), and requiring wineries to purchase a subscription to her online wine review pages before she would review the wines (ie. a “pay-for-play” policy).

Jamie Goode responded to this 2012 article on his own blog, The Wine Anorak (Pay-to-play and wine writer ethics). He put his finger on the actual problem, in practice:

In the case of my blog, if I operated a similar policy, the net effect would be that you’d be exposed to less interesting wines. Most of the world’s interesting wines are made by smaller producers who, in many cases, couldn’t afford to, or wouldn’t be interested in paying to have their wines reviewed. My content would become dull, and I’d lose the trust and enthusiasm of my readers. I might make some money in the short term, but in the long term I would suffer.

So, people who review wine cannot always speak their minds about those bottles that are less than stellar, or even are undrinkable. They must keep negative thoughts and comments out of their writing and away from the public, because to do otherwise means that their sources of free wine will dry up. I suspect that very few professionals, or others who review wine, are not subject to this self-censorship. (The few who refuse to be censored are often very vocal about their own moral attitude.) This is, of course, not helpful to the wine-drinking public. Reviews (and ratings) are thereby not among the most reliable for selecting bottles of wine.

It has been pointed out to me privately that:

The baked-in favoritism (if not corruption) * all began when magazines started selling label reproductions [adjacent to “Buyer’s Guide” section reviews] and not defining/marking them as ads. In the early years, such labels helped wines stand out. This was expected to be financed by the wine producer; and refusal to pay meant that the review ran (unadorned by a label reproduction) in the magazine’s back pages of the “Buyer's Guide”. Over the years, it became easy, and lucrative, for magazines not only to pre-release their “high ratings” to potential clients, but also to actually not publish ratings in some cases.

In such manner could the wine-industry review scheme become what looks like a racket. The reviewers are damned if they do and damned if they don't — pay-for-play can exist, but not everyone can use it.

Finally, this pay-for-play phenomenon is not restricted to wine reviews, of course. For example, the LA Times has recently pointed out: How food influencers can make or break restaurants. Their quoted US$10,000 is an awful lot to pay a single individual for a favorable Instagram post!

---

* The AAWE Facebook page recently noted that there has been only one officially recorded incidence that might be considered to be bribery, this century (There are a few large offenders in the U.S. wine industry that have been fined millions of dollars for various violations). I will look at this topic next week.

Wine consumption versus beer and spirits in the USA

Last week, I wrote about the fact that For most Americans, wine is not a big deal, discussing just how few people in the USA drink wine regularly. This week, I will look at the comparison with beer and spirits consumption.

I have briefly looked at this before, at the global level in 2016, in my post on Putting the wine industry in its place. The graph in that post looked like this first one, showing that beer was way ahead of wine in consumption, actually being number four globally (just ahead of coffee). Wine was a bit ahead of spirits, which was way ahead of RTDs and other pre-mixed drinks.

A quick look at the situation in the USA, since World War II, has been provided by VinePair (America’s consumption of alcohol over time). The next graph shows the United States’ consumption of wine, beer and spirits in gallons per capita (vertically) over six decades (horizontally). Clearly, beer consumption (in red) has been out in front for the whole time, although spirits consumption (in blue) got close in the late 1960s and early 1970s. Wine has never been in the picture, although it has been steadily increasing in consumption the whole time. Note that, by comparison with wine, beer consumption has been slowly decreasing since the beginning of the 1980s, while spirits has been up and down like a yo-yo.

We can look at some slightly more recent data using the Silicon Valley Bank US Wine Industry Report 2022 (which has been summarized online by Per Karlsson, in: The US wine industry in 2021 did well or great, but huge challenges are coming). The data in the next graph shows US per capita consumption of beer, wine and spirits (vertically) over only the most recent four decades (horizontally). However, note that the information is standardized to the consumption in 1977, so that all three lines start at the same place (on the left). What this does for us, is emphasize the slow decline in beer consumption over the past four decades, and the slow increase in spirits consumption this century. Wine, on the other hand, after an increase in consumption starting 30 years ago, has suffered a decline in recent years (which were not included in the previous graph).

This pattern is also reflected in people’s stated preference for beverage (as opposed to actual consumption). The next graph comes from the Gallup polling organization (Most in U.S. say alcohol adversely affects drinkers, society), covering the percentage of each stated preference in the USA over the past 30 years. Beer preference has declined during that time (light green), and spirits have increased recently (dotted red), while wine has remained steady (dark blue). That is, for wine, consumption has decreased but not stated preference!

Nevertheless, in spite of the slow decrease in beer consumption, and the general increase in wine consumption (at least until very recently), at a global scale the USA is definitely still a beer country, as I have shown before (Beer countries and wine countries). Indeed, the AAWE Facebook page has recently shown (World’s top 50 beer producing countries in 2021) that the USA is the world’s second biggest beer producer, behind only China.

Note, also, for your amusement, that VinePair has a Map of the United States of Alcohol, showing you who drinks what where, within the country.

Finally, in looking at the present and the near future, we have The incredible, overlooked rise of wine-based BeatBox RTDs (ready to drink wine mixes):

According to IWSR (International Wine and Spirits Research) Drinks Market Analysis, RTDs overtook spirits and wine in 2021 to become the second-largest alcohol category by volume in the U.S., behind only beer. The organization (Distilled Spirits Council of the United States) expects RTDs to represent as much as 25 percent of total alcohol sales by 2024.

Now, that would be a big change!

For most Americans, wine is not a big deal

The Gallup Poll has been quantifying the usage of alcohol in the USA for more than 8 decades, and this usage has remained relatively steady over the years. Since 1939, the average percentage of Americans who have said they are drinkers is 63%, quite close to Gallup's most recent reading of 67% (Americans and the future of cigarettes, marijuana, alcohol). Apparently, about 45% of Americans have had an alcoholic drink within the past week, while another 23% say they use it occasionally (the remainder are “total abstainers”).

However, alcohol consumption is usually divided into three categories: beer, wine, and spirits; and the most popular of these is not necessarily wine. So, let’s look at some of the data about this.

We should start, of course, by looking at current wine consumption, which we can do using: International Organisation of Vine and Wine (2022) State of the world: Vine and wine sector. This first graph shows those countries with 2021 wine consumption greater than 2 million hecto-liters (mhl). It looks good, with the USA way out in front. (Note: world wine production in 2021 was 250 mhl.)

However, the USA is also one of the most populous countries (with 330 million persons), so maybe this consumption is not surprising. What we really need to see is the consumption per person, which is shown in the next graph. Here, the USA drops a long way down the list, way behind culturally similar places like the United Kingdom and Australia, but behind even Sweden, and a bit behind Canada.

The importance of a comparison with similar cultures should be obvious. Comparing France to Italy and Spain makes sense, when it comes to wine consumption, but comparing these countries to the USA makes no sense. So, what is interesting in the data is that the USA is way behind most of the ostensibly similar cultures —  wine is not all that popular in the USA, compared to elsewhere. Mind you, the largest collection of wine media in the world live there, and beg to differ in print, every week.

This leads us to ask about the trend through time. I have actually presented the data already for yearly wine consumption per capita in the USA, going back as far as the end of Prohibition (see: Per capita US wine consumption, by state). The next graph shows average wine consumption in liters per person (vertically) for every year (horizontally).

While the trend is basically upwards through time, towards more consumption per person, there are a number of interesting features. For example, note the sudden increase in 1946, the year after World War II ended, and the sudden increase in 2020, the first year of the current pandemic. There is also the serious long-term downturn in the mid 1980s to mid 1990s. No-one should conclude that wine is in any way a staple product in the lives of US citizens.

You could also compare this pattern to the similar graph for Australia (since 1950), as shown in my post on: How did Australian beer slobs become wine drinkers, which is somewhat similar — this is all very well. However, these two graphs differ completely from the one shown in my post on: Global wine consumption has been declining for a long time, which shows a continuous downward trend in wine consumed per capita, since the end of World War II. *

Clearly, this global decline has occurred in the Old World not the New World — cheap daily plonk is no longer as popular in Europe as it once was. I have discussed this point before, with reference to the graph in: The rise of the USA as the world's biggest wine consumer. The New World increase has not yet made up for this Old World decline. Wine needs to become even more popular in the USA, before that can happen.

It has been noted that wine has usually been associated in the USA with a particular type of group — one that is affluent, older, mostly male, and mostly white (What it’s really like to be a wine influencer). Now, however, we apparently have this news: Boomer wine buying faces big percentage decline. So, this wine-consuming group is on the way out, which does not portend well for US wine consumption.

There are other effects on the popularity of wine buying, of course. For example, there are fads (From Lizzo To ‘Sideways’: How pop culture kills, and spikes, wine sales). Even worse, the Vast majority in the US have a negative view of alcohol consumption; so, we will see what we see about the future.

In next week’s post, we will look at the comparison with beer and spirits consumption.

---

* There are many possible reasons for the decline of Old World wine drinking, including changes in purchasing power of salaries. However, one that you may not know about is that in 1956 France finally banned wine in school canteens for those under 14 years of age (1956, when France prohibited serving wine for lunch in school cafeterias), and banned it for all school children in 1981.