[SPEAKER_02]: The largest alcohol market in the United States is the state of California and the second largest alcohol distributor in the United States is shutting its doors and pulling out of the state.
[SPEAKER_02]: If you want to know why and what this means for consumers, then stick around.
[SPEAKER_02]: members without the patron support that we're receiving, we could not produce this podcast, and everyone's names are on the screen right now, or contributing at the top three levels, and if you want to hear more about how you can support this table, you should stick around till the end.
[SPEAKER_02]: Now for some disclaimers.
[SPEAKER_02]: So one of the things I want to say is as we talked through the subject, one of the main contributing factors was Union Contracts,
[SPEAKER_02]: and we are going to have to discuss unions in this educational video, but I want you not not taking a stand for or against unions.
[SPEAKER_02]: It's just impossible to discuss this subject without talking about the union contract impact.
[SPEAKER_02]: So let me give you a basic understanding about how the three tier system works.
[SPEAKER_02]: I'm going to breeze through this just in case my regular viewers are tired of hearing it.
[SPEAKER_02]: There are three tiers in the United States.
[SPEAKER_02]: The first two are the producer and that is the company that puts it in the bottle and they have a special license to do so.
[SPEAKER_02]: It is a legal for producers to sell direct to consumers in general.
[SPEAKER_02]: We have a three tier system and they have to sell that product to a wholesale or a distributor.
[SPEAKER_02]: and typically you would have at least one wholesaler for each state and then the wholesaler will sell that product to retailers, bars, and restaurants.
[SPEAKER_02]: And so what we're talking about is a wholesaler who's the middle tier,
[SPEAKER_02]: pulling out of what should be their number one target state altogether and releasing all of these producers from their contractual obligations to them.
[SPEAKER_02]: And all of a sudden all these producers are scattering and trying to find somebody else to represent them in the state.
[SPEAKER_02]: As a caveat though, this is an oversimplification.
[SPEAKER_02]: Sometimes there is a fourth tier where retailer
[SPEAKER_02]: sometimes there's an importer that stands between the producer and the whole seller but generally speaking we are a three-tier system.
[SPEAKER_02]: So understanding the three-tier system is probably going to make you a little bit irritated as a consumer.
[SPEAKER_02]: So basically they created three tier system laws back in 1933 post prohibition.
[SPEAKER_02]: And if you research it, basically the laws were written by gangsters to make sure that they maintain their stranglehold over alcohol distribution in the United States.
[SPEAKER_02]: And those gangsters have written those laws and been able to keep them in place basically unchanged since 1933.
[SPEAKER_02]: Now we talked about it in brief, but the whole seller has three roles that they perform for the producers and the first of which is for them to sell the product.
[SPEAKER_02]: In fact, in some states it was illegal for a producer to go out and talk to retailers or talk to bars and restaurants about their product, unless their wholesale rep was with them because it is the wholesalers job to do the marketing and promotion for the producer.
[SPEAKER_02]: They also have to wear house products and it's their responsibility to handle the logistics.
[SPEAKER_02]: of moving the product from the warehouse to whoever the purchase there is a retailer bar restaurant.
[SPEAKER_02]: And you should also know that they make 30 margin points on average in the spirits industry to perform those three roles.
[SPEAKER_02]: And so when you run the numbers on who is making what money from the sell of a bottle, you quickly find out that the wholesalers make more money
[SPEAKER_02]: And the main issue in this particular instance is the sales for large brands, okay?
[SPEAKER_02]: So companies like Tito's and Brown Forman and Gallo Wines realize that they were paying for sales support.
[SPEAKER_02]: but they didn't really need sales support, right?
[SPEAKER_02]: And this is basically why they fired R&DC in California, right?
[SPEAKER_02]: R&DC had some problems though.
[SPEAKER_02]: It has sales people, it has logistics people, it has warehouse people, people who manage the buildings and equipments and trucks, etc.
[SPEAKER_02]: and their structure and all of their financing agreements and their benefits packages and all that stuff is structured around the concept of them getting paid that full 30% for handling cells, we're housing and logistics, right?
[SPEAKER_02]: But for about the last three decades, R&DC has also been negotiating a partnership with their largest competitor, Southern Glaciers wine and spirits in the state of California, to come up with their union contracts.
[SPEAKER_02]: And when I found that out, I thought that felt a little bit weird to me, right?
[SPEAKER_02]: Because,
[SPEAKER_02]: RDC and Southern Glasers together represent what would be nearly a monopoly for the wholesale distribution tier and they were partnering together in their negotiations with the Team Sers Union and what that ended up meaning is that if you were a union member it didn't matter if you drove a forklift at R&DC warehouse or a Southern Glasers warehouse
[SPEAKER_02]: you were making the same amount of money and in some ways that kind of took competition out of the market if you if you ask me obviously whoever's negotiating those contracts on behalf of the Union members felt like it was a good idea obviously or they wouldn't have done it but when you look at this situation that felt a little bit weird to me.
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[SPEAKER_02]: So when you look at the big picture in this situation, you have a giant wholesaler who is representing a huge percentage of the distribution in the state of California.
[SPEAKER_02]: And they probably weren't getting a full 30 points off of a brand like Tito's or Brown former or Gallo-Wines.
[SPEAKER_02]: But their gross margin was certainly partially to cover the cost of sale support.
[SPEAKER_02]: And those are brands that are going to have pretty much all call-in orders, they don't need as much sell support, their brands that are large enough that they have their own sells people in market that work directly for the producer.
[SPEAKER_02]: And so now that producers have created their own market demand and they have their own in-market sell support, they didn't want to pay for sell support any longer.
[SPEAKER_02]: And R&DC, losing sales volume that pays to keep the doors open means that they need to do cutbacks, right?
[SPEAKER_02]: And so in one example years ago, SazaRack made this move.
[SPEAKER_02]: And when SazaRack pulled away from R&DC, before they terminated the relationship, they gave them opportunity to keep the warehousing and logistics portion of the business, but to just get paid a lower amount.
[SPEAKER_02]: But the problem is, as they are in DC, because of union contracts and leases and all of these things, they have a fixed set of costs that are set up to operate at that higher margin, and they just can't afford to all of a sudden change their cost structure for their customers, unless they're going to be able to make some other changes.
[SPEAKER_02]: And so, you know, what a normal business would do is maybe they shut down some locations, maybe they lay off some employees, maybe there's some people that they don't need if they're not going to be handling sales anymore, right?
[SPEAKER_02]: So maybe they're going to cut pay rates for some individuals and whatnot.
[SPEAKER_02]: but some expenses can't be cut right like you can't make the truck that you least any cheaper simply because you have you know lower income coming in that's not going to work but in most cases what they would have needed to do to create financial stability is prohibited because of the contracts that they were in mainly their union contracts so
[SPEAKER_02]: RADC found itself in a situation where they're set up to provide a service that their big customers no longer need and what they would need to do to adjust for this new market environment is not possible because of all of the contracts that they're in place.
[SPEAKER_02]: So they're faced with either operating at a massive loss or shutting down and under the circumstances they had no choice but to shut down.
[SPEAKER_02]: So other wholesalers are already set up to provide those we're housing the logistics services for big brands, most of those companies were operating in the beer space and so it was easy for
[SPEAKER_02]: these producers like Tito's to go out and find somebody else that was prepared to operate at the lower profit margin because they were already doing it in the space probably for beer and R&DC just couldn't compete with those services.
[SPEAKER_02]: So I would say that the in-result to this is that many of the employees that provided specifically physical labor for R&DC,
[SPEAKER_02]: will be needed by the new distributors, right?
[SPEAKER_02]: And so they are going to need more forecliff drivers, and truck drivers, and you know, all of that type stuff, the people that did the physical things.
[SPEAKER_02]: And I think in the short term, this may actually limit consumer access to lesser known products, because some of the smaller producers may not be able to find somebody to replace R&DC.
[SPEAKER_02]: and they're not able to just go to a beard distributor who only does logistics because they actually do need some in-market sales support.
[SPEAKER_02]: But I think that this type of change in the long run will be a good thing for consumers because the wholesalers have had a strength of hold on the industry for so long that it was possible for them to back shelf a product.
[SPEAKER_02]: So if a new
[SPEAKER_02]: and they'll put in a little order and put a little bit of inventory in their warehouse, but then if there's salespeople never give the brand any attention and you're in this contract with R&DC and you can't switch to somebody else, it basically made it so that you can never sell your product in that state, right?
[SPEAKER_02]: And there wasn't a whole lot you could do to force the whole seller to do the job of providing sales support for your product.
[SPEAKER_02]: And so I think in the long run, the larger producers taking away the easy money that cause the wholesalers to get fat and happy will force wholesalers to actually start performing the services that they're being paid for.
[SPEAKER_02]: And if that does happen, we could see some shifts where there are people out there promoting smaller brands because that's the only way that they have to make money and they could actually end up taking market share away from the large conglomerate brands that currently clog up the shelves and make it so that there's no space for new people to enter into the market.
[SPEAKER_02]: So, I think in a long run, this could lead to more consumer choice, but in the short run, it's probably going to make it difficult for consumers to find the smaller brands that were being distributed by R&DC.
[SPEAKER_02]: It's probably going to make it difficult for people who didn't do physical work for R&DC like accountants and managers and things like that.
[SPEAKER_02]: because their companies that are picking that business up are just going to try and push that volume out over their already existing administrative staff.
[SPEAKER_02]: And so that's not going to be good for those employees and certainly my heart goes out to anybody that's going to end up losing their job and not be able to get rehired in the industry by somebody else that's picking up that business.
[SPEAKER_02]: So hopefully that gives you an idea.
[SPEAKER_02]: This is actually a huge change in the shift in the industry.
[SPEAKER_02]: It's wild that this is happening.
[SPEAKER_02]: and it certainly points to some change coming for consumers in the future.
[SPEAKER_02]: So, we're gonna give away some whiskey, but since there's no particular brand associated with this, I figured I just give away some prideful goat.
[SPEAKER_02]: I did have distribution in the state of California at one point, but I did a whole video about why I had to fire my whole seller, and it was over these types of issues they weren't providing support for me in the market.
[SPEAKER_02]: Um, and so I figured, ah, let's give away some prep will go since the prep will go to actually had to deal with this particular issue.
[SPEAKER_02]: So we're going to do 5 one out sample packs that is going to include a brand new never release before Pride will go 9 year rye that we actually put together as a special release for the blind barrels package that just dropped last week.
[SPEAKER_02]: Well, actually, I don't know when this video's gonna come out, so I'm not sure when the blind girls package dropped for you, but it came out recently.
[SPEAKER_02]: We're gonna pair that with an eight-year ride, and a six-year ride, and I'm gonna be a little fun tasting for you to do, so you can see what aging does to my whiskey.
[SPEAKER_02]: And I have to do to enter in a win is like this video, subscribe to the channel.
[SPEAKER_02]: Read the bell for future notifications because that's going to tell you about new content but also new giveaways because we do want on every video and most importantly, you have to go to YouTube in the video description and fill out the web form that says free give away.
[SPEAKER_02]: We will run a randomized or post-results publicly for accountability and we will reach out to the winner to get your address and ship your samples absolutely for free.
[SPEAKER_02]: If you like this content and you want to support the channel, you can check out our Patreon.
[SPEAKER_02]: We've got membership levels for all budgets.
[SPEAKER_02]: You can check out the merch that we have at berbendworldtalk.com that was curated by whiskey people before whiskey people and last but not least I'm a residential real estate agent and the Dallas and Houston metro areas so if you need services in either market reach out to me you can find links for how to support the channel all three ways in the video description and if this is your first time at tuning into the channel I'd love to tell you a little bit about our philosophy and why we do what we do and
[SPEAKER_02]: Yes, whiskey is great, but we are mostly about bringing people together around whiskey.
[SPEAKER_02]: And that's because I lost the love on the suicide, and I was looking for ways to create community and connection, the type of connection that my brother was missing whenever he decided that, you know, this life wasn't worth living anymore.
[SPEAKER_02]: and I saw how whiskey was bringing people together and I thought maybe if I could get you connected to whiskey whiskey would do the rest of the job and get you connected to others.
[SPEAKER_02]: So we started this channel which has been successful.
[SPEAKER_02]: We've been able to do a lot of really great things and we partly doubt into creating bourbon real talk community which is a free Facebook based whiskey enthusiast community who go join right now.
[SPEAKER_02]: Lots of good things going on in there.
[SPEAKER_02]: In fact it's been so successful that we were able to start a 501c3.
[SPEAKER_02]: that is suicide prevention and intervention called libstayproject.org, and we do a lot of philanthropy work in there, so that's really awesome.
[SPEAKER_02]: And part of the reason why we created our own forum was because if you get involved in whisking through these forums, you will see some negativity out there.
[SPEAKER_02]: And we feel like that negativity gets in the way of our main mission.
[SPEAKER_02]: So we created our own platform where we didn't allow that troll behavior.
[SPEAKER_02]: But in addition to teaching us, we needed to do that.
[SPEAKER_02]: Those trolls taught us a second lesson.
[SPEAKER_02]: And then that is that if they can hate a stranger online, we can love a stranger online.
[SPEAKER_02]: And that's why we end every episode the same way.
[SPEAKER_02]: And that's this.
[SPEAKER_02]: If you woke up this morning, you're unsure whether or not anyone loved you.
[SPEAKER_02]: Just know that I love you.
[SPEAKER_02]: And I'll see you next time.
[SPEAKER_02]: I'm Urban Real Talk.