Direct-to-Trade: Direct Distribution and Virtual 3-Tier

Direct-to-Trade (DTT) is Inertia’s ground-breaking technological solution that allows trade buyers in key states to purchase wine online from participating wineries’ DTT-enabled websites…connecting buyer and seller in a manner never previously possible.  Boutique wineries producing high quality wine are able to reach restaurants and retailers in markets that were otherwise unavailable to them due to an inability to obtain representation in the traditional 3-tier system. 

In most of our active DTT states this can be accomplished through direct distribution, without any intervention by a distributor in the recipient trade buyer’s state.  In a few others, an even more sophisticated channel is employed…”virtual 3-tier”.

Direct Distribution
Just as some states allow winery direct-to-consumer shipments with direct shipper permits, a handful of states allow wineries to ship direct to trade accounts, bypassing the traditional 3-tier system of producer - distributor - retailer.  Currently there are 10 states with such laws: 

• AZ,CT, DC, IL, OH, OR, VT, WA, WY and CA (for CA wineries).  Maryland and Massachusetts also have direct distribution but it is currently impractical for other reasons. 

Direct distribution is often available only to small production wineries, as many states have production capacity caps ranging from 20,000 gallons annually and up.  Even with this restriction, direct distribution is a viable alternative for wineries seeking to reach key markets in these states.

Virtual 3-Tier
In a select few states wine may still be shipped direct from a winery to a trade buyer in the state without directly touching a state distributor.  In these states, an order is placed with the winery and the transaction is processed by a wholesale distributor partner in the trade buyer’s state, with the inventory “virtually” passing through the distributor even though it physically moves directly from the winery to the trade buyer.  All invoicing and reporting documentation is the responsibility of the distributor of record in compliance with that state’s law. 

This system is possible because of the language of those state’s “at rest” provisions.  “At Rest” laws require wine to pass through the respective tiers of the 3-tier system before reaching their ultimate customer, the trade buyer.  Most state’s “at rest” provisions require a distributor to actually take physical possession of the wine for some period of time.  However, a few state’s “at rest” provisions do not have such a physical possession requirement.  In these states, such an inventory “pass through” is permissible, effectively allowing the wine to ship directly from the producer to the trade buyer while the documentation of the transaction lawfully passes from the producer to the wholesale distributor partner to the trade buyer.

Direct-to-Trade is a growing market channel.  While legal restrictions remain, Inertia is working to develop distribution channels and expand in-market outreach to build producer-trade buyer relationships while working within the legal framework of distribution laws in several additional states.  Keep your eye on our DTT blog for additional opportunities in the coming months.