We have to fight to keep the booze flowing
Port backlogs and trucker shortages are dominating headlines across the nation, forcing Americans to embrace the reality that COVID-19 has upended supply chains and made some of our favorite products temporarily unavailable. When the pandemic came for our favorite drive-through sauces, we laughed. When it took away our tennis balls, we looked away. But now, it’s come for our booze—and it is far past time to fight back.
In recent weeks, various news outlets have reported growing supply shortages at liquor stores and restaurants across the country. Michigan has not been spared from the fallout, as stores and restaurants in the state deal with backlogs. Premium products like Buffalo Trace, Hennessy and Patrón have become scarce, with some states implementing alcohol rationing.
A multitude of factors can be blamed: difficulty sourcing glass bottles and aluminum cans, skyrocketing import costs, a shortage of truck drivers, port backlogs and increased consumer demand.
But before we all start to—understandably—panic at the loss of our precious drinks, is there anything that can be done to alleviate the problem? Actually, yes. The alcohol industry labors under antiquated and onerous restrictions that exacerbate supply chain disruptions by preventing the use of logistical innovations that could smooth out these shortage bumps. Modernizing these rules for the 21st century is one simple, logical solution.
Lawmakers should start by re-examining and updating Prohibition-era state alcohol laws. One of these models, the so-called control state system, allows state governments to operate a monopoly as either the wholesaler or retailer (or both) of alcoholic beverages within a state. Michigan is one of these control states. Regulators argue that the model is a crucial temperance tool, but it must be pointed out that the state derives enormous revenue benefits from selling alcohol.
For instance, Michigan’s sale of wholesale spirits in fiscal year 2019 from its state alcohol enterprise enabled the transfer of $248 million to the state’s general fund for that year alone. In fact, the Michigan Liquor Control Commission (Commission) has transferred almost $2 billion to the general fund in the last decade.
Setting the remarkable cash flow aside, even in the best of times, government control systems have proven inept at preventing alcohol shortages. Every holiday season, news stories abound of control states failing to make deliveries on time, causing temporary stockouts at restaurants and stores.
Keeping up during COVID-19 created additional supply concerns in control states: News reports cited Vermont, Virginia, Pennsylvania, North Carolina, Ohio and New Jersey as states dealing with significant liquor shortages. What do these states have in common? You guessed it: five out of the six are control states, with New Jersey being the only exception.
Michigan hasn’t been spared from alcohol shortages either. The state government is charged with wholesaling all spirits in Michigan. Since the mid-90s, the actual storage and warehousing of spirits is outsourced to existing wholesale businesses known as “authorized distribution agents.” Currently, only three such entities in Michigan exist, which means that if one gets backed up, or fails to make a delivery, a vast swath of retail stores within the state can experience shortages.
These shortages aren’t just tied to high demand; the way Michigan distribution laws are written affects the process as well. Under state law, authorized distribution agents are required to deliver to each liquor retailer within its portfolio “on at least a weekly basis.” In comparison, most fully privatized industries deliver to retailers multiple times a week or even daily. To increase supply and competition, other companies could apply to be distribution agents, as certification requirements in the law are fairly minimal; so far, more have not been certified by the Commission.
Another promising way to alleviate alcohol supply chain woes would be to allow retailers themselves to warehouse their own purchased alcohol products. While off-site storage is sometimes subjectively approved by the Commission for an individual licensed location, this rule only helps a single store with its own supply.
Unfortunately, state law prohibits retailers from storing alcohol at general warehouse locations away from the licensed retail premises. To understand why this exacerbates supply issues, picture the shampoo aisle at your local grocery store, which may only carry three or four bottles at a time of your favorite brand. However, most chains also operate centralized warehouses or fulfillment centers—housing hundreds or thousands of additional shampoo bottles—which make supply needs easier to meet.
So, if you live in Michigan and your favorite shampoo is made in London, a nearby central warehouse operated by the retailer provides restocks more efficiently than waiting on a cross-ocean or even cross-state voyage. Chain stores could also use something called transshipping. This is when a retailer is able to ship a few bottles of shampoo from its store in the next town over—which may have several extra bottles—in yet another logistical hack to ensure your favorites stay well-stocked.
All of this may sound like tedious logistical minutia, but centralized warehousing and transshipping have revolutionized many industries from groceries to electronics—and consumers have benefitted. But, in states like Michigan, the alcohol industry is legally prevented from employing these common-sense innovations, reducing supply and competition.
Liquor stores can only house spirits on-site at their brick-and-mortar retail locations and cannot transship alcohol from one licensed retail location to another. Although beer and wine are not directly controlled by the state government in the same way as liquor in Michigan, retailers still appear to have the same obstacles for transshipping or centrally warehousing those products.
None of this makes any sense in a 21st century global economy. To be sure, modernizing alcohol logistics would not cure our alcohol supply shortages entirely since many of the factors at play, like glass and aluminum shortages or port backlogs, are related to issues outside the alcohol industry. But it’s clear it could help.
Before we throw our hands up in despair over the temporary loss of our favorite bottle of bourbon, beer or Burgundy, lawmakers and regulators should start prioritizing these well-recognized ways to alleviate the problem. COVID-19 has caused enough disruption already—we shouldn’t let it take our booze without a fight.
Image credit: Mirko Vitali