US direct wine sales in legal turmoil February 8, 2007
Howard G Goldberg in New York
Around 30 lawsuits have been filed in the US, with producers and consumers attacking state laws that limit direct wine sales.
Some lawsuits challenge legal mandates that customers must buy wine in person. In other suits, producers are attacking shipping limits that are linked to the volume of their production.
In each category, out-of-state producers are accusing states of discriminating against them, according to a survey by business publication the National Law Journal.
Many new cases arise from the US Supreme Court decision in 2005 in which the court ruled that New York State and Michigan laws discriminated against out-of-state wineries by permitting only in-state wineries to ship straight to consumers. Laws must all go one way or the other, the court said.
About 30 cases are under way. Most have been filed by consumers and wineries, who allege discrimination. Ultimately, the Supreme Court may be asked to amplify its decree.
'Ironically, many of those suits are challenging recent revisions in state laws that were drafted in order to comply with the Supreme Court ruling,' said the National Law Journal.
Direct shipping was allowed by 26 of America's 50 states when the court issued its ruling. Now 34 do.
James Tanford, an Indiana University School of Law professor who has filed 21 suits for wineries, said many states altered their laws 'to give the appearance of an equal economic opportunity for out-of-state wineries but to impose so many regulatory burdens it wouldn't happen.'
Tanford said that in-person buying requirements discriminated against out-of-state wineries because '95% of the wine is grown on the West Coast, and if you have to go there to make a face-to-face appearance it won't happen. It puts a barrier on sales that will exclude most out-of-state wineries.'
In Arizona, a revised law allows direct shipping from wineries that produce less than 20,000 gallons of wine yearly. In a suit, five Arizona consumers and a Michigan winery say the law discriminates against out-of-state wineries.
Such legal conflicts arise because the Constitution requires states not to discriminate against one another economically but allows all states to regulate alcoholic beverages in their own ways.
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State regulators mistaken believe that they can impact consumer behavior on this particular issue by imposing controls on the licensees. It is a fantasy. With respect to direct shipment of wine, consumers are the equivalent of a horse that has escaped the barn and is halfway across the country. No regulator is ever going to get that horse back in the barn, much less catch it. And there will always be merchants and wineries willing to accommodate their needs.
Peter
It seems simple in my mind. This country is called UNITED STATES! If it is united why do we choose to make it so hard to buy wine from one state to the other.
Michel
Given the dynamics of interstate commerce in the United States, and the fact that there are MANY other goods and services traded (of a legal and illegal nature!) wine should be so far down on the list of products to legslate against, that this whole subject shouldn't take up a second of valuable court time. Given, also, that you now can't take the wine you purchased at a winery on a plane home with you, unless you trust the cargo hold, consumer preference to buy at the vineyard and ship to themselves is going to increase...not decrease. It remains unbelievable to me, as someone who has worked for many years in retail, for a California winery and on the distribution side of the wine business, that there is even discussion about such a moot point. Allowing consumers to buy directly is not going to put a local distributor or a retail store out of business. The economies of shipping or buying wine from your local store negate the likelihood that an everyday wine consumer is going to buy their Tuesday night red directly from the winery.
Ash
There's one significant gloss-over in this story. When laws were rewritten to "comply with" the Supreme Court Granholm decision, the political realities in most states (i.e. the powerful wholesale distributor lobby) dictated that most revisions contained the barest minimum language necessary to (hopefully) pass future judicial scrutiny. And needless to say, none of these laws reached out to address possible corollaries of Granholm -- discriminatory laws against retailers, against consumer purchases from retailers, and multiple obstacles that prevent or severely limit winery direct sales through means other than outright prohibition.
The new wave of lawsuits is a result of these shortcomings. And the suits are likely to continue as long as state laws grant small groups of wholesalers a near-monopolistic stranglehold over wine distribution -- and the accompanying profits with which to bend the political process to their will.
Joel Goldberg (no relation)
The original Supreme Court ruling, to eliminate State laws that restrict trade and fair competition did not change the law that gives each individual State the responsibility to regulate, monitor and tax the sale of spirits including wine. There is a significant amount of tax revenue generated for individual State from the sale of spirits. This revenue goes to fund the State's infrastructure. The only people that benefit from total unrestricted wine shipments are the Wineries, Fedx, UPS and DHL. Wineries sell their product at very high retail prices with tax revenues generated from these sales staying within their own State. Shipping companies charge outrageous freight costs adding at least $2 to $3 to the price of each bottle of wine. Consumers don't benefit from this, only the wineries benefit which apparently have deep pockets already as they don't hesitate to file a law suit in any State that doesn't conform to their way of thinking. The issue of availability is also a myth, if the wineries filing all the law suits, would put that money to use sourcing and supporting a good distribution system then the consumer would win and the shipping companies would have to find a way to make outrageous profits elsewhere.
Jim Dunlavey
I must reply to Jim Dunlavey. He either works for the distribution lobby, does not know anything about good wine or is not paying attention to the details of this issue.
This issue IS about availability. His arguments about the high cost of buying direct may be true, but compared to not having a bottle at all, the cost cannot be said to be high. Retail plus $3 for shipping is infinitely cheaper than not having the bottle at all or buying it at a restaurant.
There are so many wines that I enjoy and have in my cellar going many years back that I have asked my retailer to get for me to no avail. It is a cop out to say wineries should be focusing on developing better distribution instead of getting me the wine I want in my cellar. That distribution exists and it is called the phone/internet/newsletter for the retail front and fedex/dhl etc. for moving the product. Works just fine and there is no need to try to force fit a production model into the other distribution system that is built around volume.
And please don't tell me wineries should invest in more vines to increase production so they can fit the existing distribution system. That would result in the same wines I can (and do) buy at my retail outlet. The rest I'm perfectly happy to buy direct, and the constitution says I have that right.
Proof of my point: You can now by furniture direct from the Carolinas or locally, when in the past retailers signed agreements limiting their geographic range of sales. When the market opened due to market pressure alone, we did not here the truckers and distributors trying to block shipments to our homes. There is just one difference here: alcohol, and we are far beyond the 1920's!
David Wimberly
Three Cheers for David Wimberly and his response to Jim Dunlavey.
I host a radio program out of Wichita Kansas called the Good Life. As a wine lover, wine educator and supporter of the pleasures of the table I would like to have both Mr. Dunlavey and Mr. Wimberly on my program to talk about this issue from the consumers perspective. It may not be fair to Mr. Dunlavey as I and Mr. Wimberly are no doubt on the same page, but it would make for interesting radio. I can be reached by email; guy@goodlifeguy.com
Guy Bower
I think the biggest issue affecting the free flow of wine is the fact that it is something the individual states have decided "needs" to be taxed. If there did not exist state alcohol taxes in this country, there would not be this big debate about the free flow of wine. In my state, it costs a winery a minimum of $200 a year fee to the state to just have the right to offer their wines for sale via the wholesalers. This is BEFORE any wholesaler may buy their first case of wine to ship to a retailer or restaurant. The additional taxes on wine just get passed on to the consumer (which only amount to 20 cents/bottle in my state). But if any of the states would just eliminate the special tax classifications for alcohol, then this issue would not exist.
Kevin Beck, Broken Arrow, Oklahoma, USA
I have been following all the direct wine shipping developments over the last 8-years and it seem to me that the states want their tax revenues funneled into their coffers by the cheapest simplest method i.e. via collection from the wholesalers, the wineries want distribution to all possible markets that the politically powerful and well capitalized wholesalers find unprofitable to provide, and the wholesalers want to be able to sell as much wine as is profitably possible.
The States should provide cheap and easy registration and annual reporting and payment of taxes due. California has a pretty good model that could be modified to fit each states requirement. This way the wineries could get all 50 states taken care of once a year for maybe $500 in total registration fees and by paying all taxes due. Even the smallest wineries could handle these kinds of fees. Current registration fees have made direct shipping unprofitable in many states to small wineries. If the wineries don't pay their taxes annually their permit is revoked and they are subject to misdemeanors, fines, etc.
I doubt seriously that the amount of wines being sold by the wholesalers/distributors will diminish because not all that many people will go through the trouble of ordering wine online unless it is a wine that they can't get locally. It is not in the interest of wineries to undercut their distributors pricing because the distributors provide the bulk of their sales and you don't want to hurt your partner in sales. We may even see a general sales increase because of increased interest in wine from consumers who can get even more interested in all wines by getting, on occasion, a particular wine that they wanted. 99.99% of all wine purchasing will still happen in the local stores. Internet shopping, cost of shipping, and delays associated with shipping are all significant barriers to purchase.
The wineries do want any potential sales they can provide to consumers who cannot get their products in their local stores. We would always support our distribution partners first because this is the most efficient path to the consumer and, of course, the largest proportion of our sales. The wineries will remit the taxes due to the states because it is in their interest to do so.
Direct shipping is in all of our interests both because of the general economic boost that it will provide, and because it will allow for the opportunity of winery visitors to ship their purchases home and get the bottles completely off the passenger airplanes removing any weapon threat they might provide.
Dan Baldwin, USA
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State regulators mistaken believe that they can impact consumer behavior on this particular issue by imposing controls on the licensees. It is a fantasy. With respect to direct shipment of wine, consumers are the equivalent of a horse that has escaped the barn and is halfway across the country. No regulator is ever going to get that horse back in the barn, much less catch it. And there will always be merchants and wineries willing to accommodate their needs.
