Wine Wars

[Craig Camp]

The fight over direct Internet wine sales, pitting winemakers against deep-pocket liquor distributors, has grown into a high-powered struggle led by well-known pillars of the capital's conservative legal establishment. Eventually, it seems, only a U.S. Supreme Court decision will end the wrangling.

For more information:

Free the Grapes

Wine and Spirits Wholesalers of America

[Craig Camp]

I know that when I was underage and wanted to buy alcohol the first thing I thought of was buying expensive wine with my dad's credit card and then waiting a week or so before that bottle of Burgundy showed up so my friends and I could compare tasting notes: but then I was a wild and crazy teenager.

Thank God the WSWA is there to protect us.

[Jason Perlow]

Yes, New Jersey's teenagers must be made safe from mail ordered sparkling rose' wines from Oregon.

[Mark Sommelier]

The last paragraph of the article is the most telling:

"But all these arguments are a smoke screen, testified David Sloane, president of Wine America, a group that represents 700 small wineries scattered across 48 states. "This debate is not really about tax evasion or underage drinking or not about elite geeks. It's all about the money, honey,'' Sloane said.

This is America, it has to be about money. The distributors ( the middle tier) are being cut out, of course they aren't happy. Of course, we are talking about some wineries here that are so small they don't have distributors. Are kids really going to order cases of Popov vodka over the internet? It sounds to me like one of those Republican "hot button" issues. An aside: Bork vs. Starr, this is classic.

[Jason Perlow]

It drives me berzerk. Take the aforementioned Rose sparkler from Argyle in Oregon -- because of New Jersey's liquor shipping laws, I can't get it shipped to me directly. It drives me totally batty because I cant get my local wine retailers to even special order it because the distributors that DO carry Argyle don't carry that one particular wine.

[wineserver]

As I stated in another discussion, the three tiered system of distribution and the rights of wine consumers across the country can coexist. If I were to take a poll, I am confident I would find that the wine conusmers' biggest complaints would be first and foremost availability and, not far behind, price. I am in the wine distribution business and I cannot see how the WSWA can stand in the way of a constitutional right to unimpeded interstate commerce. WSWA arguments are typically ridiculous and contrived. If a wine consumer cannot procure the wine of his or her desire in their state of residence, there should be nothing preventing them from procuring it from another state. If the wine is available but the price is not competitive with the national market, there should be nothing preventing them from procuring it from another state. However, I would like to present a realistic picture of availability and price. I know not all states are the same. I know in some states the government has a monopoly on selection, inventory, and price. Unfortunately for residents of those states there is little that can be done except to change the laws of that state. However, in FL, GA, NC, SC, and OH, states that I am very familiar with, I think even the most serious wine geek would be very surprised by the innumerable producers and wines that are available. Even the smallest production cherries are here save a very few. Now getting to them is another story. The third tier in this system is your local restaurateur or retailer. They, as a group of individuals, are as imposing a gate keeper as the WSWA. You can, however, request your local retailer to find something not currently on their shelf. In short, chances are the wine you want is available in your state. Its simply a matter of asking for it. Now, if you believe that prices are cheaper in other states or specifically from the large nationally known retailers, I once again think you would be surprised. As an example, you just gotta have Dalla Valle, Clos Erasmus, or Gagliole Pecchia (you get the point) by the time the wine arrives at your door you have saved little. And, with the wine market as competitve as its ever been, even the smallest winery can not rely on cellar door sales to meet its needs. These small wineries must appoint a wholesaler in select markets (yes I know not all markets will be selected) to deplete their inventory. As always, what appears on the surface to be a simple issue is actually very complicated. I look forward to a chance to further discuss this with all of you.

[Rebel Rose]

So much is happening now on the state wine shipping front, that it's getting hard to keep track! I propose just this one thread for discussion on most changing shipping opportunities, especially as what happens in one state will likely affect actions and decisions in others.

In Delaware, Lawyer, Winery Sue Over Wine Law

Of course the old chestnut of controlling sales to minors inevitably crops up. Riight. I'm planning a kegger while my parents are gone, so let's go online and order up some wine and pay the astronomical shipping costs to get it here. And hope, of course, that it arrives while they're gone and without the required adult signature sticker and here's hoping that the driver is complete doofus who doesn't care about his job security. . .

Sommelier Anne Hood at Harry's Savoy Grill worries that if wineries ship directly to retailers it will put distributors out of business and "make it more difficult for her to make wine purchases." She worries that she would not get wine samples and would be at the mercy of reviewers.

Looking at the wine list, I think it's safe to say that Hess, Kendall-Jackson, Pahlmeyer, Stonestreet, Raymond, Silver Oak, Staglin, Caymus, Plumpjack, Duckhorn, Justin, Rosenblum etc. are not going to be personally filling orders for every retail and restaurant establishment in the U.S.

A winery would have to have its own massive fleet of trucks, and a huge, traveling sales force, as well as warehousing available or owned throughout the U.S. Each account would have to be individually invoiced, creating an allocations and accounts receivable nightmare for the wineries. The infrastructure is simply not there. Distributors for the wines on the Savoy Grill list will continue to do business, and a lot of it, in Delaware.

What I do see happening is that consumers and businesses in Delaware would be able to purchase Dover Canyon, Saxum, Linne Calodo, Pipestone, Carlisle, Pax and other very limited wines that typically sell out within months of release.

[Kent Wang]

Yay! I think Texas is still living in the past.

Totally agree with what you're saying, but do you think consumers will be able to enjoy slightly lower pricing, even factoring in the shipping cost?

[Rebel Rose]

I don't think so, Kent, except in states like Washington which have obligatory markups (which are now being eliminated).

I think most distributors try hard to offer a standard markup on the wines they represent. Otherwise the wineries would suffer discontent and criticism from the retailers and restaurants that purchase their brand, and the winery would move its representation to another distributor. Retailers know the suggested retail price of a wine at the winery and expect a standard wholesale price which is approximately .67% of that. From there, it's up to the retailer and restaurateur to decide on their individual markups. Demand, as well as costs for shipping, storage, samples, etc. will all be factored in. Allocations and availability of certain wines will certainly open up, particularly for the smaller wineries and lesser known appellations.

Another factor to consider as certain states open up is that the state can still require an extreme amount of paperwork in order to direct ship into the state, and collection of sales taxes, alcohol taxes, and in some states, even an additional "per transaction" fee. Some states require an annual registration fee as well.

Last week I cleaned up my shipping manual and added or dropped states based on changing laws and my experience with the state. Here are a few examples:

+ New Hampshire = 1 customer, 8% tax, easy monthly report that can be faxed

+ Texas = 8 customers. Very easy, no reporting.

+ Florida = 2 customers.

- North Carolina = 0 customers, hellish paperwork.

- Nebraska. $500 filing fee.

- Connecticut. $1000 filing fee

+ New York. 2 customers so far, $125 filing fee, paperwork doesn't look too bad.

- Virginia = 4 customers, but this state is now crossed off my list. Too much paperwork. Had to file a dba, then with the Board of Equalization, and with the state as a producer. All kinds of monthly forms and payment of taxes to two entities.

[Rebel Rose]

A editorial at the Rockford Register in Illinois blasts the concept of underage drinking as an excuse to destroy the livelihood of small Illinois wineries.

Who’s to say that a teenager might not order a whole case from the Blue Sky Vineyard or the Pomona Winery, two of seven vineyards on the Shawnee Hills Wine Trail south of Carbondale.

Sure, it will take more out of his piggy bank or fast-food paycheck than what he’d pay locally, but after all, we’re talking about a special product. Then, he has to skip school for several days to make sure he’s home to receive the delivery so that the parents don’t find out.

Sure, it could happen, but it’s not likely.

The beer industry says that there are no statistics on how much mail-order wine contributes to underage drinking. Meanwhile, stores are busted all the time in this area and across the state for selling alcohol to minors. Forget statistics. Intuition tells us that the problem is not with small wineries that are struggling to survive and need the boost they get from mail-order sales.

[jsolomon]

- Nebraska.  $500 filing fee.

←

I apologize for my state sucking.

[docsconz]

Yay! I think Texas is still living in the past.

Totally agree with what you're saying, but do you think consumers will be able to enjoy slightly lower pricing, even factoring in the shipping cost?

←

It has been my experience for certain wines that I am able to get via a mailing list from the winery that they are less expensive than they would be in retail stores if I could find them. These tend to be pretty highly allocated wines and sell very little through distributors. On the whole they are priced much more reasonably than many of their competitors given the quality and names involved. On the other hand, I have seen a number of wineries selling their wines direct that don't appear to offer any discount. I believe these tend to be wines that sell a lot through distributors.

[JohnL]

A lot of people forget that the US is a Republic. The states have power to regulate and tax etc. There is a balancing act between the federal government and the local governments guided by the constitution. This is a mixed blessing.

The current situation is all about power and money (what else is new). The states want their share of tax money. The distributors want their control (money). The wineries want some power and access to consumers and consumers want access to wines.

As I see it--

I doubt there will be a dramatic change here. States will find a way to get their tax money (don't they always). Distributors will have to change somewhat. They will still perform a valuable function--making life easier for retailers and wineries.

(at present I believe they are receiving unwarranted protections from state governments). They will have to change and adapt to a new business climate. (most, i believe, will).

Most consumers will still rely upon local wine shops to buy their wine though they will be able to access a wider range of wines from other sources. Retail wine shops will also be able to access smaller wineries (distributors will have to carry a wider range of wines if they want to compete--it is still a lot easier for a wine shop to work with a distributor than to have to purchase direct).

In short--hopefully, there will be more competition among all entities and the consumer will benefit.

If the consumer benefits--then wine shops, distributors, and wine makers will all do well.

(oh, and the states will get their damn taxes--also not a bad thing --if only they would spend the money better!!).

But that's an issue for another web site!

[jsolomon]

A editorial at the Rockford Register in Illinois blasts the concept of underage drinking as an excuse to destroy the livelihood of small Illinois wineries

←

Most teenagers I know will go the much easier route of paying someone CASH to get them THUNDERBIRD or MADDOG 20/20 because the idea is the CONSUMPTION OF MASS QUANTITIES. I can't envision a teenager spending $15-$40 a bottle to get a wine-jag on when they can spend $3 on a bottle of rot-gut and do the same. Plus, Thunderbird and Maddog have screwcaps, so you don't have to plan ahead and have a corkscrew--something many teenagers are not planning for.

I think for the most part, the bar is sufficiently high for teenagers to not purchase wine over the internet. It is certainly a vastly smaller problem than the problem of a teenager having a sufficiently ethically pliable person to be a buyer (or a miscreant, like myself).

However, I think the rrstar is applying malice where simple stupidity is the likely cause.

P.S. Sorry about the yelling.

[Rebel Rose]

The Philadelphia Inquirer

Chaos in Philadelphia: To Buy or Not To Buy

"We are not taking any enforcement actions with any sales of wine, because of the court decision," said Jack Lewis, spokesman for the state police's Bureau of Liquor Enforcement. "We're waiting for some direction from the state legislature."

So what happens if you put this new freedom to the test?

To find out, I tried to order wine over the phone and the Internet from wineries and retailers outside Pennsylvania.

[Craig Camp]

The best source to stay on top of this issue is:

Tom Wark's Fermentation Blog

[Rebel Rose]

Wine not pouring into state despite end to mail-order ban

Not every small winery can deal with the registration fee and the paperwork.

Right now, Florida's rules require wineries to report how much they sell for excise taxes by the 10th of every month, but laws will be more complex and result in at least 23 new full-time positions and $1.3 million in estimated additional costs for the Department of Alcohol, Beverage and Tobacco, if a bill filed in the Florida House that lays the groundwork for the regulatory system passes.

The bill, filed by Rep. Ellyn Bogdanoff, R-Palm Beach, which has moved to the Finance and Tax Committee, also would limit to 42 gallons -- about 219 bottles -- the amount of wine a person could order in a year and create a "wine shipper license" available to wineries for a $250 fee. It would generate an estimated $300,000 a year for the state.

"Why should I have to pay $250 to sell in the state?" asked Klindt, whose wines have won "Top 100 Wines of the Year" awards from Wine Enthusiast, an industry magazine. "Imagine if every state had that. It's craziness."

Only wine manufacturers producing or selling less than 250,000 gallons of wine annually would qualify for the license. Such wineries account for more than 90 percent of the nation's wineries; that is the production volume threshold the federal government uses for various taxing purposes. Large producers, such as Gallo, would be excluded.

I am shipping into Florida now but if the paperwork and fees become prohibitive, I will have to quit. Fees this steep will keep out the truly small and boutique wineries; only midsize to large wineries can afford to pay fees like this in a number of locations, so states are actively discouraging the smallest producers. I can only send about 20 cases of wine a year to Florida; the fee alone would wipe out most of our profit on a full retail sale.

[Rebel Rose]

Eric Asimov's NY Times Column

Almost a year after last May's Supreme Court ruling, consumers in New York now have the opportunity to do by mail what comes naturally to wine lovers everywhere else: spending more money than they might like to accumulate more bottles than they have room to store.

Nice review of the current overall situation.

[Rebel Rose]

Quiz!

Here's your chance to be a small winery owner for a day. Will you, or will you not, apply for a New York wine shipping license? (This is sort of like Vineyard Challenge. If you lose, no one will know! If you win, you have pontification privileges.)

To apply for a New York wine shipper's license:

Can a winery apply

a) online

b) by fax

c) by mail

d) all of the above

How many pages of application forms are required?

a) 3

b) 7

c) 9 or more

d) all of the above

How long does it take to receive certification?

a) 6 days

b) 6 weeks

c) 6 months

d) 6 years

This language is required on every box:

Contains Wine

For Personal Use and Not For Resale

Signature of Person Age 21 or Older Required for Delivery

Delivery to an Intoxicated Person

Is Forbidden by Law

And Probably not Advisable Anyway

True or False

The penalty for not labeling with appropriate language is:

a) loss of the NY shipper license

b) a $10,000 fine

c) loss of your basic permit and therefore your right to make wine, period.

d) all of the above

[Rebel Rose]

This week the Wine & Spirits Wholesalers of America released a copy of a speech made to Wholesalers group by President and CEO Juanita Duggan.

In the first two-thirds of her speech, Duggan does a very good job of congratulating the wholesalers on their contributions to the wine and spirits and industry, and for the progress that the industry has made on all levels in the last few decades. But toward the end of her speech, she suggests wholesalers are responsible for the 'rise of the American chef' and that deregulation (i.e. the freedom to not use a distributor if a winery so chooses) will destroy the underpinnings of America.

This is not to suggest we did this alone. Suppliers made a quantum leap in quality and variety and created a whole new world of premium brands. Retailers saw the value of upscale on and off-premise environments and educated staff. This in turn spurred a revolution in American dining and the coming of age of the American chef.

And today, these three tiers have created the most vibrant, exciting market in history.

So, we all know it takes a licensed supplier, licensed wholesaler, and a licensed retailer all working together to make it all work.

And work it does.

Yet there are people out there trying to destroy it.

This attack is coming from trial lawyers who have no regard for the consequences of their actions. To them, dismantling the time-tested regulatory system is nothing but a game – a dangerous game.

They have absolutely no stake in the industry or the outcome of their lawsuits, other than to build their own private wealth at the expense of taxpayers, who are being asked to cover their extraordinary legal fees. These for-profit lawyers behave like drunken rock stars who don’t want to play by the rest of society’s rules.

Their announced agenda is exactly what has been predicted on this stage for the last 8 years – complete deregulation of the alcohol market.

I do not need to tell anyone in this room what will happen if these trial lawyers succeed in court. Those who supported the right of small wineries to sell direct to consumers should have been careful what they asked for.

[JohnL]

I have to say this speech is an extreme case of not only preaching to the choir but

pandering to it.

There are a lot of positive things about the good wholesalers have done.

So on the plus side --wholesalers have made a positive contribution and on the "whole" are performing a beneficial role.

However what is good for America is what is good for consumers.

What is good for America is competition.

The current jumble of state laws is a mess and is not good for consumers and I would argue it isn't good for retailers, wholesalers, importers, winemakers--in short anybody.

She uses "trial lawyers" as a scapegoat (I must say they are too easy a target). I also believe that this is not asbestos, or tobacco or vioxx 0r....

The states have the right to regulate alcohol.

Fair enough. As long as we are talking local consumption laws and licensing etc.

I take issue with the states using alcohol as a money grab--the extreme examples being PA etc.

This mish mash of laws and regulations and over taxation is IMOP-unconstitutional.

It is detrimental to free trade/enterprise and consumers (we the people).

What has happened is--businesses--mainly the wholesalers have adapted to this insanity and have used it to provide them with protection--they hide behind the chaos (in essence in collusion with state governments.

What we need is to establish laws that allow for free trade and competition that are uniform across state lines.

Fairness--for consumers which in turn will lead to a more fair system for all --wholesalers included.

fairness for the greater good!

The states need to be focusing on local issues without impeding this fair trade spirit.

Wholesalers--well-these folks will adapt--the three tier system actually makes some sense --for all--it simply needs to be adjusted/changed.

This whole issue comes down to money--the states and the wholesalers have colluded to the detriment of consumers and the wine and liquor business as a whole.

It is time for this to end.

Change can be difficult and frightening--the wholesalers are obviously pretty scared.

[Rebel Rose]

Shipping news means more choices for consumers, but some winemakers unhappy , by Bill Daley of the Chicago Tribune (also an eGullet Society member) . . .

What works in one state may not work in another. Indiana, for example, won't permit any wine to be shipped directly to a consumer unless that person pays a personal call to the winery. Michigan will let you drive into the state with one case of wine in your trunk; you can leave the state with as much wine as you can pack. And Iowa and Wisconsin officials are still talking of reciprocity, those if-you-take-mine-I'll-take-yours agreements that many think were dealt a death blow by the Supreme Court's decision.

It's enough to give you a hangover just thinking about it.

So, here's what I think wine lovers should do: Smuggle.

Just kidding - well, sort of.

The link takes us to the Arizona Republic, and Bill's comments here reminded me that we have wine club members in Arizona who have formed a loose alliance--several members hire vans and SUV's and once a year they caravan to wine country together, fill up the vans and head back, where they share the wine purchases with other friends who could not get away. These people all have healthy disposable incomes, but don't you think that would be a nice business? Sort of a personal shopper for wine . . .

[Rebel Rose]

Wine & Spirits Wholesalers Association is changing the guard. What's gone?

America's Enemy of Wine Consumers Leaves the Industry

Queen of Smoke and Mirrors

What's next?

[Rebel Rose]

The CEO of the Wine & Spirits Wholesalers Association, Juanita Duggan, is finally out.

Here are my comments on her seven-year career, and Tom Wark'srecap.

Can you believe that whole NAXON plan? Good golly . . . can you imagine only buying small production wines from one controlled site? Talk about monopolies!

Who is her successor? Will we be better off? If you were the CEO of the WSWA, what changes would you make? What corporate and business logic would you apply to the dynamics of this organization? Or is this organization simply an irrecoverable albatross as far as small producers are concerned? I get the sense that it is positioning itself as an extreme opponent of the Wine Institute (which is headed up by Bobby Koch, GW Bush's brother-in-law). Is there any wisdom in fighting the future?

[markh]

Tom Wark's views are as extreme in one direction as Juanita Duggan's are/were in the other, so I'm not going to bother reading his "recap".

If I were in charge of the WSWA, I would stop using underage drinking as a weapon against direct shipping. It was a dumb idea from the beginning.

The vast majority of wine drinkers have no interest in the hassle of ordering wine directly from wineries, they want to have the "wine guy" at the local wine shop recommend something to them. As more and more wineries stop selling FOB, many of those recommendations no longer exist at the local wine shop.

If something isn't right with a bottle, whatever the wine, whatever the reason, they can take it back to the local wine shop and get it replaced. It is a hassle having to deal with multiple wineries to get replacements, assuming the wineries will even offer replacements (many do not).

So as CEO of the WSWA, this is what I would focus on in the media: direct shipping results in the loss of choices at your local wine shop, and it also results in increased hassles because one must now deal with dozens of faceless wineries thousands of miles away, as opposed to one person you know at the local wine shop.

(Back to being a consumer)

Winery organizations have spent years trying to get direct shipping in order to increase their profit margins. For the consumer it has resulted in increased prices, and increased hassles having to deal with defects as well as shipping mistakes.

I think it's time these organizations start developing a "direct shipping code of ethics" which must be followed if a winery wants to be a part of those organizations. Like replacing corked/cooked bottles at no charge whatsoever to the consumer.

Or how about an organization-sponsored program where a consumer could call one number if they had a problem with a purchase from a member winery, and the organization would take care of contacting the winery to get bottles replaced, correct shipping errors, etc.

Probably not the response you expected, but you DID ask...