Sonoma County Updates, and a Cordial Invitation
May 22nd, 2013
Today, we’d like to remind you of two things– one is a law that will affect our friends in Sonoma County this year, and the other is a cordial invitation to an industry event in the area on May 30th!
Sonoma County has seen great growth over the past few years, especially in 2012. According to our latest direct shipping report, created in conjunction with Wines & Vines, we have seen sales through direct shipping out of the area rise over 10% in the past year alone. Several regional organizations have taken note of this growth, and helped pass legislation in August of 2010 to ensure that Sonoma-based wines are properly branded and marketed.
Sponsored by the Sonoma County Vintners and the Sonoma County Winegrape Commision, AB 1798 requires that any wine from an American Viticultural Area (AVA) located in Sonoma County must also include the words “Sonoma County” on its bottle labels. Though the legislation was passed three years ago, very little action has been required by vintners—until now. The state of California will begin enforcing this new requirement on January 1st, 2014. The possible punishment of neglecting this new rule is the revocation of one’s winery license.
This marks the fourth kind of law, called “conjunctive labeling,” enacted in the Golden State. Napa Valley, Lodi, and Paso Robles have had this type of requirement enacted in the past.
The rationale is twofold:
- According to the sponsor organizations’ market research, Sonoma County’s brand recognition is much greater than most of the individual AVA’s that make their home in Sonoma County
- A voluntary program to place “Sonoma County” on the region’s wine labels resulted in a 20% participation, and sponsors of the bill want to increase those numbers significantly.
There is a counter-argument to this new initiative, however. Wineries have been using more detailed AVA information to better market their region, such as “Russian River Valley” and “Dry Creek Valley.” Adding Sonoma County to the label is seen by some as diluting the brand. Regardless, the legislation has long since passed.
While this may have been on your radar when it was first enacted, we wanted to remind you that this would be a good time to make sure your upcoming COLA submissions to the TTB are properly ready to go.
More detail on label requirements can be found at :
http://www.sonomawine.com/about-sonoma-county/conjunctive-labeling
As for that invitation…ShipCompliant is pleased to participate in the eWinery Solutions “State of the Industry” seminar at Sonoma State University on May 30th. We’ll be digging deeper into our recent direct shipping data, and talk about ways to use this data to your advantage! Click here to sign up!
Is the Marketplace Fairness Act Fair for Wineries?
May 7th, 2013
In short, yes, for a couple of reasons:
1. Wineries already pay sales tax in most states
2. The vast majority of wineries will likely be exempt from the law
So what is it, exactly?
Senate Bill S. 743, more commonly known as the “Marketplace Fairness Act“, is a pretty simple bill that would give states the ability to require out of state businesses that have “remote sales” in excess of $1 million annually to remit sales taxes. Each state would be able to opt in to the Act, but only after they have simplified their tax structure, either by joining the Streamlined Sales and Use Tax Agreement or to follow the steps outlined in the bill to simplify their sales tax requirements.
Will it pass?
With broad bi-partisan support, S. 743 passed out of the Senate with a vote of 69 to 27. However, a tough battle is expected in the House, and therefore the Marketplace Fairness Act has a long way to go before it is enacted with a signature from President Obama. Amazon.com is supporting the bill (presumably because they would like to move forward with their plans to build warehouses in each state to support same-day shipping), while eBay is one of the main voices in opposition.
What will it mean for wineries?
A lot hinges on the definition of “remote sales”. Keep in mind the fact that state legislation to allow wine shipments typically includes a provision that also requires wineries to register for and pay sales tax. As it stands in the Senate version, and based on our interpretation of the current language, sales by wineries to states where they are already required to pay sales tax would not be counted when considering the $1 million threshold for remote sales.
Based on some quick analysis, there are a few hundred wineries in the US that ship more than $1 million worth of wine to consumers each year. BUT, if you include sales only to those states (Alaska, Colorado, D.C., Florida, Iowa, Kansas, Minnesota, Missouri, New Hampshire, Oregon, and Wyoming) that do not require wineries to pay sales tax, then we estimate that less than 25 wineries would exceed the $1 million cap. In other words, the vast majority of the 7,000+ wineries in the US would be exempt from this law.
Wineries are already accustomed to calculating, collecting, and remitting sales taxes in most states. So, for those wineries that would not be exempt from this law, it would probably not be that big of a deal to add a few more states (initially the states of Iowa, Kansas, Minnesota, and Wyoming) to the list of states to which they would be required to remit sales tax. They already have the technology and processes to do so.
The bill would take effect, at the earliest, on October 1st, 2013. Once effective, the 22 “Streamlined” sales tax states would begin requiring sales tax for remote sellers with over $1 million in sales. After that, each of the remaining 28 states would choose whether to opt in to the Act and start requiring sales tax from remote sellers.
Nebraska Tightens up Existing Direct Shipping Law
May 6th, 2013
LB 230 passed Nebraska’s unicameral legislature and was signed by the Governor on April 24, 2013. The new law will go into effect on September 6, 2013. Nebraska is currently open to direct shipping from wineries and retailers (although there was some debate recently as to whether retailers should qualify under the current law), with easy-to-navigate regulations. The new law introduces several new restrictions that Nebraska direct shippers should be aware of before the new law goes into effect.
Though the bill’s statement of intent indicated that only manufacturers (wineries) would be able to obtain a license, after amendments to the bill, retailers were added back in and will be eligible for the Nebraska direct shipping license. So, at the end of the day (following a confusing set of hearings and deliberations) currently licensed wineries and retailers will both be able to continue to ship to Nebraska consumers, but with added complexity and requirements.
Direct shippers will see several marked changes to rules and licensing processes. Here’s a quick breakdown of these and other requirements in the new law – additional descriptions follow below:
| Item | Before Sept. 6 |
After September 6 |
||
| Nexus status | Not required | In addition to requiring sales tax payments (common for direct shipping law), the potential to trigger additional tax obligations exists | ||
| Brand identification | Not required | Retailers and manufacturers may "only ship the brands of alcoholic liquor identified on the application” | ||
| Distributor notification | Not required | Manufacturers (but not retailers) must notify Nebraska distributors carrying the identified brands, of the manufacturer’s intent to apply for a direct shipping license. | ||
| Notification of any violations | Not required | “…the applicant agrees to notify the commission of any violations in the state in which he or she is domiciled and any violations of the direct shipping laws of any other states…” | ||
| Non-sellable products | Not required | Required. Shippers may “…not ship any alcoholic liquor products that the manufacturers or wholesalers licensed in Nebraska have voluntarily agreed not to bring into Nebraska at the request of the commission;” | ||
| Excise tax | Annual filing | Monthly filing | ||
| Common carrier approval | Not required | Required | ||
Under current regulations, it was somewhat unclear whether or not direct shippers were required to register to pay sales taxes, though most direct shippers did. The establishment of nexus under the new law could also mean that, in addition to requiring sales tax registration (common for direct shipping law), there is a potential to trigger additional tax obligations. Brand listings will be required as part of the licensing process, and wineries (but not retailers) must notify their Nebraska distributors carrying the listed brands of the manufacturer’s intent to apply for a direct shipping license. If a Nebraska manufacturer or wholesaler volunteers not to sell certain products within Nebraska’s borders, direct shippers would also not be allowed to sell those products under the new law. Furthermore, direct shipper applicants will have to notify the Nebraska Liquor Control Commission of any violations of direct shipping laws of any other states and any violations in the state in which the shipper is domiciled.
Many of the new laws will require clarification as to how currently licensed direct shippers should proceed in order to remain licensed and compliant – for example, will existing licensees have to notify distributors of their existing direct shipping license on Sept 6, or will this new requirement take effect once their current license expires in April? As we get closer to the September effective date, we will notify our clients and readers of any published guidelines or additional information.
Variety: The Spice of Life for Direct Shipping?
April 24th, 2013
Among the most revealing facts in the new 2013 Direct Wine Shipping Report we recently released with Wines & Vines is that, given all the various types of wines produced and sold by wineries, a very select few types of wine dominate those shipped direct to the consumer.
Together, Cabernet Sauvignon, Pinot Noir, Red Blends, Chardonnay and Zinfandel represent 70% of the total volume of wine shipped and just over 80% of the value of all specified varietal wines shipped from winery to consumer. This line up of dominant direct-shipped wines is somewhat similar to the dominant wines in the overall wine market where Cabernet, Chardonnay and Pinot Noir are also in the top five varietals.
But take a look what happens when you compare the top five wines shipped direct to the consumer and the top five wines sold in the larger retail marketplace, and when you look at their share of total volume.
| Direct-to-Consumer | % of Volume | Retail Marketplace | % of Volume |
| Cabernet Sauvignon | 20% | Chardonnay | 21% |
| Pinot Noir | 16% | Cabernet Sauvignon | 12% |
| Red Blends | 15% | Merlot | 9% |
| Chardonnay | 12% | Pinot Gris/Grigio | 8% |
| Zinfandel | 8% | Pinot Noir | 6% |
| All Other Varietals | 29% | All Other Varietals | 44% |
The direct shipping channel is a much less varietally diverse sales channel than the overall retail marketplace. In fact, some wines that play a key role in the overall marketplace only show up as a blip in the direct shipping channel. In 2012 Moscato held a 6% share of total sales volume in the overall retail sector. In the direct shipping channel, it accounts for a mere .1% of volume. This should be a reminder to wineries and retailers that every sales channel is different. Anyone that has enjoyed success in 3-tier distribution and is considering direct shipping, or vice versa, should review their product mix ahead of marketing efforts.
Beyond those varietals that dominate the direct shipping space, there is the equally important question of which varietals are trending up and trending down in popularity.
In 2012, only four varietals showed a significantly greater increase in shipments than the overall channel average of 7.7%: Rose, Sparkling Wines, Chardonnay and Pinot Noir. It’s important to note that the data we’ve looked at over the past three years has shown a fairly strong correlation between increased sales and movement in a varietal’s average price. When a varietal’s average price goes up, sales tend to go down and vice versa. What we are looking for are examples of varietal wines where shipments have increased despite a price increase or a slowdown in sales despite a price decrease.
| Price/ Bottle Change | Volume Change | |
| Rose | -7.60% | 32% |
| Sparkling Wine | -4.80% | 20% |
| Chardonnay | -3.80% | 10% |
| Pinot Noir | 3.30% | 16% |
Clearly, we have a winner here. Pinot Noir is on the ascent in the direct shipping channel. In 2012 the wine not only increased in average price per bottle, but it significantly increased in volume sales. This in turn led to Pinot Noir seeing a whopping 19% increase in sales value. The majority of this growth is found in Sonoma, where shipments of Pinot Noir increased by 27% on an average price per bottle that increased by 4.2%.
On the tumbling side of the scale, three wines saw a significant decrease in the volume of wine shipped in 2012 over 2011: Riesling, Merlot and Cabernet Franc. Again looking the change in price per bottle a story unfolds.
| Price/Bottle Change | Volume Change | |
| Riesling | -12.00% | 2.80% |
| Merlot | -8.30% | -9.40% |
| Cabernet Franc | -7.60% | 9.10% |
Merlot is not only losing pace in its shipments, but in its average price per bottle. In Napa specifically, the average price per bottle of Merlot fell a whopping 12.4% (more than any other varietal from the region) and volume dropped by 11.2%.
For more complete data on the varietal make-up of the direct shipping channel, including how various specified varietal wines perform on a regional basis, download the 2013 Direct Wine Shipping Report today!
October 1st Brings New Direct Wine Shipping Regulations to Montana
April 22nd, 2013
Montana House Bill 402 was signed by Governor Bullock on April 12, 2013 and creates workable direct wine shipping laws in the state. The new law, effective on October 1, 2013, will replace the flawed consumer licensing system presently in place for wine shipping in Montana.
Current regulations require that out-of-state wineries ship only to residents who hold a “Connoisseur’s License“; proof of the consumer license and a special sticker to affix to the shipping box must be provided to the winery before the shipment can be made. The new regulations will require out-of-state wineries to:
- Register as a Foreign Winery or Importer. Many wineries already hold this license as it allows a winery to sell to a Montana distributor (cost of license is $0 to $400 annually, depending on volume sold in Montana; no-cost product registrations are required as part of becoming licensed)
- Apply for a $50 annual direct shipping endorsement
- Supply to Montana the name and address of any utilized fulfillment warehouses
- Submit written acknowledgement of contracting only with common carriers that agree to deliver wine only to individuals who are of age and who provide a signature upon delivery
- Ship no more than 18 cases of wine annually to an individual consumer (up from 12 cases/year)
- Submit excise tax and shipment reports by the 15th of every month
While Montana’s regulations for direct wine shipments are changing, the connoisseur’s licensing system remains in place for shipments of beer from out-of-state breweries. UPS and FedEx, however, do not accept shipments of beer or spirits for delivery to consumers.
We will keep you informed of any updates from the Montana Liquor Control Division regarding the endorsement process once the details become available.
