Archive for April 10th, 2006
The role of retailers
April 10th, 2006
Pending court cases in Washington and Texas will set precedent throughout the country for determining the role of retailers in the world of wine shipping. Before digging in, let’s start with a terminology summary:
Direct Shipment: The direct shipment of wine from wineries (suppliers) to end consumers. Wineries may ship via common carrier (UPS and FedEx) directly or through a third party logistics company (3PL) that ships on behalf of the winery.
Self Distribution: Shipment of wine from winery directly to retailers without passing through a distributor.
Three-tier: Three tier shipments are generally picked up at the winery by a distributor, who then delivers to retailers (liquor stores, restaurants, etc.).
Retail to Consumer: The shipment of wine from a retailer directly to end consumers.
In Washington, the Costco will likely set a precedent for self distribution. Costco challenged the three tier system for distributing wine and beer in Washington. The trial ended two weeks ago and U.S. District Judge Marsha Pechman is expected to rule on the case this week or next.
Costco argues that the three-tier system is effectively a state-mandated monopoly that restricts competition and thus consumer choice and artificially inflates prices via mandatory markups. They would like to cut out the “middle man” and allow wineries to self distribute directly to Washington retailers.
In Texas, the Specialty Wine Retailers Association is suing the Texas ABC for retail to consumer shipping rights. A powerful legal team that includes the infamous Ken Starr will argue that the Graholm decision that requires that states treat in-state and out-of-state wineries evenhandedly also applies to retail to consumer shipments. Here is a quote from the press release:
“A great state has done a real wrong, by engaging in an archaic form of economic protectionism that plainly violates the constitutional rights of citizens. As the U.S. Supreme Court made clear in its recent Granholm v Heald decision, the Commerce Clause requires that out-of-state wine retailers be treated the same as in-state wine retailers,” said James Shannon, partner of Kirkland & Ellis. “Rather than abide by the U.S. Constitution, however, Texas apparently has decided to favor the interests of its powerful liquor lobby, by seeking to prevent out-of-state wine retailers from delivering wines directly to Texas consumers. That unconstitutional decision also punishes Texas consumers, who are made to pay more for wine and have a lesser selection of it,” he added.
These two cases will set landmark precedents that will likely spur another flurry of legislative and judicial activity and further complicate the wine shipping landscape. We’ll be sure to keep a close eye on both cases and their potential impacts.
Legislation update
April 10th, 2006
There has been a flurry of wine legislation activity around the country recently…
Indiana: House Bill 1016 was approved by the Indiana House and Senate and awaits signature from the governor. This is one of the stranger bills out there to say the least. It allows for limited direct shipments from both in-state and out-of-state wineries if they get a $100 permit. However, lawmakers inserted a previous visit requirement that says an initial onsite visit to the winery must be made before consumers can make offsite purchases. There is also a requirement that each consumer is limited to 24 cases per year across all wineries. This is crazy. How will one winery know how much wine a consumer has received from other wineries?
Oklahoma: The Oklahoma Grape Growers and Wine Makers Association is pitted against the wholesalers in a battler where the two sides seem too far apart. Although President Gary Butler proclaimed that both House and Senate versions of direct shipping legislation died on the floor, the OGGWMA continues to fight for direct to consumer shipments through lawsuits and public relations campaigns.
Louisiana: Two separate bills are under consideration in the LA House to allow for the direct shipment of wine. The wholesalers are putting up a good fight as usual and of the options would create a small farm winery exception where wineries that produce less than 2,000 cases only could ship directly to consumers. This would merely create an “incubation period” where small wineries could get off the ground before being forced to use distributors.
Kentucky: Compromise legislation passed the House and is expected to pass the Senate that would allow direct shipments from in-state or out-of-state small farm wineries for onsite sales only.
Maine: Two proposed bills and a lawsuit to lift the current ban on direct shipments have muddied the waters significantly in Maine. Resolution seems pretty distant at this point.
Florida: Florida is currently open to shipments, but on the “honor system” until permanent legislation is passed. A couple of different bills are on the table that would allow for direct shipments with restrictions. Florida consumers and wineries are pushing SB 282, which does not include a “capacity cap” that would prevent wineries that produce more than 250,000 gallons from shipping directly to consumers.
