January 22nd, 2013
As we like to do at the beginning of each year, we once again look into our crystal ball and offer you some informed prognostications as to what the world of wine direct shipping might have in store for the coming year. While we don’t see any negative trends impacting the compliance world in the next year, we do anticipate the continuation of certain trends of which we believe you should be aware.
Here are our picks for important compliance trends to keep a close eye on in 2013
1. Limited But Important Direct Shipping Changes
Wineries now enjoy the opportunity to ship into 40 states (including Washington D.C.). The remaining closed states are predominantly those that have given little hint of changing their policy. However, we once again have our sights trained on two states where we believe some opening in the direct shipping landscape might occur: Pennsylvania and Massachusetts.
Pennsylvania has considered direct shipping legislation for the past few years, but so far the direct shipping initiatives have become more or less attached to the heated battle over the privatization of the Pennsylvania Liquor Control Board (PLCB). The privatization battle will wage on concurrently with efforts to “modernize” the PLCB. Direct shipping is reportedly part of a six-point plan to modernize the state control system. A sticking point for direct shipping legislation will be how to deal with the 18% “Johnstown Flood Tax” that is applied to sales through the state system.
Massachusetts also saw a direct shipping bill in play in 2012 for the third straight year, but it went nowhere. This non-action occurred despite the fact that a 2010 Federal Appeals Court decision ruled the current wine shipping law in the state unconstitutional and despite Governor Deval Patrick’s stated support for direct shipping. We expect another tough battle in the Bay State over this issue in 2013.
2. Changes to COLA Processing at TTB
Over the past couple of years the TTB has given every indication that they are going to completely overhaul the process of obtaining Certificates of Label Approval (COLAs). It still remains a fact that one must get a federal pre-approval through the COLA process before bringing a new product to market. However, given the increase in new products and decreased budgetary resources at the TTB, this crucial federal agency is looking for ways to decrease the burden that administering the pre-approval of labels places on them.
Toward this end, TTB has taken steps to make it easier for suppliers to make adjustments to labels without applying for a new COLA. We expect the TTB to continue to move towards a more streamlined pre-approval process this year. This process will not happen overnight, but will force suppliers, wholesalers, and state agencies that depend on the COLA for different purposes to review and adjust their processes.
3. Privatization and Modernization
While it is probably too early to pass judgment on the recent move in Washington State voters to privatize the state liquor control system, it can be said with some assurance that other states currently involved in one way or another with alcohol sales will look closely at privatization. A move in Pennsylvania to privatize alcohol sales has been underway and debated for a couple years now with the governor behind the effort. Other control states are also looking to modernize their control systems to add more value for their constituents and to get out ahead of privatization pushes.
Larger retailers tend to support privatization, while wholesalers and small retailers are typically wary. All eyes are on the ongoing transition in Washington State.
4. Regulating Third Party Providers (TPPs)
Last year we predicted that more Third Party Providers (unlicensed marketers using their reach to advertise wine products) would get into the business. With both Amazon and Facebook now doing just this, we have pretty clear evidence that third parties are investing in the wine vertical. The key to opening up the TPP landscape was the Advisory by the California Alcohol Beverage Control issued in 2011 that laid out the special method by which TPPs and suppliers had to structure their relationships.
Other states are now looking closely not only at the California model but are also considering exactly how to regulate and enforce this new advertising channel in their own states. We expect to see other advisories and clarifications coming from states addressing how TPPs and suppliers can work together compliantly.
Finally, if states take a position similar to California’s view of the marketplace channel, we would not be surprised to see other niche players enter this vertical, helping suppliers to reach a larger wine buying audience.
5. Revisions to Direct Shipping Regulations
Since the Granholm Supreme Court decision in 2005, numerous states somewhat quickly addressed and changed their direct shipping laws and regulations. After seven years with new regulations, many states we believe will revisit their laws and make adjustments.
In some cases we see changes in the capacity caps that currently restrict the size of the winery that can ship direct. In other cases, we would not be surprised to see some states lift restrictions on how fulfillment houses ship into their states as well as changes to report and tax filing regulations. The hope is that these changes make both compliance reporting and state agencies more efficient while also giving the state agencies the tools they need to maintain a level playing field.
6. Changing the Product Registration Process
For decades, state product registrations have been done with paper. As more and more products enter the marketplace, state response times have slowed. This has been exasperated by budget cuts to various state regulatory agencies in the wake of the recession and state budget deficits. The response has been to work to bring state product registration into the 21st century by allowing them to be submitted online and responded to online.
ShipCompliant’s own PRO (Product Registration Online) system has been adopted by a number of states to help speed up and make more efficient the product registration process, driving improvements in efficiency both for suppliers and the state agencies. We expect the pace of implementing online product registration to increase in 2013 for the same reason it initially was instituted in a number of states: budget cuts, efficiency efforts and modernization pushes. This will also be accelerated by TTB’s push to redefine the concept of a COLA, which is currently a resource that states depend on as part of their state label approval processes.