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Wine Sales and Distribution 2012 – A Look Forward
January 9th, 2012
In looking forward to what 2012 might bring the world of wine compliance and regulation, it is instructive to first look back at 2011. One thing we’ve learned after eight years in the world of wine compliance is that once movements gain momentum, it’s hard to slow them down.
The past year demonstrated the continuation of certain trends and the emergence of another that we believe will carry forward in 2012. The trend of more states opening their borders to the direct shipment of wine from other states continued steadily. Maryland and New Mexico both opened their borders to permit-based direct-to-consumer shipping in 2011, a continuation of a movement toward regulated consumer access to wine that began in 2005 with the Granholm v. Heald Supreme Court decision. Tennessee also saw a change in their law in 2011 that made the entire state “wet” for direct shipments from wineries.
The past 12 months also saw an increase in new “Third Party Providers” that help wineries market their products to a broader collection of consumers. Either as flash sites, wine product advertisements, or multi-offer marketplaces, these new entries into the wine market were helped along by a new California Department of Alcoholic Beverage Control (ABC) Advisory that set down specific rules as to how suppliers and non-licensed Third Party Providers can work together compliantly.
Finally, 2011 demonstrated that various forms of privatization of the sale and distribution of wine and spirits in control states are an important trend to watch. The passage of Initiative 1183 in Washington State that took the sale and distribution of spirits out of the hands of the Washington Liquor Control Board was the most tangible example of the privatization trend.
What To Expect in 2012
Direct-To-Consumer Shipping
Winery-to-Consumer shipping laws will continue to be modernized in those now few states that continue to prohibit interstate shipping. We expect New Jersey, the most important wine consuming state currently outlawing interstate shipments, to pass legislation allowing some form of direct shipments to consumers. Currently, a bill working its way through the legislature would allow all wineries making up to 250,000 gallons annually to obtain a direct shipment permit. The capacity cap of 250,000 gallons will be a point of concern, but wineries should expect passage and should be prepared to ship to New Jersy consumers in 212. The bill, which has passed the senate, is expected to be voted on in the assembly before the close of session tomorrow, January 10th.
Massachusetts too has seen a number of direct shipment bills introduced over the past couple of years, but none have found their way to the Governor’s desk. Recently, however, Governor Deval Patrick put a spotlight back on the issue by saying in a radio interview that he would sign legislation that permitted direct-to-consumer wine shipments. 2012 may be the year that Massachusetts finally opens to direct-to-consumer shipping.
Finally, Pennsylvania, traditionally one of the states where alcohol sales and distribution is most tightly controlled, may see a move to allow direct-to-consumer shipping. As talk continues in that state to privatize wine sale and distribution, there has also been much talk and the introduction of bills to “modernize” the PLCB, including allowing direct-to-consumer shipping, opening up a state with big consumer potential for wineries.
Modernized Marketing
Digital marketing in the wine industry has been behind the curve due primarily to the massive amount of regulations that govern the industry on a federal and state level. It’s unlikely that the wine industry will see significant deregulation. However, it appears that some clarity is coming to the issues that have historically deterred modern marketing methods.
Late in 2011 the California ABC issued an “Advisory” that spelled out the conditions under which non-licensed Third Party Providers (TPPs) and suppliers must arrange their relationships in order to work together. In a nutshell, the California ABC made clear that wineries and other licensed suppliers must always be in control of the transaction from approving each transaction to controlling the flow of funds. (Read our blog post that explains these new rules). While adhering to the new California ABC rules can be a complex task and require very specific actions and programming on the part of licensed suppliers and non-licensed TPPs such as flash sites and community buying sites, we believe this new clarity represents an important development for suppliers and marketers that will yield interesting developments in 2012
We expect to see a rise in the number of TPPs. In addition, we expect other states to follow California’s lead in issuing rules and regulations for how licensees and non-licensed marketers can work together to help market wine to consumers in innovative ways.
Privatization
With Washington State paving the way in the realm of privatization of sales and distribution with the passage of Initiative 1183 in November, we predict the privatization trend to regain momentum in 2012. Most eyes are on Pennsylvania where serious discussions are underway concerning the privatization of the sale and distribution of wine in that highly controlled state. Virginia too has seen discussions in the past years concerning the merits of reforming its alcohol control system. Meanwhile, in Michigan a task force has been empowered to look at updating its alcohol beverage laws.
This slow moving trend toward privatization, if it continues and gains more momentum, could lead to significant changes in the area of wine sales and distribution and the compliance measures that suppliers must undertake.
Federal Action on Wine Sales and Distribution
In early 2011, with the introduction of H.R. 1161 (read our series on the CARE Act here) in the House of Representatives, it looked like supporters of federal legislation that would give states greater control over how they can regulate alcohol and overcome judicial rulings that have put limits on state powers, would push hard to see this bill passed. Yet, H.R. 1161 garnered fewer supporters in the House than a similar bill, H.R. 5034, gained in 2010. Furthermore, no hearing was held in the House Judiciary Committee on H.R. 1161 and no Senate sponsor was introduced.
This bill, opposed by all supplier organizations and by retailers, has another year to gain more support and move through the legislative process. Most in the industry are taking a wait and see attitude on H.R. 1161 to determine its fate, but it seems unlikely that the bill will move on to President Obama’s desk in 2012.
Finally, federal legislation is moving forward concerning the United States Postal Services, and it could have long-term effects on the wine industry. The new bill moving forward is the 21st Century Postal Service Act 2011. If enacted as currently written it would allow the United States Postal Service to deliver wine to consumers and compete with Federal Express and United Parcel Service.
As always, ShipCompliant will continue to watch the political and regulatory landscape throughout the coming year and will work to keep you up-to-date on important changes that impact your ability to market and sell wine.
Happy New Year
December 30th, 2011
From your compliance partners in Boulder and Napa, may your new year bring you fewer forms to file and more orders to fill!
- The ShipCompliant Crew (from left to right): Timothy Clayton, Mike Liedtke, Sarah Werner, Andy Grauch, Jim Agger, Robb Dye, Eddie Ermoian, David Dango, Kent Nowlin, Chris Kalmbach, Patrick Barratt, Pawel Smolarkiewicz, Jamie Jimenez, Lisa Bookwalter, Alex Umbhau, Jeff Carroll, Betsy Hansen, Mike Taylor, Luke Eckenroth, Mark Hayes, April Capil, Colin Neilson, Barclay Bates, Mackenzie Latham, Sam Sexson, Michelle Few, Emily Sheehan, Michael Pritchard, Jason Eckenroth
Understanding the California ABC’s New Advisory for Wineries and Third Party Providers
November 1st, 2011
The proliferation of “Third Party Providers” (TPP) within the wine industry has been significant over the past two years. Known otherwise as “Third Party Marketers”, “Third Party Advertising Agents” and “Marketing Agents”, they represent a new sales channel for suppliers whether in the form of “flash sales” or multiple product offer websites.
However, anybody that has operated as a TPP in California has done so under a great deal of uncertainty ever since the issuance by the California Department of Alcoholic Beverage Control (ABC) of an advisory in June 2009 that questioned the degree to which TPPs and wineries utilizing their services were acting in accordance with the laws and regulations of California. Most of that has changed with a new advisory letter issued today by the California ABC that provides clear guidance on how wineries and TPPs can work together.
This article lays out the key concepts every licensed seller (wineries and wine retailers) should understand and adhere to in order to work with non-licensed TPPs in a compliant fashion. We see this new advisory by the California ABC as a critical new document that will have a big impact for wine suppliers, consumers, and advertisers alike.
KEY CRITERIA FOR LICENSED SELLERS WORKING WITH THIRD PARTY PROVIDERS
Criteria #1: Placement & Pricing
What the Advisory says: “all sales transactions involving Third Party Providers must ultimately be conducted by and under the control of a licensee. This includes decisions concerning the selection of alcoholic beverages to advertise or offer for sale, the pricing of those beverages, and the ultimate acceptance and fulfillment of the sales transaction.”
Best Practice: When engaging a TPP, the licensed seller should monitor how their products are being represented, and should also communicate to the TPP an allowable price (or price range) for advertisement to the consumer. Sellers should also communicate to the TPP the states in which they are licensed to ship so the TPP can filter products by the consumer’s state and also show the list of available states for each seller.
Criteria #2: Transparency
What the Advisory says: “The licensee responsible for the sale must be clearly identified and must ultimately control the transaction, including any decisions concerning acceptance or rejection of such orders.”
Best Practice: TPPs should clearly show to the consumer, prior to checkout, the name of the licensee for the transaction. For example, “This product is sold and shipped by Winery A, Sonoma, CA”. The licensee name should also be presented to the consumer on any generated consumer invoices.
Criteria #3: Acceptance
What the Advisory says: “The licensee responsible for the sale must be clearly identified and must ultimately control the transaction, including any decisions concerning acceptance or rejection of such orders.”
Best Practice: A good mechanism for ensuring acceptance is a batch email that is sent out on a periodic (daily or semi-daily, for example) basis. The email would contain the order request information and details, and the seller would have the opportunity to reject or accept the orders by responding to the email, or clicking on an accept/reject button. If a comprehensive compliance check has already been run against the seller’s shipping license, then the seller would likely not have many reasons to reject the requests.
Criteria #4: Fulfillment
What the Advisory says: “Licensees must also be responsible for, and must control, the fulfillment of orders and the shipment of alcoholic beverages from the licensees’ licensed premises or other authorized shipping point (such as a licensed public warehouse).”
Best Practice: Following the acceptance process, the seller then provides instructions for releasing the order to fulfillment. Licensees should ensure that the wine is shipped either from their licensed premise, or a licensed warehouse. The wine is then shipped, and a shipping notification is sent back to both the seller and the TPP. Following shipping notification, payment is captured.
Criteria # 5: Payment and Disbursement
What the Advisory says: “The control of funds from a transaction involving the sale of alcoholic beverages constitutes a significant degree of control over a licensed business. As such, while a Third Party Provider may act as an agent for the licensee in the collection of funds (such as receiving credit card information and securing payment authorization), the full amount collected must be handled in a manner that gives the licensee control over the ultimate distribution of funds. This means that the Third Party Provider cannot independently collect the funds, retain its fee, and pass the balance on to the licensee. The Third Party Provider should pass all funds collected from the consumer to the licensee conducting the sale, and that licensee should thereafter pay the Third Party Provider for services rendered.”
Best Practice: At the time of transaction, payment is authorized, but not captured. Following shipment notification, payment is captured, and funds settle either directly to the seller, or into a trust account that is controlled by the seller. The funds can then be disbursed to the parties (for advertising fees, fulfillment fees, technology fees, etc.) from the control of the licensed seller.
The new criteria for licensees working with TPPs is a paradigm shift that will work its way through the industry over the next few months. However, we believe that as licensed sellers and TPPs understand the change and put in to place mechanisms to insure they are operating compliantly, the new rules will help both TPPs and licensed sellers operate with certainty, at least in California.
It is important to understand that this new criteria only applies to licensees in California. However, California’s regulatory system often acts as a benchmark for regulators in other states and we will be watching closely to see how other states react to this collaborative effort between the ABC and the working group of industry experts it established to provide recommendations on the issue of TPPs in California. It should be noted that this new CA ABC advisory was issued today in the midst of a meeting of the National Conference of State Liquor Administrators (NCSLA) meeting in San Francisco. So, regulators in most states are now well aware of the new California advisory and the process they used to come to the solution.
In the end, what’s important for licensees working with TPPs to understand is that it is the licensed seller (the winery or retailer) that is ultimately responsible for the actions of the Third Party Provider, which makes it in the best interests of the licensee to be sure the TPP understands these new rules and that they are in compliance with them.
Introduction to CARE Act Series
April 5th, 2011
HR 1161 (The Community Alcohol Regulatory Effectiveness Act)—formerly known as HR 5034, is one of the most important pieces of alcohol-related legislation introduced into Congress in many years…as well as one of the most divisive. If passed, the bill would provide the states with greater authority, granted directly by Congress, to regulate the sale and distribution of alcohol, including beer, spirits and wine.
No piece of legislation, either in the various state legislatures or in Washington, has generated so much discussion (and hyperbole) within the wine industry. Because of the flood of claims, counter claims, misinformation and because of the importance of this issue to every tier, we thought it was important to get all views on the table for the industry to see, evaluate and discuss.
Over the course of the next few weeks, you will hear from people directly involved in helping pass or defeat HR 1161 as well as other industry experts. We believe that the best path to understanding the issues behind HR 1161 is to hear from those that are close to the issues.
If you oppose HR 1161, you are bound to read ideas you disagree with. The same goes for those of you who support the bill. We think that is good and this is in fact our motivation for delivering this series of guest posts by industry leaders involved in the debate over the CARE Act.
We hope that upon reading the coming posts on this issue, you will join into a discussion. Please feel free to contact me if you have any questions about the coming series of posts concerning HR 1161 or have an additional contributor you believe ought to be given the opportunity to be heard on the issue: (jeff) (at) (shipcompliant.com)
To find all posts in this series, please click here.
Son of 5034: C.A.R.E. Act Re-Introduced as HR 1161
March 21st, 2011
If you have been following the debate over the CARE (Community Alcohol Regulatory Effectiveness) Act for the last nine months, it should be no surprise that the bill was re-introduced in the US House of Representatives last week. Proponents of the bill, including the National Beer Wholesalers Association (NBWA) and the Wine & Spirits Wholesalers of America (WSWA) had hinted for months that it would be re-introduced in the 112th Congress after the previous version was heard, but did not move out of the House Judiciary Committee in the 111th. As expected, HR 1161 was introduced just before the NBWA Annual Legislative Conference, which will take place March 27th-30th in Washington, D.C.
When comparing the text (see our redline version) of the current bill to that of the revised version of the original bill (HR 5034) from September, you’ll notice that not much changed in terms of substance. Aside from the assignment of a new bill number (HR 1161), the re-introduced bill was renamed to be the “Community” Alcohol Regulatory Effectiveness Act of 2011 from the “Comprehensive” Alcohol Regulatory Effectiveness Act of 2010. The Purpose (Sec. 2) and Declaration of Policy (Sec. 3a) were also rewritten and are now slightly more concise. However, the meat of the Act lies within the Construction of Congressional Silence (Sec. 3b) and the Amendment to Wilson Act (Sec. 4), both of which were untouched. For additional background on the CARE Act and its potential effects, see our previous post, which was published just before the House Judiciary Committee hearing on September 29th, 2010.
Because HR 5034’s lead sponsor, Bill Delahunt, retired from congress last year, HR 1161 has a new lead sponsor in Rep. Jason Chaffetz of Utah. Rep. Chaffetz was one of the original co-sponsors of HR 5034, which was shelved with 152 total co-sponsors. HR 1161 was introduced with only eight co-sponsors last week, but that number will certainly grow as the lobbying efforts begin to ramp up. The bill has yet to be introduced in the Senate.
And so the battle continues. NBWA and WSWA both applauded the introduction of HR 1161 as necessary to enable “states to defend their alcohol laws from litigation designed to eviscerate state control over alcohol policy decisions.” A coalition of supplier groups, including the Brewers Association, Beer Institute, Distilled Spirits Council of the United States, Wine Institute, National Association of Beverage Importers, and WineAmerica, remain opposed and immediately responded by referencing their preemptive February joint producer letter to Congress urging them to refrain from spending “valuable time wading into an intra-industry squabble and unraveling a successful regulatory structure to the detriment of consumers, the industry, and the federal interest in a fair, competitive, and orderly marketplace for alcohol beverages.”
“Ultimately, this legislation is about who should make decisions regarding alcohol regulation, not what those decisions should be,” said NBWA President Craig Purser in a statement. “Alcohol is different than other consumer products and that’s why the 21st Amendment to the U.S. Constitution created a state-based system of alcohol regulation that effectively balances local community control, tough consumer protections as well as choice and variety. The majority of Americans believe that laws regarding the regulation of alcohol should be made at the state and local level – and so do we.”
Paul Kronenburg, President of Family Winemakers of California, summarized the supplier opposition to HR 1611. “Family Winemakers of California (FWC) remains opposed to efforts at the national level to undermine the Commerce Clause and embolden states to pass discriminatory alcohol laws. Rarely are states reluctant to regulate and they don’t need H.R. 1161 to remind them of their authority. Florida is a prime example where wholesalers recently introduced a production cap bill despite last year’s Massachusetts decision finding caps unconstitutional. FWC will work with others to preserve our national economic union and consumer choice by opposing H.R. 1161.”
"We see HR 1161 as a radical departure from the principles of a single economic union laid down in the Constitution," said Tom Wark, executive director of the Specialty Wine Retailers Association. "This bill would revoke all Commerce Clause protections against discriminatory state laws that wine retailers currently enjoy and would undoubtedly lead to protectionist laws that hurt retailers and consumer access to wine, beer and spirits."
In a previous post, we discussed how the CARE Act would not change anything overnight, despite hyperbole to the contrary. Effectively, it would allow states the ability to pass new laws that include non-facial forms of discrimination such as capacity caps, in-person purchase requirements, and limits on production capacity. One certainty is that the hyperbole and rhetoric on both sides will escalate as the industry associations dig in and make their case for (and against) federal legislation. Wholesaler groups are going out of their way to say that this is not an “intra-industry” squabble, but the battle lines are currently drawn with wholesalers united on one side, and suppliers united on the other.
Further Reading:
HR 5034 Bill Summary and Status
HR 1161 Bill Summary and Status
NBWA Press Release
WSWA Press Release
Beer, Wine and Spirits Producers Press Release
Viewpoint: Back to the Future with HR 5034 (June 2010)
H.R. 5034 Update: Revision Reignites Debate, Important Hearing Set for Wednesday (September 2010)
