Author Archive
Licensees should have the opportunity to accept or reject each third party wine order
April 19th, 2012
Editor’s Note: The following is the first post in our series on the Third Party Providers
In the quickly evolving world of third party wine marketing, it’s important that marketers and licensed sellers work together in such a way that puts the licensed seller in full control of all aspects of each transaction. One of the most important elements of control is the concept of acceptance. 
Why Acceptance?
The fundamental concepts behind third party marketing are quite simple on the surface: A third party provider (TPP) places and merchandises products from licensed wineries on its website, mobile application or platform, then solicits requests from consumers who would like to purchase the products, and passes the request on to the licensee for final sale and fulfillment.
Below the surface, the process can be much more complex. Technology has advanced to a point where almost all aspects of third party sales can be completely automated. For example, all of the following functions can be completed in real-time within seconds of the consumer actually clicking the button to complete/submit their order:
- Third Party Providers (TPPs) can dynamically display product information that licensed sellers have authorized for placement
- Inventory levels can be fully synchronized and reserved
- Sales tax can be calculated precisely based on the licensed seller’s tax preferences
- A comprehensive compliance check can be run against the licensed seller’s permits and volume from other channels
- Consumer age can be affirmed and validated
- Credit card funds can be authorized and reserved
- Orders can be released to the licensed seller’s preferred fulfillment location
In the past, many of these steps were typically carried out through some combination of phone, fax, snail mail, carrier pigeons, smoke, and mirrors. But today, as TPPs increasingly look for a world-class quality of service for their customers, automation and efficiency are paramount.
At the core of compliant third party marketing is the notion that licensed sellers are always fully in control of all aspects of each transaction. Although one could probably argue that the order-acceptance process could also be established contractually, we believe that it’s important for the licensed seller to always have an option to interrupt the automated flow so that they have every confidence in the orders that are fulfilled on their behalf, prior to payment capture and fulfillment.
Another significant consideration is that regulatory agencies place tremendous importance on this step. In its October 2011 Advisory on the issue of Third Party Providers the California Department of Alcoholic Beverage Control wrote, “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.” It makes sense that regulators want to ensure that there is a licensee involved that they know is in control and that they can hold accountable for orders that are shipped into their state.
The Nuts and Bolts
An easy way to implement an acceptance mechanism is for the TPP to send an email with the order requests to the licensee for their review. Licensed sellers can then review the order details, and will likely consider the following when evaluating whether or not they would like to accept or reject the order:
- Compliance: Has this order request been checked for compliance, and aggregated against my other order sources (my winery website, wine club, tasting room, and phone orders)? Has the consumer’s age been affirmed and/or validated using an online age verification service.
- Pricing: Are the prices for the requested items within the predetermined ranges I established with this TPP?
- Inventory: Do I have sufficient inventory for these items to fulfill this request?
- Advertising Fee: Is the advertising/customer acquisition fee (if applicable) for this order request within the predetermined range that I established with this TPP?
- Sales Tax: Has the appropriate amount of sales tax been collected based on my tax preferences in the destination state?
If the answer to all of these questions is yes, then the licensee should have no reason to reject the order requests, and can therefore feel comfortable accepting them. Once the requests are accepted by the licensee, the orders can be released to the designated fulfillment location, and payment can be captured (note: payment should ideally be authorized at the time of transaction, but captured after acceptance and fulfillment).
The acceptance email can be implemented in a way that batches order requests over set periods of time (daily, twice/daily, every 4 hours, etc.). Each licensee may have different preferences about both the timing of the emails (during local business hours, for example), and the review period (4 hours, 8 hours, etc.), based on their desired level of control. This preferences-based method of acceptance is what we implemented into ShipCompliant’s MarketPlace platform, as we believe it provides a good amount of flexibility for licensed sellers.
In summary, the relatively straightforward process of creating an acceptance mechanism can really go a long way towards establishing the most important regulatory requirement for working with TPPs — licensee control. As wineries more and more look to work with TPPs that complement their brand and their direct to consumer strategy, relying on a robust and consistent acceptance mechanism becomes increasingly important.
Third Party Providers are Here…To Stay
April 1st, 2012
Last month I had the privilege of addressing a group of control state regulators, industry attorneys and key industry executives that gathered just outside Washington, DC for the National Alcohol Beverage Control Association’s (NABCA) Annual Legal Symposium. The topic of my panel was one that we have put significant focus on here at ShipCompliant and one that the wine industry has been struggling with for the past few years: Non-traditional wine businesses, otherwise known as Third Party Providers (TPPs).
For most small and medium sized wineries, the path to increased sales, increased margins and brand growth is direct-to-consumer sales. Yet, we recognize that the wine industry is at the tail end of the market expansion that resulted from state-based regulatory changes that came in the wake of the 2005 Granholm v. Heald US Supreme Court decision. When and if Pennsylvania and Massachusetts open their borders to direct to consumer shipping, all significant states will be open to producing wineries for direct-to-consumer sales.
WHAT NEXT?
We believe that after all the significant states open to direct-to-consumer sales, the next and most important opportunity for wineries to expand direct sales and attract new customers will result from the expansion of TPPs.
First, we want to be clear what we mean by a TPP. Flash and private sales sites, community buying operations, product advertising platforms, collective tasting rooms, multi-brand company websites, and other online wine marketers make up this category. This sector of the market has been limited, as many potential TPPs have stayed away from the wine industry because of regulatory uncertainty.
That uncertainty is diminishing and new opportunities are emerging.
NEW REGULATORY GUIDELINES ON THIRD PARTY PROVIDERS
The most important development that will lead to reduced uncertainty in the realm of online wine marketing was the issuance of guidelines in November on licensee (winery and retailer) and TPP interaction by the California ABC. This set of guidelines described the process by which funds need to be transferred and controlled, how wine offers must be structured, and how acceptance and fulfillment of orders must be undertaken in order for the collaboration between licensed wineries and importers and TPPs to be considered compliant with California ABC regulations and state laws.
In short, the CA ABC wants to ensure that the licensee is in full control of all aspects of each transaction, and that the licensee will ultimately be held accountable for any actions by the third party that is soliciting order requests on their behalf. It’s worth noting that this advisory is obviously California-specific. However, it serves as a great framework for other states to contemplate the issues of third-party marketing and hopefully each state will take a similarly collaborative approach.
While complex, this new set of guidelines by the California ABC does put in place a path to growth and innovation in the online wine marketing arena. This opening for Third Party Providers and online marketers could not have come at a better time. There are notable signs of recovery in the wine market. Additionally, the oversupply of grapes and bulk wine that has plagued the industry for the past few years appears to have dried up. The combination of fewer states left to open up for direct shipping and the need for small and medium sized wineries to continue to increase their customer base means that there is great potential for innovative marketing approaches.
A NEW SERIES OF BLOG POSTS ON THIRD PARTY PROVIDERS
We believe that great innovations in wine marketing will come via collaborative marketing efforts between TPPs and wineries that will help reach new and larger numbers of wine buyers. With this in mind, we are planning to publish a series of blog posts that focus specifically on the issues surrounding Third Party Providers and how licensed sellers can work with them efficiently, compliantly and profitably. We look forward to generating discussion on this important issue and further clarifying this new landscape for wine sales and marketing.
We’ll start the series with some of the questions that we addressed at the NABCA Legal Symposium, but also would love to hear what your biggest questions are. If you have questions, comments, or suggestions, please email us at blog (at) shipcompliant.com .
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.
