Costco Vs. The Wine Wholesalers: In Court

If you thought the cynicism involved in the political fight to allow wineries to ship direct to consumers was  blatant, just wait for the battle over who gets to sell wine to retailers and restaurateurs heats up good.

That’s what happened yesterday in a court room in Washington State.

On the same day the Washington Liquor Control Commission issued draft language for a new direct to consumer wine shipping law that would allow anyone to buy wine from anyone, the state of Washington told a judge that if it were forced to let Costco sell wine at lower prices the public would be hurt.

Costco is suing the state of Washington because state law requires the chain to buy wine from a Washington Wholesaler, instead of directly from wineries, while state liquor stores are allowed to buy directly from wineries and negotiable a more favorable price. Costco cites both the recent Granholm v. Heald Supreme Court decision that demands in-state and out-of-state wineries be put on equal footing when it comes to selling wine to the public. Costco says the same principle must apply to the way retailers obtain product to sell. Costco also claims that the extra demands the State puts on retailers when purchasing wine for retail is in fact restraint of trade prohibited by the Sherman anti-Trust Act.

Washington and, yes..once again, the Washington wine wholesalers—who Costco is forced to buy their wine from in Washington—claim that the recent Supreme Court ruling does not apply to them. Who knows. We’ll see about that. But they also claim that if Costco were allowed to buy its products directly from wineries, rather than wholesalers, the burden of regulating such a system would be too great, and that maintaining a well regulated system of collecting alcohol taxes is so important to the state that they should be allowed to retain the current system to keep the system all neat and tidy for them.

This is absurd on its face. It would still be absurd he we only had Pony Express riders to deliver reports by out of state wineries as to how much wine they had sold Costco in Washington State.

What I need here is help. I need help from someone, anyone, to explain to me why the financial interests of the wholesalers is more important than the financial interests of Costco. Furthermore, I need someone to explain to me why the financial interests of the consumers are of less importance than the financial interests of the wholesalers.


Currently, Washington State allows its wineries to sell directly to retailers, as long as there is at least a 10% mark up over cost and that no credit is extended. Wholesalers, who miss out on some business can live with this. There are few large Washington wineries that take advantage of this rule so as to truly hurt the wholesalers bottom line. Yet, if Costco started buying directly from the BIG CA producers, using their own distribution system to get it to their stores in Washington, and using their own stores to sell it, well, now the Wholesalers have something to worry about.

Not only is Costco able to buy and distribute to its own stores, but the larger wineries in CA can probably take on this burden too if the economics are right.

So I’ll ask again. Why should Washington State care if wholesalers can be cut out of the loop on some sales? Why should they care if Costco is able to sell Joseph Phelps Insignia at $80 a bottle instead of $120?

This is a very important lawsuit that I hope finds its way through the federal court system all the way to the Supreme Court. Many a jurisdiction have dealt with this issue of selling directly to retailers since the Supreme Court decision on wine sales in May. Nearly across the board States and Wholesalers have said the ruling does not apply because the ruling focused entirely on sales to consumers, not to retailers. Yet, when the the Court ruled that a state COULD ban yelling fire in a crowded theater, no one suggested that this ruling didn’t also apply to stadiums or movie houses. When the Supreme Court recently ruled that the state could not outlaw homosexual sex, no one asked if that included heavy petting as well as sodomy.

The knee jerk protection of the wholesaler tier of the wine industry really must end. This doesn’t mean wholesale activity must end. It only means that the time has come for the peoples’ representatives at the state level should begin to live up to their responsibility to address the concerns of all their constituents with equal concern, not giving one preferential treatment. Wholesalers are not intrinsically better or worse than retailers or wineries. Just better organized and better healed.

Seattle Post Intelligencer Story
Associated Press Story

Posted In: Wine Business


7 Responses

  1. Roy - December 2, 2005

    Just FYI the Supreme Court case was Granholm v. Heald

  2. jens at cincinnati wine warehouse - December 2, 2005

    My only concern would be that it is very possible that if Costco can buy direct, the smaller wine retailers will not survive. Go to Walmart or Home Depot and count how many brands of hammers they have. Do you want 50 wines at “great” prices or 2,000 wines at “reasonable” prices from family-owned wineries and retailers.
    jens at cincinnati wine warehouse

  3. Tom Wark - December 3, 2005

    Costco already has better prices than most others here in CA. But we have a trememdous amount of small retailers. You got to a small retailer for personal attention, commaraderie and unique wines. I’ve not seen any of that at costco.

  4. The Winery Web Site Report - December 3, 2005

    Wine Pricing

    An interesting rant on the pricing of wine (in this case, Fetzer’s Valley Oaks California Cabernet) from Hugh Macleod in the United Kingdom. What’s most interesting is that Hugh went to Fetzer’s Web site to get more information about the

  5. Steve - December 5, 2005

    I have mixed emotions, but generally think that Costco has the right to buy directly from the producers as do other retailers. I believe that Washington is the same as Oregon in that the price is set regardless of volume. I used to think this was a bad idea for consumers. Truth is, it makes for great independent wine shops in Oregon as they can compete on the same level. If Costco wants to have very little mark up as an overall strategy of using cheap wine to attract a certain kind of customer, so be it.
    But as a small producer, you would be crazy to cast your future by selling to costco. But if I want a bottle of Columbia Crest Syrah at near cost and Costco is will to sell it to me, why not. If I was marketing for Columbia Crest, however, I might be a little worried about this strategy. The market has a way of evening things out.

  6. Tom Wark - December 5, 2005

    The small, independent shops really need to live and die on selection and service, two things Costco does not have. The independent might draw in customers using a loss leader or a great price on something but their success will be based on their ability to recommend great, smaller wines, to be able to order hard to find wines, to walk down their aisles with their customers, to get out good newsletters to customers, to work their websites and to have a unique, handpicked selection.

  7. Lorenz Dahl - April 2, 2008

    Where can I get up to date info on the status of the Costco case?
    Do you have a contact at Costco?

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