The UN-American State of Wine

Posted by Tom Wark on Jul 4, 2006

If you are a mere consumer of wine, rather than a seller of wine, I realize it’s a bit tough to get your panties in a bunch over an obscure state law that really only affects wineries. Yet considering the state, the date and the truly unAmerican aspect of the law in question, let’s see if we can’t wrinkle up those undergarments of yours.

Since the 1980s Virginia’s wineries have been able to produce their wine and sell it to just about anyone they want: consumers, restaurants, retailers or distributors. Virginia’s widget maker, beef jerky producers and makers of scissors have been able to do the same.

On Saturday a new law took affect in the state that gave this country it’s most famous sons of the revolution. The new law told wineries they no longer could sell wine to retailers and restaurants. Rather, they now must sell wine only direct to the consumer or to distributors, the last of which would have the soul right to sell to retail stores and restaurants.

What happened in Virginia is a story of manipulation, abuse of power and corruption    that has occurred across the country and is likely to be repeated again. In the wake of last years Supreme Court decision inequities in a state’s wine market had to be leveled out. In Virginia, like in so many other states, its wineries were allowed to sell wine directly to retailers and restaurants. However, out of state wineries were forced to sell their wine to a distributor, which would then sell the wine to the retailers and restaurants.

It’s important to understand the impact of including this extra tier in the selling process. A winery that sells a wine to the consumer for $10 a bottle will reduce it’s price for that bottle to roughly $7 when they sell it to a retailer, who will then mark it back up to $10. But when a winery sells that bottle to a distributor they mark their wine down to $5, the wholesaler then marks it back up to about $7 when they sell it to the retailer who brings it back up to $10.

In general, the winery gives up about 30% of its profit when it sells to a distributor rather than straight to a retailer. If a winery makes 5000 cases of wine and sells half direct to the consumer and half goes to market that difference is pretty big. By being forced to sell half of their $10/bottle wine to a distributor rather than straight to a retailer, the winery loses $60,000 and the ability to control the sales of half their inventory. Now the distributor is in charge of selling that wine. And let’s face it, a distributor has far less incentive to really get behind the product the way its producer does.

Virginia, in order to comply with the meaning of the 2005 Supreme Court decision, decided to make it illegal for ALL wineries to sell direct to retailers and restaurants. Yet it is important to note that the state could have gone the other direction by allowing all wineries in or out of the state to sell directly to the retailers and restaurants. They chose the former and in the process took a step toward crippling a large number of Virginia wineries that were founded with the knowledge they could sell direct to the restaurants and retailers.

Why would they do this?

The answer is corruption. Corruption of the most base and primal sort.

Very simply, the state’s very deep pocketed distributors were unwilling to compete in the open market for the opportunity to sell the wines of producers. Instead, they wanted to force out-of-state wineries to use their services by convincing lawmakers to respond to the Supreme Court decision by leveling out the playing field by forcing Virginia’s and out-of-state wineries to use their services.

Given that this change in the law would cripple many of Virginia’s wineries, take money out of the pockets of small family businesses and slow the pace of the development of Virginia’s wine industry, what in the world would convince Virginia’s state legislature to take such an action?

Money. Cash. Bribes…campaign contributions.

Since 2003 Virginia’s alcohol wholesalers have "contributed" $1.4 Million to state politicians. In that same period Virginia manufacturers of beer, wine and spirits together have contributed $160,000 to state politicians.

You have to ask yourself: if a tiny group of well-heeled, deep pocketed merchants can still dictate policy in America in 2006, was the revolution of 1776 really as complete as we like to think?

Virginia, the home of George Washington, Thomas Jefferson, James Madison, Patrick Henry and James Monroe, founders and patriots all, is also the home of the purest kind of moneyed corruption in which elected officials do the bidding of those willing to pay the most for their votes.

Janet Nordin of Virginia’s Abingdon Vineyard & Winery said, "All of it sounds pretty UN-American to me."

She’s right. Happy 4th of July.