Winery Vs. Retailer: What’s the Difference?

Here’s an interesting question:

When you buy a case of wine over the Internet from a winery website and when you buy a case of wine over the Internet from a wine shop website, are the two transactions different in any substantial way?

We are finding that both wine distributors and state alcohol regulators are attempting to make the case that they are substantially different transactions. In fact, according to these two groups, these two transaction are so different that the retailer transaction should be banned.

In states across the country legislators are redefining their direct wine shipment laws as a result of the 2005 Supreme Court decision, "Granholm v. Heald". In most cases these states are creating "permit systems" by which an out of state entity wishing to ship to consumers in that state need to pay for a permit do do so, submit themselves to that state’s jurisdiction, pay appropriate taxes and abide by a variety of laws.

Yet, there is a move to treat transactions different if the consumers is buying from a winery versus a retailer. In fact, there is a move among some in these states to bar the retail transaction all together.

Both Oregon and Illinois have bills being considered now that would allow out-of-state wineries to ship to folks in these states but prohibit out-of-state retailers to do the same.

Now, I’ll admit upfront that I’m no genius. I get things wrong often. So I need someone to show me how a wine purchase from a winery isn’t a RETAIL transaction in the same way it is a RETAIL transaction when it happens with a wine shop.

It’s true that states issue different types of permits to wineries and retailers that confer different privileges upon these two sorts of businesses. In every state a retail permitee is not allowed to PRODUCE wine. And in many states a winery is not allowed to SELL wine to a retailer, but rather must sell their wine to a wholesaler.

But, when the winery and retailer sell wine direct to the consumer, whether at winery or wine shop or via the Internet the transactions are identical.

In some cases the opponents of retail to consumer, cross border wine sales have argued that allowing retailers from across the country to ship into a state will open floodgates. While the evidence from across the country doesn’t prove this out, the question remains, OK….and that’s a problem why?

If anyone is watching the direct shipping wars closely, they’ll note that wineries seem to have won their battle: states are no longer attempting in any great measure to prevent out-of-state wineries from shipping. They may put up odd restrictions. But for the most part the move to prohibit such sales by wineries just isn’t happening anymore.

Today the battle has shifted to two fronts: Winery direct sales to retailers and cross-border sales of retailer to consumer. Both these kinds of transactions are being fought tooth and nail by distributors almost everywhere and by regulators in many states.

In order to bar retailers from shipping into a state, distributors and alcohol regulators must make the case that a winery-to-consumer sale is substantially different than a retailer-to-consumer sale. I simply don’t know how this argument is made. Yet, it is made.


12 Responses

  1. Randy - March 22, 2007

    The only difference I can see is the path that the product (in this case, the wine) has traveled to get to the consumer.
    It still smacks of the distributor lobby in each state wanting to make sure they get their cut of any retailer-based wine sales. One example might be a distributor in Oregon complaining because consumers are buying from a retailer in another state, where that state’s distributor has gotten their share of the transaction.

  2. tom - March 22, 2007

    And yet in many cases (most?), the wine coming from the winery has not gone through the distribution system either.

  3. Randy - March 22, 2007

    I’m not saying that there’s a difference in the transaction itself, but rather that in the case of wine being direct-shipped from a retailer, the product will have already passed through a distributor (albeit a disti in the same state as the retailer).
    The issue is almost like double-taxation, in that each state’s distributor network wants to put their hands (and markup) on wine going to consumers, even if it may have already gone through the distribution system in the originating state.

  4. Peter - March 22, 2007

    If I am reading the synopsis of Illinois HB 429 correctly (No warranty on that!), it does not allow interstate shipment of wine to persons in Illinois. To quote from the synopsis, “Prohibits the shipment of any alcoholic beverage to any person in Illinois not licensed as a distributor, importing distributor, foreign importer, manufacturer, or non-resident dealer or nor shipped pursuant to the provisions of this Act.
    At least one local merchant thinks this includes intra-state by retailers. Here is the email I received from this merchant:
    Dear Wine Lover,
    We need your help!
    We rarely send out this type of message but legislative activities currently underway in Illinois demands that we contact you. You will lose your right to purchase and have shipped to you wine from any and all retailers if H.B. 429 passes in Illinois.
    This proposed law prohibits you from purchasing and receiving wine via direct shipment from retailers both inside and outside of Illinois. After 20 years of having this right, H.B. 429 would strip it away from you. The law is about to be considered by the Illinois House Consumer Protection Committee.
    You can help stop this outrageous and unjustified attempt to limit your access to fine wine by acting now. We urge you to e-mail or phone the members of the Illinois House Consumer Protection Committee today and demand they vote against H.B. 429 or amend it to allow you to continue to receive wine via direct shipment from all retailers. A suggested message is below as well as a list of email addresses and phone numbers for those Illinois State Representative that sit on the HCP committee where the bill will be heard. Please feel free to forward this e-mail to any friends or acquaintances in Illinois who want to continue to purchase and have wine shipped to them from retailers.
    Dear Representative:
    For 20 years now Illinois wine lovers have been able to purchase wine direct from retailers both in and outside of the State. If H.B. 429 passes in its current form, that privilege will be taken away and for no sound reason other than to protect a small handful of powerful and wealthy distributors who are taking advantage of the state’s need to change its regulation to protect themselves from legitimate competition.
    This change would be an outrageous and unjustified limit on my ability to order and receive wine from retailers. It is a change that was not requested by consumers or retailers. Furthermore, there has been no problem of improper direct sales reported by the Illinois Liquor Control Commission.
    H.B. 429 is before the House Consumer Protection Committee of which you are a member. I urge you to vote “NO” on H.B. 429 or work to amend it so that it allows Illinois citizens to continue to legally purchase wine from both in-state and out-of-state retailers.

  5. tom - March 22, 2007

    As written, HB 429 excludes out of state retailers from shipping into Illinois while including out-of-state wineries.
    If passed as written, any excusion of out-of-state retailers from shipping into IL would, based on the Granholm decison, preclude in-state retailers frm shipping to Illinois residents also. Granholm demands a level playing field.

  6. Alfonso - March 22, 2007

    Getting wine indvidually sent by the winery is a very short-term and unsustainable solution, and, energy-wise, very wasteful. It puts a strain on the resources for custom delivery of wine in a large scale. By the time the laws change, there could be a whole new set of laws governing the shipping of items like this, and then you might be back to square one. Best if well all plant a vineyard in our back yard and just deal with it locally.

  7. Steve Bachmann - March 23, 2007

    Thanks for highlighting so starkly what is clearly the selfish economic interests of the wholesalers at work to protect themselves from any transactions conducted which negatively affect their
    economics. The only reason the wineries are being treated differently from retailers is that they have been politically organized longer (via The Wine Institute) than the retailers have (via The Specialty Wine Retailers Association). A purchase is a purchase, however it is made.

  8. Mark - March 23, 2007

    Peter – Apparently you never read Granholm. Show me where in Granholm does it state the word “retailer.” Granholm only dealt with wine producers. To come to the conclusion that “retailers” would apply to the same opinion is a stretch.
    This has absolutely nothing to do with distributors but everything to do with Illinois retailers. Illinois retailers do not want 800,000 out-of-state retailers shipping alcohol into Illinois. We pay the local and state license fee, we pay the local and state sales tax, we employ ILLINOIS employees, we contribute to the ILLINOIS economy.
    Whose butt is on the line when a underage kid gets a hold of a bottle shipped? In my liquor store I get smacked – hard. Wineries will loose their federal basic permit if they screw up. Retailers in other states can’t be touched and keep on shipping. That’s why, even though it is currently against the law, out-of-state retailers are shipping spirits and beer into the state. They know they can’t be touched.
    To suggest that out-of-state retailers should ship defies everything the 21st Amendment stood for – the state’s control over the importation of alcohol.
    I would expect you Tom to put this on your blog since you now work for SWRA. How’s the new gig going?

  9. Alfonso - March 23, 2007

    Steve Bachman writes about “the selfish economic interests of the wholesalers at work to protect themselves from any transactions conducted which negatively affect their economics.”
    You know, I seldom, if ever, hear winemakers talk about other winemakers with such vitriolic ferver. Why is it retailers feel the need to keep pounding out their talking points like some vine-crazed O’Reilly? The blame game, it makes the little guy feel better to talk about the big bad wolf. Blah, blah, blah. The reality is, as I have said over and over, online retailers couldnt handle the crush if the wholesaler disappeared tomorrow. And forget about the U.S.P.S., in April let alone in December. These wholesaler=bad, online retailer=good arguments are pedantic and serve no purpose but to frame the blame on the wholesaler, which by the way, ain’t going away any time soon.
    But the world loves its victims, don’t we?
    If you dont like the system change it. But playing the blame game is lame.
    Again, winemakers work together. sellers need to as well, in all the channels, if ee want more people to drink more good wine.
    Keep racheting up the talking points in this way and you’ll send them back to Coke or Ice Tea.
    Bitch less, sell better.
    Or enjoy playing the victim.
    Just don’t expect to be taken that seriously.

  10. Peter - March 25, 2007

    Mark — A word about site layout. The commenter’s name appears below the comment, not above. The comment on Granholm appears to be Mr. Wark’s, it isn’t mine. At least one of your fellow Illinois retailers thinks HB 429 will forbid him to ship alcoholic beverages to his in-state customers. Do a quick internet search, other sites seem to agree, although the ILBA hasn’t commented.

  11. Stephen - March 27, 2007

    I have to politely disagree with Mark concerning outside retailers shipping into a state. As an Illinois licensee who has licenses to ship to other states there is certainly an penalty to not following the rules. I don’t think most people are suggesting opening all states to direct shipping with no rules and no regulations, but rather to create a set of reasonable rules whereby everyone is incentivized to participate legally thereby leveling the playing field for those that do follow the rules. In West Virginia, for instance, they are proposing a new out of state shippers license where you pay a fee for the license, you pay taxes to the state, and if you are found to be delivering to minors or avoiding taxes you get punished as any local merchant would be. Similar rules already exist in other state (PA and VA to name a few).
    As for the Granholm case, as I understand it the point is not that it references or does not reference “retailers” specifically, but rather that the premise of the decision, that there should be no distinction between an out-of-state merchant and an in-state merchant whereby the out-of-state merchant is unfairly restricted from serving the customers of the state can apply to retailers as easily as it does wineries.

  12. Robert Ferreira Jr - August 8, 2020

    Simply my thoughts has to do with the middle men wanting to keep being the middle men and not be cut out of the process. I live in the “Commonwealth of Kentucky” for just over 25 years now and have seen and heard a lot of “buy local” lately. I’ve never really heard it before in my life since being born and raised in Hawai’i (15 years) but that could just be because that’s less than half my life. It has struck me odd with many thoughts and ideas of being stricken within the confines of this Commonwealth especially the fact of the title versus being an actual “State”.

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