Wine Shipping and Serving Wine To Moose: Both Illegal

WinemooseThe Texas alcohol regulators happily report that they are successfully stopping Texas wine lovers from obtaining wines they can't find locally by ordering those wines from out of state wine stores.

Meanwhile, over in New York, the local wine regulators in that state report that they generated $5 million in taxes and fees from $54 million in direct wine shipments from out of state wineries.

What's interesting is that neither of these states collect taxes on, let alone legally allow, out of state wine STORES to ship wine to their consumers.

No one knows exactly how much commerce could potentially be generated if the top wine consumer states allowed consumers to purchase and have shipped to them wines from out-of-state wine stores. However, many people with close knowledge of the retail wine shipping trade believe it would be as much or more than wineries ship into those states. I can report on very good authority that when Illinois changed their law to bar their consumers from having wine shipped to them from out-of-state wine stores just five stores that stopped shipping wine lost over $15 million in sales. Those stores alone would have generate more than $1 million in tax revenue for the state of Illinois.

Currently, only 14 states allow out-of-state retailers to legally ship wine to their residents compared with 37 states allowing out of state wineries to ship in. It should be noted that the difference between the transaction that occurs when a winery ships directly to a consumer and when a wine store ships to a consumer is exactly nothing.

The other issue is this: while consumers who are allowed to have wine shipped them from domestic wineries have access to a great diversity of American-made wines that never show up on local store shelves or on restaurant lists, consumers in states where it is illegal for out-of-state retailers to ship only have access to those imported wines that show up on store shelves and restaurant lists. And in most locations this selection of imported wines on store shelves is pretty pathetic.

You'd think the National Association of Beverage Importers would be pretty upset about this blatant form of discrimination against imported wines.

In Texas it's tempting to blame the assault on consumer access to wine on the Texas Alcohol Beverage Commission, which is actively pursuing a crackdown on wine shipped into the state by out-of-state wine stores. However, those folks are just doing what they are told. And in this case it is common knowledge that it is the state wholesalers and their lawmaker friends, flush with campaign contributions, that are insisting on the crackdown on out-of-state wine retailer shipments.

The great utility of interstate shipment of wine by retailers isn't understood by many people. It's the important market-based tool for adjusting the gargantuanly inefficient distribution patterns brought on by the three tier system. Retailer-to-consumer shipping across state lines moves fine wine from markets where its demand is less into those markets where its demand is greater. The three tier system is incapable of efficiently doing this because wholesalers in one state can't move wine into other states' markets.

It is only the great increase in access to information brought about by the Internet that has allowed the re-distribution of goods from markets where their numbers outpace demand to markets where their demand is unmet. Consumers in states where the wholesalers and retailers have mis-read or ignored the demands of the local wine consumer base are able, through retailer-to-consumer shipping, to satisfy their demand. This practice represents the workings of a highly efficient modern marketplace.

Yet in most states, wine stores only have access to the inventory that wholesalers choose to make available. The wholesalers' choices of which wines to bring into a state usually take very little account of the fine wine consumer and focus more on the casual wine buyer looking for the $5 to $15 bottle of wine. While this satisfies the majority of consumers, it satisfy the minority of consumers who are looking to obtain more expensive, smaller production wines.

Still, those retailers—often after being cajoled by their inefficient wholesalers, loudly oppose legalized shipment of wines into the state by their out-of-state brethren simply because they don't want the competition. What they fail to appreciate is that these shipments are no competition at all. Consumers agree to pay the premium of shipping only when they can't find the wines they want at a local retailer.

Then of course there is the lost tax revenue to the states that ban interstate shipment by retailers. Texas, New York, Illinois, Florida, Washington, and Michigan alone are forgoing millions of dollars in tax revenue that would happily be remitted by out-of-state retailers were they able to legally ship into those states.

Based on the reports out of Texas, it's clear that a good number of local consumers are engaging out-of-state retailers to sell them wine then illegally ship it to them. No one should be surprised that this underground trade is occuring. Texas has a law in place that both consumers and out-of-state retailers understand serves no legitimate purpose and attempts to protect a practice that harms no one.

Consumers who understand that having wine shipped to them from out-of-state retailers is illegal look at the law the way they look at those ancient laws that prohibit giving a moose a drink of alcohol, getting a fish drunk or consuming three sips of beer while standing up. They understand the purposeless nature of the laws and their silliness and are inclined to ignore the law because they are purposeless and silly.

I know all these things primarily because I act as the executive director of the Specialty Wine Retailers Association and because I was born with a brain—smallish in size, but a brain nonetheless.

Still, congratulations to Texas for their semi-successful thwarting of consumer demand and their continued allegiance to well-paying special interests. It is, no doubt, an accomplishment of sorts.


6 Responses

  1. Scott - October 26, 2011

    If I’m a retailer in State X and I am subject to legal limitations on my business under my state’s liquor laws, how is it that a level playing field could exist between me and a retailer (who wants to sell to my customers) in State Z who isn’t saddled with the same requirements? Examples include limitations to the number of locations a licensee can own, prohibition to ship my product to other states, the expense required to operate a brick-and-mortar store, etc. There are probably as many examples that could be cited as there are varying alcohol laws in the fifty states.
    The point which you consistently and intentionally avoid in your arguments for interstate wine sales by retailers is that retailers all have different and unequal circumstances that we deal with exactly because we are in different states. This is why each state is and should be a self-contained and separate market for this business. And each state should have the right to decide locally how to handle and regulate the alcoholic beverage trade in a way that its citizens and governments agree is best for them.
    If your client members of the swra want to take on the retailers in my state, fine. Move here, lease a building, pay your license fee, follow the same rules we do, and let’s get it on! Otherwise, how about we give it a rest for a while, and all just concentrate on doing the best business we can in our own hometowns.

  2. Tom Wark - October 26, 2011

    The case you are making, that each state should be self contained because each state has different regulations and laws that fall on local retailers, leads in a straight line to the argument that foreign wines should be barred from entering the United States.
    It also is the same line of reasoning that supports the idea that states ought to ban the shipments of ALL products into their states from all types of manufacturers and retailers because all states have different sets of laws and regulations governing production, sales, taxes, zoning, etc.
    But to speak directly to this issue I offer this reasoning:
    “States may not enact laws that burden out-of-state [wine] producers or shippers simply to give a competitive advantage to in-state businesses. This mandate reflects a central concern of the Framers that was an immediate reason for calling the Constitutional Convention: the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation.”
    Justice Anthony Kennedy wrote that in 2005.
    I’ll concede, where shipping wine by retailers is concerned, that if a state wants to ban the practice all together (for in-state and out-of-state) retailers then they shouldn’t be faulted as unfair to commerce. However, they certainly can be faulted for screwing the consumer.
    But if a state wants to allow its in-state retailers to ship wine, but prohibit out-of-state retailers from doing the same, they have no sound reasoning for doing this other than for protectionist purposes. And since 1787 America has been a country that lives by the idea of a single economic union—not a balkanized country where trade barriers are erected to protect local commercial interests.

  3. Joel Goldberg - October 27, 2011

    Tom, who are you kidding? State-imposed retail shipping bans are some of the most-flouted alcoholic beverage laws since the days of Boardwalk Empire.
    Except for Texas and the occasional well-publicized sting elsewhere, people in the majority of states regularly can and do buy directly from a gaggle of brick-and-mortar or web-based retailers around the country. Don’t even get me started on the flash-sale sites or more “underground” sellers. Most states neither prioritize nor have the resources to seriously enforce draconian shipping laws, once the wholesalers’ legislative quid-pro-quo gets enshrined in the statute book.
    And that’s the rub: easy-to-ignore laws like these lower respect for the system that breeds them, reward those willing to break them at the expense of the law-abiding, and — as you note — deprive state coffers of millions of dollars of low-hanging revenue.

  4. Tony - October 27, 2011


  5. Ilene - October 28, 2011

    One would not understand that we are the “United” States with all of these laws, especially the outdated wine shipping laws. If we did as Scott suggested and focus on our own hometowns, that would be taking 10 steps backwards. The internet allows us to break down walls and barriers and compete on a nation (and sometimes international) level. If you can’t compete, you lose. There are so many opportunities out there! Now if only some of these silly walls would fall.

  6. Scott - October 28, 2011

    I do agree whole-heartedly with you, Tom, that if a state allows its retailers to ship interstate, then they must allow out-of-state retailers to ship in. That is merely a question of fundamental fairness, which is the very basis of my original response to this post.
    But there are still fifty separate states. That is a fact, regardless how “United” Ilene wants us to be. If I’m out of work, can I apply for California unemployment benefits even if I don’t live there? Can I get Pennsylvania tags for my car if they’re cheaper than the ones in my state? How many walls should the internet break down? There exists a social contract between an individual and a government whereby one surrenders certain rights or concessions (taxes) to access the privileges or rights offered by said government. When somebody from outside the system wants those same rights or privileges without sacrificing those same concessions, then that’s just not equitable.
    I don’t want an unfair advantage, but I also don’t want an unfair disadvantage.

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