The Billion Dollar Wine Boondoggle
We know that wineries in the United States ship upwards of $2 billion in wine directly to consumers across the country. What we don’t know is the value of wine shipped directly to consumers from wine retailers. Yet, we can say with great confidence that the concerted effort by wine distributors, wineries and some retailers to stamp out interstate commerce in wine by retailers has cost the wine industry in America billions of dollars.
Today only 14 states explicitly allow out-of-state wine stores to ship wine to their residents. They are Alaska, Oregon, California, New Mexico, Nevada, Nebraska, Wyoming, North Dakota, Missouri, Louisiana, West Virginia, Virginia, District of Columbia and New Hampshire. And a number of these states place various and severe restrictions on which retailers may ship.
On the flip side, more than 40 states (now including Pennsylvania) allow out-of-state wineries to ship wine to their residents. Does anyone not believe that wine retailers are better and more experienced than wineries at presenting consumers with wine purchase options and in serving wine consumers? Of course not. That’s all wine retailers do; serve the consumer.
The various state bans on retailer wine shipping hurt imported wines the most. In the United States, only wine stores and wine retailers sell imported wine. So, when Florida, for examples, bans shipments to consumers from retailers, it is banning the shipment of all imported wines.
If winery shipments amount to about $2 Billion in sales annually, what would retailer shipments amount to if they were allowed into the same 40 some odd states that wineries may ship to? How many times has a consumer visited a winery website to find out that the wine they wanted to buy was sold out and then discover that the very same wine is available from a wine store three states over—yet it’s illegal to have the wine shipped to them because it’s a retailer shipping the wine?
Suppose you desire to purchase the 2010 vintage of Opus One. If you go to winery’s website you can find the notes for this vintage, but you can’t buy it. However, well over 50 retailers across the country currently sell this wine.
How about the 2010 Donkey and Goal Broken Leg Vineyard “The Recluse” Syrah? Not available at the winery. However, there are retailers that are selling this wine. It’s the same way this tens of thousands of wines.
The current state bans on shipments from out-of-state retailers is clearly costing the industry billions by creating massively inefficient distribution. Ask wineries and importers how often a particular wine may sell out in one market, yet is stranded in warehouses in other markets by the palate-load. Legal retailer to consumer shipments could easily take care of this problem if wholesalers in markets where the specific wine was not moving knew in which state markets it was moving and could tell their local retailers that sell on-line that there is pent-up demand for the wine in other markets they could easily serve.
Interestingly, wineries and importers have done little or nothing to push for laws allowing retailer to consumer shipping. In fact, winery associations such as the California Wine Institute and even consumer wine organizations like Free the Grapes have quickly given their consent when law introduced allowing out-of-state shipments from both wineries and retailers are amended at the behest of wholesalers to strip retailer shipping out of the bill. It’s as though wineries and importers think they are in competition with retailers when in fact retailers are wineries’ and importers’ best supporters. This makes wineries complicit in the billion dollar boondoggle that are restrictive retailer shipping laws.
What’s true is that a number of retailers and thousands of consumers ignore the restrictive laws banning shipments from out-of-state retailers. Consumers ignore these bans and even agree to adopt any liability that comes with having wines shipped to them in states where it is illegal. They do this for two reasons: 1) they can’t find the wine they want locally, and 2) they have no respect for the protectionist laws.
There are a number of retailers across the country that ignore these laws primarily because the demand for their inventory is so great and because in many states there is little enforcement of the laws.
And speaking of billion dollar boondoggles, what’s with lawmakers supporting laws to ban out-of-state retailer shipments? They are literally leaving millions of dollars on the table annually by not changing these laws, allowing out-of-state retailer shipments, and taxing the shipments. By not giving permits to ship to out-of-state retailers the states have no tax jurisdiction over the out-of-state retailers and therefore no right to taxes that might otherwise be owed to them.
Furthermore, lawmakers should know that by banning out-of-state retailers from shipping they are not protecting their own wine retailers. What consumer in their right mind is going to go to the trouble of buying from out-of-state, paying that state’s taxes and paying shipping costs on the wine they ordered if they could find the same wine locally? Consumers always buy locally when they can. Internet orders are not lost sales.
No, for lawmakers what it comes down to is that they value the campaign contributions from local wholesalers who oppose retailer shipment more than they value the benefits to the state of the tax revenue they would reap from legal retailer shipments.
A number of states today have increased their enforcement efforts against out-of-state retailer shipping. Iowa, Michigan, Illinois, Texas and others work with common carriers to track where shipments originate from then send their cease and desist orders to retailers who ship. In fact, in Illinois a bill (SB 2989) currently sits on the Governor’s desk awaiting a signature or veto. If he signs this bill, retailers who ship wine into the state and consumers who arranged their own shipping will be charged with a class-four felony, making them no different from someone in that state convicted of stalking or aggravated assault.
The irony of the Illinois situation is that Illinois Governor Bruce Rauner is a member of Napa Valley Reserve, a wine club operated by Harlan Estate that costs $100,000+ to join. Governor Rauner obviously sees no problem with direct to consumer wine shipments.
There are literally billions of dollars in wine sales and tax revenue at stake where retailer shipping is concerned. Exactly how much the American wine industry has been retarded by anti-retailer laws is difficult to calculate other than to say there is no question that billions in sales have been left behind. These are billions in sales that are lost by wineries, importers, wholesalers and, of course, retailers.
Tom Wark is the executive director of the National Association of Wine Retailers.
Great essay. Any idea which political donations enabled Governor Rauner to join the Harlan Napa Valley Reserve club? Interesting that he has an extra $100,000 around the house – wish I could add that to my wine purchasing budget!!
Thanks for that. I agree entirely. The effective banning of imported wine from DtC business strikes me as a possible future avenue of attack on the issue.
Best I can tell, post Granholm there have just been just two cases of note on the issue. The Texas case, Wine Country Gift Baskets v Steen, and the New York case, Arnold Wines v Boyle, and both of those sided with the states.
SCOTUS denied a petition for Cert in the Texas case, not sure what happened in Arnold. I suspect SCOTUS won’t grant Cert until there is division among the circuits, and it will require more cases to be filed in other circuits to hit that mark.
George, Governor Raumer earned his considerable wealth running a private equity firm.
There was also a case in the District Court in Michigan that the retailers won. However, before it was appealed, the state passed a law that banned all shipping, both from within and without Michigan. The Arnold case was not appealed.
I suspect this matter will have to be won in court if at all, given the fact that there are still about 40 states that have to be won over, plus the power of distributors.