The Amazon Wine Store May Need To Shut Down — Or Change
Does AmazonWine need to disappear because it’s unlawful?
Recall that the AmazonWine service is a departure for the behemoth retailer. Wine is not sold by Amazon. Instead, wineries pay what amounts to a listing or advertising fee to display their products on Amazon, but it’s the wineries that actually sell the wine, not Amazon. In fact, AmazonWine was created without Amazon possessing any alcohol retailer licenses.
Now, consider a recent ruling in the 9th Circuit Court of Appeals in California called Retail Digital Networks. In that ruling, an en banc court concluded that the following provision of California’s Tied House laws (Chapter 15, Section 25502(c) ) did not violate the 1st Amendment protection of freedom of speech and was upheld as constitutional:
“No manufacturer, winegrower, manufacturer’s agent, California winegrower’s agent, rectifier, distiller, bottler, importer, or wholesaler, or any officer, director, or agent of any such person, shall….Furnish, give, or lend any money or other things of value, directly or indirectly, to, or guarantee the repayment of any loan or the fulfillment of any financial obligation of, any person engaged in operating, owning, or maintaining any off-sale licensed premises.”
In fact, the Retail Digital Network case was about producers advertising their products in a retail licensee’s venue via digital kiosks for which the retailer was compensated being unlawful. Amazon is being compensated by wine producers for advertising their products on the AmazonWine site. And now, Amazon is a licensed retailer via its more than 400 Whole Foods outlets.
All this returns us to my original question: Does AmazonWine need to disappear because it is unlawful? Quite possibly. With the purchase of Whole Foods, Amazon may be in violation California’s tied house laws that prohibit retailers from accepting any payment for advertising from producers.
What other wine retailers across California, as well as in other states where similar tied house laws exist, are wondering is can they also augment their revenue and profits by accepting online advertising from producers as Amazon is via its Whole Foods business? Or, must these retailers continue to operate within the tied house rules while Amazon skirts the restriction?
If Amazon is forced to choose between its AmazonWine service on the one hand or its alcohol retail licenses possessed by its various Whole Foods stores, my bet is it would side with its Whole Foods outlets and allow AmazonWine to go by the wayside or evolve into something different. This would be a blow to numerous wine producers who have done quite well via AmazonWine.
On the other hand, it may be that the California Department of Alcohol Beverage Control does not view this situation at AmazonWine as illegal because Amazon’s different companies are viewed as separate and operating differently: Whole Foods for licensed alcohol sales and AmazonWine for third-party provider/advertising sales.
This kind of interpretation of the California tied house laws would seem to fly in the face of the recent Retail Digital Network case, but also give other California wine retailers the opportunity to start setting up new, unlicensed companies that can accept advertising dollars from wineries.
If AmazonWine must disappear in its current incarnation, I doubt that would mean that Amazon would get out of the business of wine sales. Rather, they’d likely adopt a “Wine.Com Model” of online sales. Wine.com ships wine to most states not out of a centralized warehouse. Instead, they obtain retail licenses in various states and present online customers a selection of wines that represent products they have obtained via wholesalers in the state where the customer lives.
Amazon, with its Whole Foods retail alcohol licenses in various states, is in a position to do the very same thing. Think “Amazon WholeWine”.
Either way, clarification as to the legal status of the current AmazonWine service is necessary and should certainly be provided by the California Department of Alcohol Beverage Control, as well as from alcohol beverage control departments in other states where similar restrictions exist on producers giving things of value to retailers.
Tom,
I will profess my ignorance of California’s Tied House laws.
When I see promotions for spirits and beers and wines in grocery store seven day circulars/flyers, I just assume they are paid for with co-op advertising funds accrued from unit volume purchases.
If using co-op ad dollars from alcoholic beverage companies to underwrite circulars/flyers runs afoul of Tied House laws, then what is the funding for those promotions?
Surely it is not simple benevolence by the grocery store chains to feature those products.
(Non-alcoholic products in those circulars/flyers are there due to co-op ad dollars.)
~~ Bob
From The Wall Street Journal “Business & Tech.” Section
(March 11, 2015, Page Unknown):
“Retailers Can’t Shake the Circular Habit;
Inserts in newspapers draw more shoppers than digital ads, but cost a lot more”
Link: http://www.wsj.com/articles/retailers-cant-shake-the-circular-habit-1426113760
By Suzanne Kapner
Staff Reporter
Interesting article Tom. Just connecting the dots and not knowing if steps were taken to separate the businesses, it looks like a pretty clear violation of tied house laws. Especially based on the Grape Escapes fiasco of a few years ago (http://www.sacbee.com/news/business/article25798336.html)
Bob, good comments, but still illegal without some pretty severe parsing of laws. Retailers typically advertise alcohol as wine increases basket ring by up to 65% and gives consumers another reason to shop in-store vs online.
It will be interesting to see how this plays out.
This is a very interesting situation. Having been in the wine biz for some 40+ years I can say that I’ve always thought the tied-house ruling was just as stupid as most of the rest of the alcohol laws in this country. Just think about the shipping restrictions after Prohibition that each state invoked to prohibit outside wineries from selling in their state. Yes, it was against the Constitution pure and simple, but it took 70 years to finally and unanimously get struck down by the Supreme Court.
They allow slotting fees in grocery stores for food items, which it think is one of the most abhorrent practices there is, but totally legal. Don’t see the difference just because the bottle says 13% by volume.
Having had to put up with 18 different little alcohol kingdoms, referred to as states, and their obnoxious and unnecessary liquor laws, I’m ready to trash all ABC’s and I’m not talking about the alphabet!
Great article, Tom, but exactly which wine producers have “done quite well via AmazonWine”? Those numerous wineries that I have spoken with tell me that they see relatively few sales. Like most products that Amazon sells, wine is now a part of the longtail strategy that has served them so well.
I’ve heard small wineries like Hedges in WA and Roxy Ann in S. Oregon move quite a bit of wine on Amazon. As with most things on amazon, 80% of the volume is going through a few smart “power sellers”.
“The Long Tail” theory has been debunked by Harvard Business School marketing professor Anita Elberse.
From The Wall Street Journal “Marketplace” Section
(July 2, 2008, Page Unknown):
“Study Refutes Niché [Long Tail] Theory Spawned by Web”
Link: http://online.wsj.com/article/SB121493784638920147.html
By Lee Gomes
“Portals” Column