Wine Wholesalers and Lawmakers Are Playing Chicken With Amazon
I watched a committee hearing last week that heard testimony concerning the proposal in New Jersey to lift the production cap that currently prohibits large, out-of-state wineries from shipping wine to New Jersey consumers. It isn’t likely to pass this year, but it eventually will.
In the course of the hearing, various folks giving testimony assured members of the committee that, “no!”, this bill would not allow out-of-state retailers to ship wine into New Jersey. That soothed the concerns of many of the committee members as well as the New Jersey wholesalers and retailers listening in like I was.
Despite their claims that bans on wine shipments from out-of-state retailers are meant only to “protect the health and safety” of consumers, everyone knows the bans are meant to protect a state’s own retailers from competition. This tactic won’t, in the end, protect retailers from competition. In fact, this tactic will go a long way toward determining their demise.
I remember when the concern about Amazon’s growth was that it was putting small, independent booksellers out of business. That concern seems almost quaint today. Well, it doesn’t seem quaint to the former bookstore owners who occasionally stroll by the site of their former book store and go in to get a pumpkin latte. Nonetheless, it’s true that the juggernaut that is Amazon has long ago moved past books and gone on to destroy any number of other industries that once produced many independent sellers.
But wine selling has largely escaped the unsatiable appetite that is Amazon. So, why do I get the feeling that the middleman booze wholesalers who feed inventory to America’s independent wine retailers understand that the primary impact of their opposition to interstate retailer shipping is to put retailers at a distinct disadvantage when Amazon does set its sights on wine?
Besides the multi-chain wine retailers and grocery stores, who benefit from the demise of independent wine retailers? Well, imagine a wholesale tier that sells the same amount of wine, but sells that same amount of wine to half the number of retailer accounts. It means fewer trucks, fewer employees, less expense on fuel and much higher profits.
Here’s what you need to know. Amazon isn’t waiting for the law on interstate wine retailer shipping to change to get into the business of wine shipping. Amazon doesn’t support the liberalization of those laws. They could service the entire country right now through their Whole Foods retail wine licenses. Using a single website (AmazonWine.com), Amazon could serve up consumers in nearly any state the wines their local Whole Foods has access to via local wholesalers, then simply ship those wine INTRAstate, escaping the current bans on INTERstate shipping. This way they serve practically the entirety of American wine drinkers with one website and 40+ state-based wine retail licenses.
Independent wine retailers don’t have stores and retail licenses in every state. The bans on interstate wine retailer shipping would relegate most of these retailers to shipping to customers in their own state and only a few others. Meanwhile, the AmazonWine site can serve the entire country. Does anyone believe that with the power of Amazon marketing and logistics they would not dismantle and destroy vast numbers of now profitable independent wine retailers? Does anyone believe wine wholesalers would lament this outcome one bit when it would only increase their profits?
If lawmakers really want to protect their independent wine stores from competition, they need to start thinking about how they can help open up all the U.S. states for those retailers to sell and ship into. Without that ability, the wine retailers lawmakers hope to protect by restricting competition will pave the way for the elimination of those same retailers by limiting their ability to compete.
But the health and safety of their constituents will be protected. So, I guess there is that.
But the American booze wholesaler really needs to think things through. Consider that Amazon is in the process of creating a huge freight delivery capability that rivals FedEx and UPS. Consider that it is only a matter of time before courts tell those states that currently allow their own producers they may sell directly to retailers while out-of-state producers may not that this form of discrimination is unconstitutional. What happens when producers decide they want to sell directly to Amazon. It’s not like Amazon prefers to buy their inventory from wholesalers. And what happens when Amazon announces that it will be purchasing most its wine inventory directly from producers? What are the wholesalers going to do? Try to convince lawmakers in each state that producers of wine should have their self-distribution rights revoked? That’s not going to go over very well when the folks with dirt under their nails and wine stains on their jeans gather at the state capitol to oppose the move.
Wholesalers and lawmakers think they have been playing the long game by banning interstate shipments of wine from retailers. It’s not a long game. It’s a game of chicken and they are playing it with Amazon. Ask The Little Bookstore On the Corner how that game went.