Imagine for one moment that the products you sell are subject to government regulation and the requirements vary from state to state -- and in many states, from county to county. To make matters worse, the rules keep changing and you have to keep track of it all in order to remain in compliance. And if that's not enough, there's proposed legislation in the works to enforce a strict, three-tier distribution system and prevent you from selling direct to the consumer.
Welcome to the "Wonderful World of Wine," which is what the "dub dub dub" might as well mean for the 6,000-some-odd wineries in the United States. According to one online wine merchant interviewed by The New York Times, "It's easier to deal in guns than in wine."
Ever since the end of Prohibition in 1933, it has been up to the states to tax and regulate the sale of alcoholic beverages. At that time, most states established the three-tier distribution system that continues to this day. Currently ninety-nine percent of U.S. wine production is sold through middlemen who purchase wines from winemakers, and then resell it to retailers and restaurants. The remaining 1% is made up of mostly small, family-owned vineyards, the majority of which rely on direct-to-consumer sales.
According to the VinQuest™ U.S. Consumer Direct Wine Sales Report,
- Online wine sales grew 29% in 2009
- 63% of U.S. wineries projected consumer direct as their fastest growing sales channel in 2010
While the number of wineries selling consumer direct is on the increase, the number of wholesalers has markedly diminished. According to Whole World Wines, "Mergers among wholesale distributors have reduced their number by 75% over the last 30 years. Today, the 10 largest distributors control 58% of the U.S. market."
Enter H.R. 5034 -- The Comprehensive Alcohol Regulatory Effectiveness (CARE) Act, also known as "The Wholesaler Protection Act" -- a bill introduced to the U.S. Congress in March 2010 by the National Beer Wholesalers Association with support by the Wine & Spirits Wholesalers of America and sponsored by Rep. William Delahunt of Massachusetts. Writing in the National Law Journal, Carrie Levine explains, "The Bill would strengthen the states' ability to regulate alcohol and solidify the role of wholesalers," while "making it harder to challenge state alcohol laws in court." The issue is being played out on Facebook, with fan pages for those who SUPPORT HR 5034 and for those who want to STOP HR 5034.
Free the Grapes! is a national coalition of wine industry associations that opposes the legislation and considers it to be an "unprecedented special interest power grab that is a direct threat to legal, regulated winery and retailer direct shipping."
The ability to sell direct to the consumer is the lifeblood of most winery Ecommerce. Rick Gideon writing in Mutineer Magazine, observes,
Small wineries are especially susceptible to this legislation, which could potentially take away their ability to offer wine clubs and other direct-to-consumer services. These channels allow them to service their patrons better than they might be able to through the traditional distribution system.
Coincidentally, the proposed legislation comes on the heels of the second largest grape crush in history, described by Harry Cline, editor of Western Farm Press as topping "4 million tons -- enough to produce over 5 billion bottles of wine." Meanwhile, "the average price for wine grapes increased 8 percent to $605 from 2008's $561 per ton, boosting the gross value of the 2009 production by 32 percent to $2.24 billion."
To put this into perspective, the projected 2013 grape crush from my thirty-three Shiraz vines is expected to produce fifty-four bottles of wine, which should be enough to last until my next great crush, plus one for a gift.
Here's what Tom Wark, writing for WineInterview.com, has to say about the current distribution system:
...it's true that the three-tier system is effective, but only if you are a wholesaler. Thousands of wine brands are prohibited from reaching retail shelves and wine lists in numerous states not because the market won't sustain these brands but because the wholesalers are either unwilling or incapable of representing them. The system is not set up to handle a 21st century wine marketplace and everyone knows this.