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Online Wine Sellers Prepare for Battle!

By November 9, 2010

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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.

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Comments

November 9, 2010 at 11:26 pm
(1) Greg Maness says:

Bravo Claire, all of us private small micro-vineyard owners who are scattered around San Diego County who wish to persue liscensure for tasting rooms, have been patiently waiting for this newly revised legislation to clear. Hallelujia, time has finally come today.

It is common knowledge across the State of California that sales taxes generated from free flowing wine sales are in the mega-millions in central and northern sections of the State. Doesn’t San Diego need tax rescue?

Ecommerce is essential to open dialogue as to why the county of San Diego still has not loosened up the tight fisted steps to winery and tasting liscensure. Why does everything here has to be so complicated?

Tourists visiting SD who want something to do rather than the usual beach and zoo scene, also like wine and tasting. So to me the answer to our county financial meltdown is very simple. Make liscensure an easy two step process, lower the costs of the inital fees, invite wine business to open here not force them to go northern California or out of State.

Its time to let the talented wine makers of San Diego out of their dark wine barrel closets into the light. Wine makers are super stars like Gourmet Chefs. And in this flattened economy with businesses and banks closing left and right, its time for the movers and shakers in city council to twist and shout.

Thousands of jobs can come from this, we can refill the empty coffers of the city left dry with no tax money, and millions of tourists will return once again to Sd for wine tasting and micro-winery tours, not Napa.

Greg Maness of Maness Vineyards Estate
http://www.manessvineyards.com

November 10, 2010 at 9:33 am
(2) Jonathan Elliman says:

Nicely done. I think Whole World Wines is a great concept for small to medium-sized foreign wineries. I just returned from the Wines of Argentina event a few weeks ago and came back with some of the best wines I’ve had in a long time. I would have never thought to look to Argentina as I would expect this to be expensive, but now I can buy those directly from the winery at http://www.importedwinesdirect.com

This is great for the winery and for the producer, so why do politics always have to get in the way of a good idea.

Greg, I agree with you as I like to go wine tasting wherever my job takes me- in the suburbs or out in the country. I’ve discovered some great wines that would never be found until retail shops told their stories.

To aid in this venture, I started a website called http://www.cellarpass.com which I have used to track my own ventures. I’ve added over 5400 wineries and tasting rooms and even added an “Open Table” like service that the wineries can use to promote events and consumers can book them 24/7. This is all real-time confirmation and requires no more phone calls. So the site is not only a great search engine, it drives traffic to producers nationwide. I hope some day to include your winery in the service as it’s really taking off and consumers are loving the concept.

Looking forward to discovering more “hidden gems” out there! Cheers!

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