One of the surprises in this “lost decade” of economic growth has been the explosion of smaller, family-owned wineries. Dotting the landscape from coast to coast, small vintners in locations previously unknown for their winemaking prowess have led an impressive surge in the market, and given consumers greater opportunity to sample wines that, otherwise, they never would have had a chance to taste.
A prime mover in this expanding market is the practice of shipping directly to customers: Thirty-seven states and the District of Columbia now allow the shipping of wine directly from the vintner to the drinker. By utilizing direct sales over the phone, at tasting bars and on the Internet to bypass national wholesalers - for whom it isn’t economically feasible to distribute the products of smaller wineries - consumers have been presented more options than ever before and smaller wineries now have bigger markets than ever before.
Unsurprisingly, the marketplace has responded to this expanded freedom by trying new wines from across the country: Between 2004 and 2008, direct sales on the Internet increased by 162 percent, according to Whole World Wines. That trend doesn’t show any sign of slowing down soon: Internet sales in 2009 were up another 29 percent over 2008.
Needless to say, wholesalers aren’t pleased by this trend. As it has done to so many other industries, the Internet has severely damaged the standing of the middlemen of the alcohol industry. A remnant of the post-Prohibition-era “three-tier” system of distribution - that shepherded alcohol from producers through wholesalers to retailers before getting to consumers - wholesalers walk a fine line between selling alcohol and claiming to be agents of “temperance.”
In the wake of Granholm v. Heald, a Supreme Court ruling that invoked the Commerce Clause to bar states from restricting interstate wine shipments (if they allowed intrastate wine shipments), wholesalers have begun to sense they are losing their place in the market. As a result, they have pushed for passage of House Bill 1161, the Community Alcohol Regulatory Effectiveness Act.
The so-called “CARE” Act was practically written by the National Beer Wholesalers Association and the Wine and Spirits Wholesalers of America, lobbyists for the middlemen of alcohol. Afraid to state their real reason for pushing this legislation - the ding to their bottom line - these lobbying groups have couched their arguments in terms of teen safety and maintaining the antiquated system of distribution that sprang up after Prohibition ended.
Under the CARE Act, state legislatures would be allowed to decide whether it is necessary to ban the shipment of wine from out of state in order to “promote temperance” and curb underage drinking. The argument about teen drinking is absurd on its face: In order to receive a shipment of wine, a customer must have a credit card and an adult over the age of 21 must sign for the shipment. If a teen can pull that off, that teen can certainly pick something up at the local liquor store. Price is also a factor. Teens in Corona, Ca., aren’t exactly ordering cases of $40-a-bottle Octagon ‘06 from its production point in Barboursville, Va.
The wholesalers are working to maintain their place in the evolving marketplace by setting up a state-by-state regime that will pass new regulations ensuring their continued existence. Their ultimate goal would create a system in which it would be illegal to brew a beer in your basement and give it away to your neighbors without first passing through the way station of a wholesaler.
A host of other unintended consequences could arise as a result of this law. Kentucky’s bourbon distillers, for instance, have warned that giving states the power to regulate liquor might allow cheap imitators to set up shop in states with lax standards, doing damage to the rapidly growing bourbon market. Next thing you know, you’ll be drinking “Wild Turkey” from Arizona.
This move by wholesalers is especially pernicious insofar as they have no intention of carrying the smaller vintners, distillers and craft brewers that are the largest beneficiaries of shipping directly to the consumer. These businesses are simply too small and produce too few bottles a year to make it economically viable for the wholesalers to distribute them.
The CARE Act is bad for small businesses in the alcohol industry, bad for consumer choice and a bad precedent for the federal government to set with regard to interstate commerce. Cheers to any lawmaker who helps vote this charade down.
Dick Rivera is president of the American Beverage Institute (ABI). He was CEO of Real Mex Restaurants and TGI Friday’s.