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Controversy Uncorked
Supreme Court’s Ruling on Direct Wine Sales Forces States to Ship In or Shut Out
By Brenda Owen
The recent Supreme Court ruling that upheld a state’s right to
regulate the sale and distribution of alcohol within its own borders
but said states must also treat in-state and out-of-state alcohol
producers the same has raised numerous issues, not only within the wine
industry, but the spirits and beer industry as well.
In a 5-4 ruling in May, the Court struck down laws in Michigan and New
York that restricted out-of-state alcohol producers from bypassing the
states’ regulatory regimes that require face-to-face transactions. In
doing so, the Court rejected the states’ argument that in-state
producers could be regulated more easily and, therefore, could be
permitted to ship via mail order or over the Internet. Basically,
the ruling forced individual states to decide whether to allow everyone
–– or no one at all –– to sell alcohol through the mail or over the
Internet.
Other than some wine connoisseurs, those who see the Supreme Court’s
decision as opening doors rather than closing them are the proprietors
of Internet wine sales Web sites, such as Ron Kreutzer, founder of
WineWeb.com, which provides information on more than 22,000 wineries
and offers consumers access to buy wine online direct from wineries and
from wine merchants. Traffic to the site doubled on the day of the
Court’s decision. “This is great news for small and medium-sized
wineries who have been ignored by the major wine wholesalers,” Kreutzer
said.
Checks and Balances
Wholesalers and retailers of all types of alcohol beverages, who long
have argued direct shipping would cut tax revenues and give teenagers
unregulated access to alcohol, however, also see the Supreme Court’s
decision as a potentially positive one, but for very different reasons.
Beer, wine and spirits organizations still believe the most effective
deterrent to illegal sales to minors is in-person ID checks before all
sales, and they hope states will tighten laws governing Internet
shipments rather than loosening them.
Juanita Duggan, president and CEO of Wine and Spirits Wholesalers of
America, said the Supreme Court has affirmed a state’s right to
regulate the sale and distribution of alcohol and said in doing so they
must treat in-state, out-of-state and presumably out-of-country
producers all the same. “That means states have a choice between
supporting face-to-face transactions by someone licensed to sell
alcohol or opening up the floodgates,” she said.
More than 30 states had sided with New York and Michigan, arguing that
the existing controls allow local officials to place limits on the
number of vendors licensed to sell within a state; enable officials to
investigate meaningfully who those vendors will be; empower states to
better enforce their laws regarding illegal sales, particularly sales
to minors; and provide concrete assurance that those privileged to sell
alcohol actually collect the required taxes.
“WSWA supports state efforts to strengthen –– not weaken –– alcohol
laws by making all producers play from the same set of rules that
ensure accountable, responsible alcohol sales,” Duggan said.
“Face-to-face ID checks by those licensed to sell alcohol are the best
way to do that.”
Leveling the Field
With states forced to decide how to level the playing field for both
in-state and out-of-state wineries, they either will have to
allow all wineries to sell directly to consumers, or bar all of them
from doing so.
So, while consumers may be celebrating the ruling that at first glance
would appear to give them instant Internet access to wineries from all
over the country, and wine Web companies are poised to take advantage
of a whole new sales market, there’s a chance that it could have the
totally opposite effect.
Immediately following the ruling, several states already were
considering banning all direct-shipment wine orders –– including
shipments from in-state wineries –– rather than address the problems
they foresee from allowing unrestricted wine to be shipped from across
the country to individual consumers.
Still, Phil Cline, general manager of Yakima Cellars in Yakima, Wash.,
said he is confident that, given the time to consider the challenges,
states eventually will hand down fair and equitable rules.
“We’re excited about the Supreme Court’s decision,” Cline said. “It
breaks down some of the barriers between the wineries and the consumers
that have been around a long time. We always have had to have a
distributor in each state to sell legally –– and I don’t think we are
going to see any immediate changes to a lot of states’ laws concerning
that. In the short term, we anticipate a lot of jostling as the states
struggle to develop their individual plans for addressing the ruling.
In the long term, though, we see it as a positive step –– and we’ll
keep our fingers crossed.”
Ongoing Debate
While this ruling specifically targets wine sales, many industry
insiders expect it will ultimately apply to beer and spirits, now
regulated through wholesalers and retailers who are licensed by
individual states.
In addition, such direct-shipping orders effectively cut distributors
out of the loop, upsetting the balance of the traditional three-tier
system, which has worked well for many years, say many industry
professionals.
David K. Rehr, president of the National Beer Wholesalers Association,
issued a statement after the Supreme Court released its decision
regarding the Michigan and New York cases affecting the direct shipment
of wine, saying, “The decision is a victory for states, affirming their
right under the 21st Amendment to control the transportation and
importation of alcohol, while reminding them they must be even handed
and not intentionally discriminate between in- and out-of-state
wineries. We are also gratified that the Court so explicitly affirmed
the legitimacy of the three-tier system.”
Rehr also pointed out that the narrow decision by the narrowly divided
Court in this case regarding direct-to-consumer wine sales is not the
end of the debate about direct shipping. “Now it is in the hands of the
states to determine how best to control the matter of alcohol
regulation,” he said. “This is a public policy debate that will
continue. Some propose the deregulation of the distribution and sale of
alcohol beverages, removing the time-tested system of common sense
safeguards that regulate them and eviscerating local standards. Those
in the alcohol industry must embrace regulation and be more vocal about
the purpose behind it. Alcohol is a socially sensitive product and
cannot be treated like other consumer goods. NBWA will continue to
advocate that states should retain the right to regulate the sale and
distribution of alcohol as its citizens see fit.” NCB
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