Will wholesalers kill the Virginia wine industry?

[Robin Garr]

This kind of thing, sadly, is the likely long-term outcome of the Supreme Court's shipping decision, as the deep-pockets wholesalers move to kill off competition state-by-state now that they can't do it nationally.

NEW LAW SINKS IN Wineries can no longer self-distribute
By CATHY JETT
THE FREDRICKSBURG (VA.) FREE LANCE-STAR

Virginia wineries were free to sell directly to shops and restaurants when Jim Livingston started Hartwood Winery in 1989.

He planned to increase production and hire two friends to do just that after he retired as a librarian at a Prince William County elementary school in 2004.

Then the U.S. Supreme Court last year ruled that state laws allowing in-state wineries, but not out-of-state businesses, to self-distribute was discriminatory. States had to level the playing field, and Virginia decided not to allow any winery to sell directly to stores or restaurants. The change went into effect last Saturday.

"It's just not right," Livingston said between tastings at his winery near U.S. 17. "They've got to let the little guy take his wine directly to the wine seller. He can't afford to give 25 [percent] to 30 percent of his sales to a wholesaler. That's at least half your profit margin."

Shops and restaurants that carry Virginia wines also are likely to feel the pinch, said Edwin Wyant, owner of the Virginia Wine Experience in downtown Fredericksburg. He stocked up on bottles from smaller Virginia wineries before July 1 because they account for more than half of the 400 wines he carries.

"It's definitely put a kink in things," Wyant said. "My customers are going to lose the availability of getting those wines in town. Tourists won't see the selection we could offer."

Approximately 90 percent of Virginia's 110 farm wineries had been self-distributing in local markets before July 1, including larger ones that also use a wholesale distributor, according to the Virginia Wineries Association.

Full story in The Fredricksburg (Va.) Free Lance-Star

Bummer with a capital B. I thought the Virginia legislature was more enlightened these days. Guess that's wrong; just responding to special interests.

This is a very sad development, Robin. What is your general sense -- will the distributors be successful as they already are in New Jersey, Texas and now Virginia -- perhaps other states I haven't followed closely.

I know it's very tough to see the future -- but I had thought from earlier discussion you were more optomistic about the ultimate impact of the Supreme Court's decision.

Looks like Free the Grapes has alot more work to do. :-(

I will write a letter in protest! Does anyone know who I should send it to?

Thanks,
Daniel

[Robin Garr]

This is a very sad development, Robin. What is your general sense -- will the distributors be successful as they already are in New Jersey, Texas and now Virginia -- perhaps other states I haven't followed closely.

Same in Kentucky, Bob, and I believe in Indiana, too.

I know it's very tough to see the future -- but I had thought from earlier discussion you were more optomistic about the ultimate impact of the Supreme Court's decision.

It's about money, I'd say. WSWA has a lot of it, because there's a lot of money at stake, and the wholesale lobby has been entrenched in the state capitals since 1933. New York was an exception because its wine industry is large enough, and old enough, to have been able to fight back. I don't know of another state off the West Coast that can say the same. Virginia has one of the strongest small wine industries, and it obviously had no influence at all.

I don't know what gave you the idea that I was optimistic, Bob. Seriously, this is playing out pretty much as I thought ... the wholesalers "lobbying" legistlatures coast to coast, staying as much out of the national media limelight as they can.

"Seriously, this is playing out pretty much as I thought ... the wholesalers "lobbying" legistlatures coast to coast, staying as much out of the national media limelight as they can."

I must have misread your comments, Robin, perhaps your accurate comments on the New York experience misled me.

It sure looks like initial widespread enthusiasm in other quarters for the Supreme Court opinion may have been misplaced. More's the pity. :-(

Regards, Bob

[Robin Garr]

I will write a letter in protest! Does anyone know who I should send it to?

I doubt that writing will help much in Virginia now, Daniel, although if you live in a state where this is still up in the air, it may help to have consumer voices speak out. As I told Bob, though, it's really about money, and the wholesalers have a lot of it.

Try Free the Grapes as Bob suggests. They're not terribly strong, but they're the one consumer advocacy group in the field, and they need our support.

As the full article notes, Maryland's wineries dodged a bullet earlier this year when the General Assembly passed legislation allowing in-state (and out-of-state) producers to do their own distribution as long as their production doesn't exceed 13,000 cases. That applies to all but a couple of Maryland wineries, and those couple already have distributors. Virginia's wine industry is far more developed than Maryland's, but even so, the turn of events there could spell disaster for a number of good wineries before the legislature gets another chance to make things right (or at least better).

As the full article notes, Maryland's wineries dodged a bullet earlier this year when the General Assembly passed legislation allowing in-state (and out-of-state) producers to do their own distribution as long as their production doesn't exceed 13,000 cases. That applies to all but a couple of Maryland wineries, and those couple already have distributors. Virginia's wine industry is far more developed than Maryland's, but even so, the turn of events there could spell disaster for a number of good wineries before the legislature gets another chance to make things right (or at least better).

Clinton,

Sadly, I'd bet that if there were a challenge to the Maryland legislation the state would lose on the basis that limiting production figures is discriminatory against larger producers in or outside the state. And I'll bet the wholesalers are already mapping that suit.

As Robin said, this is and will keep going across the country--it is the wholesalers' plan to do it that way--until last year's Supreme Court shipping decision benefits fewer and fewer sate wine industries and lessens the impact on wholesalers.

This is what happens when a constitutional issue is framed narrowly in front of the Supreme Court--they rule narrowly and the floodgates open wider. The issue will stay contentious until the correct suit is brought to and ruled on by the Supreme Court--for a while, anyway.

[Robin Garr]

I must have misread your comments, Robin, perhaps your accurate comments on the New York experience misled me.

It sure looks like initial widespread enthusiasm in other quarters for the Supreme Court opinion may have been misplaced. More's the pity.

Bob, I had a <I>Wine Advisor</i> article out within moments of the May 16, 2005 ruling - I believe I was the first wine publication to do so. I had been following the issue closely enough that I think the following off-the-cuff predictions were more accurate than I hoped they would be:

<I>States in the U.S. may not ban the shipment of wine directly to consumers if the state's laws permit in-state wineries to do so, the Supreme Court ruled in a closely split decision announced this morning. In short, everyone may ship or nobody may ship, but it's unconstitutional to grant preference to in-state shippers.

But wine lovers who live in states that do not now permit consumers to buy wine directly from out of state sources should not count on being able to jump online and start ordering wine.

...

Supporters of wine shipping were quick to declare the decision a great victory. ... More measured voices in the wine-loving community, however, noted that little is likely to change for many Americans, particularly in the short term. The opinion ... makes it as easy for states to ban all direct-to-consumer sales - as New Jersey, for instance, did just last year rather than permit interstate shipping to its residents. It's safe to assume that the Wine and Spirits Wholesalers of America, the wealthy lobby group that represents distributors and that has led the battle against interstate shipping, will now turn its ample resources to fighting for overall shipping bans. </i>

Full text of the article

Bob,

Like Robin, right after that decision came down I warned against elation. I knew, and stated in a column, that the wholesalers would keep this debate going in courts throughout the nation.

I wish we could get the definitive ruling on which trumps which between the Dormant Commerce Clause and the 21st Amendment. Or maybe I don't wish it: Kennedy's comments in last year's case alluded to the possibility that the present Supreme Court would rule against the Commerce Clause not on merits but on deference to the idea that alcohol is viewed as a special commercial case, an idea that goes back to the Brandeis court.

Special indeed: alcohol creates extra money for many people up and down the private and political line.

Robin, I remember your article very well - and agreed with it. I thought, though, that in a later discussion you had argued that wines from east of the Rockies, especially New York and Texas, would benefit from the Supreme Court ruling.

I may have read too much into your comments -- for me, that can only be true if a large number of states permit direct shipment. It's hard for me to see how New York wineries can benefit significantly from shipments to the COW states, while opening up direct shipments to New York residents from those same three states.

Incidentally, do you know the direct shipment sitch in Texas? My last information was that it was pretty bleak, and complicated by local option.

I had hoped that you might have seen some hopes of more states following the New York lead, but it apparently isn't to be. Thanks for posting the news -- this is one case where I would have hoped that you, Thomas and I all were wrong.

The Supremes decision has had the effect of preventing me from buying New Jersey wines by mail -- and the good ones are all a two or three hours from home.

Regards, Bob

[Robin Garr]

Bob, I think the decision is good for New York in spite of its limitations because it opens up all the reciprocal states and gives at least NY's more ambitious wineries the opportunity to expand their markets; and I suspect there are enough of them that the overall effect of this will be to build NY's credibility as a serious wine producer. That's not a bad thing.

My understanding about Texas is that the law requires shippers to determine whether each individual buyer lives in a "wet" precinct, which could be a real administrative barrier to an out-of-state shipper.

Frankly, short of a more broadly reaching Supreme Court decision on a better case - I don't know if the Costco case in Washington is it, although I've read some articles suggesting so - I think the best thing that can happen is that consumers and shippers, viewing the weird state by state disparties, will start ignoring the laws and shipping more and more freely, in hope that we'll get back where we were a decade ago, when most state shipping laws existed only on paper and were generally not enforced.

Thanks, Robin. Pretty much captures my thinking although the New York consumer market is so large already. It will be interesting to see if New York wine does do better -- if it does, it may help other states follow the leader.

I'm a little negative as a technical matter on the Costco opinion in terms of helping wine consumers directly, but I may be reading it too narrowly.

I'm absolutely on the same page as you are on the way things were "ten years ago". In fact, living in New Jersey, I've developed some really good relationships with private shippers in a few different states.

And, I must say, UPS and I have developed an even closer relationship.

Not that I would ever encourage anyone to break the law, of course.

Regards, Bob

[David M. Bueker]

This Virginia law is the first step in the wholesalers plan to revoke the Virginia direct shipping law. Right now out of state wineries can get a permit and ship to VA. Very soon they will not be able to as the wholesalers get the legislature (read: buy the government off) to revoke the direct shipping legislation in the name of protecting (read: screwing!) the public.

The Supremes decision has had the effect of preventing me from buying New Jersey wines by mail -- and the good ones are all a two or three hours from home.

Bob, the only wine from New Jersey that I have ever found palatable ... and I have tried in excess of 120 wines ... is the Old Mill Red from Alba Vineyard. But I am constantly in search of wines from the state of my birth. So if you have any suggestions ...

As to this topic, my gut wrenches every time it is brought up. I really want to fly into a raging rant. And it's not because I am pro-direct-shipping. It's because it exemplifies the power of the almighty dollar and its influence on how we live as a society. It mocks democracy and limits the pursuit of happiness only to those who can afford the chase. O.K., 'nuff said. I'll go back to being nice.

Gary, for what it's worth, I try about 25 New Jersey wines a year -- say 300 different labels over the past eleven years. I went through my wine diary and was able to find only the following that I gave three stars (five star system).

Fruit wines, especially raspberry, strawberry and blueberry are often good. But I hate tasting them to find out -- my palate cloys quickly and my hands get sticky. So I wander around the wine festivals and pick a case by smell alone.

Here are my three star New Jersey wines -- the best in my judgement were the Foxy Lady and the last wine made by a winery now out of business.

1997 Alba Vineyard Port Finesville New Jersey. $14.99. Sweet, pleasant, not rich enough to emulate Port, but pleasant enough. T3*.

NV Four Sister Winery Cherry Melissa Belvidere New Jersey. $11.95. Real cherry taste, not too sweet, quite good. T3*.

1995 LaFollette Vineyard Seyval Oak Aged Belle Mead New Jersey. $12.00. Good color and aroma; heavy oak and good fruit tastes; good finish. T3*.

1995 Poor Richard's Winery Chambourcin Frenchtown New Jersey. $8.45. Good aroma; good fruit taste; quite acidic; good finish. T3*.

NV Tamuzza Winery Raspberry Wine Hope New Jersey. $7.49. 375 ml. 12% alcohol. Sweet, true raspberry flavor, quite nice. T3*.

NV Four Sister Winery Strawberry Serena Belvidere New Jersey. 11% alcohol. Good strawberry aroma and taste, full mouth feel, a bit sweet. Pleasant. 3*.

1998 Unionville Vineyards Cool Foxy Lady Ice Wine New Jersey. 11.5% alcohol. $17 for a half bottle from the winery, 9 Rocktown Road, Ringoes NJ 08551, 908-788-0400, web site unionvillevineyards.com/ (a really slow loader). Owners Kris R. Nielsen and Patricia D. Galloway; John Altmaier winemaker. Unionville made its first Ice Wine from artificially frozen Vidal Blanc grapes, which yielded a juice with 38% surgar: Brix at harvest: 38 degrees; Brix at bottling 15.5 degrees. Unionville made 85 cases of the Ice Wine, sold 50 the first week, and plans to triple production next year if the vines cooperate. (Unionville is one of the leading New Jersey wineries - Hugh Johnson wrote in 1998 that it was the "best", and many of its wines have a vulpine theme because it is "a member of the Amwell Valley Hunt … and is in the valley thru which the hunt rides." I told the salesperson that I thought the label was a bit sexist; she said: "It sure sells wine!") Light golden yellow color, like buckwheat honey; lovely aroma of stone fruits, especially apricots, and pineapples; very concentrated honey and fruit flavors with a hint of raisins, but not sweet or cloying; refreshing acidity promising a long life; medium mouth feel, just a little syrupy; surprisingly long finish with fruit and honey notes. Fairly simple now, but the winemaker and instinct insist that this wine will become more complex over time. A very pleasing surprise. 3*. [Posted WLDG January 6.]

1998 Unionville Vineyards Cool Foxy Lady Ice Wine New Jersey. Our last two bottles, which Janet and Lidia enjoyed greatly. Developed a bit of complexity; a very nice New Jersey wine. 3*.

1999 Alba Vineyard Red Raspberry Wine Finesville New Jersey. 500 ml for $8. 12% alcohol. Dull ruby red; quite good. 3*.

This winery showed real promise, but is now out of business.

1998 Marimac Vineyards Cabernet Franc New Jersey. Pretty wine with good fruit, good spice, and medium finish. 3*.

Hope this list doesn't make you too homesick. :-(

Regards, Bob

Hope this list doesn't make you too homesick.

Thanks for the list, Bob. I'll print this out and send it to my son who lives down in Brick. And as to being homesick, what's an Italian-American from New Jersey supposed to do? Mom is there. The best pizza, bread, sausage and cold cuts are there. It the only place in the world people speak proper English! But living near San Francisco does have its rewards as well.

The food choices are wonderful, Gary -- especially Italian, but many others as well. As you know, this is one of the most diverse states in the US.

San Francisco isn't shabby either. :-)

Regards, Bob

The Va situation is horrible - one we narrowly avoided, at least for the time being, in Michigan. I didn't know that Virginia was going thru that battle, and maybe most of our Va friends didn't either. Too bad. In MI our friend Joel Goldberg formed WineCAM, raised money, and fought to the death to avoid this result - successfully. And we got lots of press, lots of help from friends all over the country, and now we have direct shipping - though somewhat limited.
This whole state by state thing plays right into the wholesalers hands. They are organized. We could organize on a national level, but state by state they can pick us off before we can get organized.
Are other states going thru this now? If so, is there anything we can do to help?

[Robin Garr]

Are other states going thru this now? If so, is there anything we can do to help?

The best source of information remains Free the Grapes. I'd like to see them a little stronger, a little more controversial, a little more media-savvy, but they're filling the gap and working hard. They'll have information on at least some of the state battles on their Website.

Just to reinforce your comment, Robin the Coalition for Free Trade site doesn't seem to have been updated essentially since the Supreme Court decision. http://www.coalitionforfreetrade.org/index.html

And, the Wine Institute seems highly conflicted.

What we need, really, is a consumer group with real commitment. Hard to see it happening -- remember how hard you personally worked a few years ago to help the Virginia litigation along?

Thoreau is dated, I suppose, but he had a point.