Wine marketers are gearing up for another round of fights following the U.S. Supreme Court decision May 16 that found bans against direct sales by wineries to consumers in Michigan and New York unconstitutional.
That's because at least six other states still restrict out-of-state wineries from doing business within their borders. It will take action from legislatures in each of them to open those markets to wineries, many of which sell via the Internet, catalogs and other forms of direct marketing, said Leslie Berglund, CEO of the Winetasting Network, a Napa, CA DMer.
“The decision said that states must either allow shipments from outside the state or not,” she said. “They can't discriminate against out-of-staters.”
“Now it will be up to each state to decide this issue on a state-by-state basis,” said Rick Libby, president of The Traveling Vineyard, a division of wine cataloger Geerlings & Wade that does in-home wine tastings. Because of legal restrictions, The Traveling Vineyard can only take order forms at the tastings for later fulfillment by Geerlings & Wade.
Wine marketers generally welcomed last month's Supreme Court ruling. “This is a very positive development,” said Berglund. “It will have dramatic impact.”
She noted that direct shipping now accounts for less than 5% of all wine sales but the industry hopes the High Court decision and lobbying efforts will help bring that figure up to 25% in about 10 years.
So now these marketers are planning to lobby legislatures in at least six states with laws similar to those in New York and Michigan that are most likely to change: Connecticut, Florida, Indiana Massachusetts, Ohio and Vermont, said Jeremy Benson, executive director of Freethegrapes.org, a consumer group that's been working with wine dealers to open more markets to small wineries.
Benson conceded that the industry probably will receive resistance to further liberalization of state laws from wine wholesalers.
“The court today 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,” said Juanita D. Duggan, president/CEO of the Wine and Spirits Wholesalers of America, in a statement. “That means states have a choice between supporting face-to-face transactions by someone licensed to sell alcohol or opening up the floodgates.”
She noted that Supreme Court Justice Clarence Thomas, writing for the dissent, said the majority made a “mistake” in ignoring the history and purpose of the 21st Amendment [the repeal of Prohibition].
Benson and Berglund dismissed this argument, noting that direct shipment of wine helps build brand for wines and leads to higher sales for everybody involved.
Will the court's decision lead to greatly expanded sales?
Wine DMers are mixed.
“We don't see any immediate change,” said Libby.
The Family Winemakers of California (FWC), an industry group in Sacramento, said the ruling makes it possible for more than 3,500 wineries nationwide to conduct interstate direct marketing in states that previously banned direct shipments to consumers from out-of-state wineries.
“Many small producers that otherwise have a hard time accessing the marketplace will now have another avenue to use,” said Eric P. Wente, owner of Wente Vineyards, Livermore, CA. “This avenue is a new frontier and will not be easy or lead to immediate sales. In the long term, it will give customers greater choice, which is a boon for the entire industry.”
Strict state-by-state regulations on retailers' direct shipments of wine to consumers remain in place despite the decision, said George Garrick, president and CEO of Wine.com. His firm ships wine to consumers indirectly through state-licensed retail distributors.
Outside of the top 25 winemakers, most wineries are small enterprises.
“This is a major victory in the 20-year battle to end discrimination against America's small, family[-operated] wineries,” said Robert P. Koch, CEO of Wine Institute, a California winery trade group, in a statement. “The states of New York and Michigan can now choose to enjoy increased tax revenue from a more diverse and orderly wine market by adopting legislation similar to that which currently benefits consumers in the majority of states.”
After Florida enacted a law in 1997 making it a felony to ship wine from other states to Florida, a series of lawsuits were filed in that state and in Indiana, Michigan, New York, North Carolina, Texas and Virginia, according to the FWC. The group filed several briefs in appellate courts, backed by a legal team that included Kenneth W. Starr.
Last February, a federal appeals court upheld a New York state law that blocked out-of-state wineries from shipping wine to consumers there.
The decision by three judges of the Second U.S. Circuit Court of Appeals overturned a lower court ruling two years ago that said the ban interferes with interstate commerce.
The three-judge panel was not moved by evidence that the Internet and easier travel have created greater access for an “increasingly sophisticated national market of wine connoisseurs.”
The New York case was brought by Swedenburg Estate Vineyards in Middleburg, VA, a small winery that produces about 2,500 cases annually. Customers can order from the vineyard online at swedenburgwines.com.
The Supreme Court later agreed to hear three cases involving state bans that prevented consumers from buying wine directly from out-of-state wineries, including by telephone or online.
Federal courts previously had issued conflicting rulings about whether direct shipments are legal and constitutional, prompting the High Court to step in and settle this question for wineries.
On the whole, wine DMers are optimistic about their prospects for further market openings.
“In 1991, only four states allowed direct shipping — California, Colorado, Washington and Oregon,” said Berglund. “Now 28 states do, including Texas, which just came on a week before the Supreme Court decision.”
