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05.24.2005

Supreme Court Strikes Down Direct Shipping Bans on Wine

Yes I'm late to the party but I couldn't miss the opportunity to say: WOO HOO! While I was out of the country last week, the Supreme Court finally ruled on the case regarding Michigan and New York laws banning the direct shipment of wine from out-of-state wineries, and held that these laws were unconstitutional and amounted to basically a "low level trade war" that was set up to "clearly favor" in-state businesses and tax revenues.

Specifically what the court has ruled is that states may continue to regulate alcohol sales and shipping by wineries (nothing changes for retailers), but they must have the same policies for in-state and out-of-state businesses.

This is clearly good news for wine consumers, and for many small wineries who have difficulty finding distributors that are willing to sell their products in all states. While nothing is going to change overnight, except perhaps in New York and Michigan, this will have some big implications for the wine producing world.

Other blogs with good thoughts on this ruling include:

Michael Stajer on the short term implications of the ruling.

Fermentations on what this means for Direct Shipping.

Professor Stephen Bainbridge on why this makes sense.

Here's good coverage of the news from Decanter Magazine.

Comments (5)

Alder wrote:
05.24.05 at 1:47 PM

If you've got a lot of time on your hands and want to read a lot of opinions about this item, check out the thread on Slashdot that a little bird just told me about.

Calliope wrote:
05.24.05 at 5:58 PM

Oh Alder,
So nice to see ya back! I'll weigh in on the change. While many consumers want to believe this is going to have genuine impact and perhaps even throw a Dixie cups worth of water into the face of the likes of Southern Wines and Spirits they are unfortunately sadly mistaken for more reasons I can list here. I'll try a few though ok?
1. The likes of Southern will spend MILLIONS to see to it that markets will be screwed for direct ship. They'll squeeze small wineries in smaller states whom they might represent and like magic Poof! the shipping stops.
2. In California there are about 26 states into which a winery can ship directly now. For the most part these sales amount to almost zero for them in profit. Why? Because the cost of shipping, packing, insuring, personnel etc. cost quite a bit more than the margins built into the wine by distributors. Oh, yeah I almost forgot-check online prices of wine-funny how they charge full freight for shipping AND full price at suggested retail. In other words-greed will kill this golden goose. You'll find that producers will puff out their chests...do a smell test on their waste product and decide like they always have to go the route of greed an not reduce price by 30% for their newly realized bonanza.
3. Wine producers never have and never will understand that they've got to do more than slap Napa on the label and the wine'll sell. Their heads will explode when they find out that marketing will be required. And-they are also on crack if they don't understand exactly how much genuine work is involved in distributing wine. Trust me The Evil Empire [Southern] does and the appropriately named Mel Dick does too.
Sad really but I'll bet you another dinner [even though you've not won one yet!] that this, after the champagne bubbles die will simply end up on the scrap heap of bad ideas. I can say that I'd definitely like to save money on some of the $2 per sip wines I buy now...which is what'll be required to draw this critter into the mainstream but alas-the producers will not get it.

Heather wrote:
05.25.05 at 3:34 PM

Wow, how cynical can you get to believe that the power of one is greater than the power of many? By the way, there are over 3800 wineries in the United States which goes to prove that Napa is just one region. Boutique wineries are popping up daily with great marketing for small production runs and the web is assisting them with sales. The problem isn't shipping, insurance and personnel, it's the costs associated with creating web order processing which can run thousands of dollars. The buyer always covers shipping. Wineries make money by increasing the shipping cost to their benefit. This is a huge win for wineries. Yes, it's not perfect and the battle will be ongoing, but it's going in the right direction.

05.25.05 at 4:45 PM

Some random thoughts:

Alder, don't forget that states now have the option of banning in-state as well as out-of-state shipping from wineries. Who's more powerful - the wine industry in Michigan or any state that currently bans out of state shipping, or that state's wholesalers?

Calliope, most of the wineries that stand to benefit most from direct shipping aren't represented. Or if so, they don't get much representation - the big wineries do. That's why direct shipping is so important to so many small wineries.

Calliope, most direct shipping for small wineries, if not all wineries, yields little or no profit? That's ridiculous. Trust me, some of the most profitable producers are those who sell mostly, if not ONLY, through direct sales to customers on their mailing list. Another way to improve profitability for small producers is to self distribute. Of course, that presumes you're dealing with smaller quanities that makes sense for a mix of direct sales and self distribution. Bottom line - they make more money from grunting the boxes themselves, not paying Southern et al to do it for them. Regarding your "greed" accusations, some producers price their wines too high, at least for the long term health of their business if not the short term. But shipping has nothing to do with it, unless you're talking about exorbidant shipping cost mark up that some producers charge. But those are usually because they've outsouced the packing and shipping to a local provider. It's worth it to produce something and then sell at full retail - vertical integration at its finest.

Calliope, what do wholesalers do to promote sub 10K case per year wineries? Yes, wineries have to do more to sell their wines than rely on appellation. But why go to the mainstream when you're a winery intent on high quality with only fringe quanities?

Heather, I agree about the power of many, but wholesalers are many and so are the people and wallets behind the big industrial wineries that wholesalers love. But are smaller wineries really worried about fancy online ordering capability? It's a pain to deal with order forms printed, mailed, or faxed, but I've got to believe it's not big enough of a pain or, if it is, then there's revenue to pay for a fancier system. How to deal with a flood of orders is a problem I'd love to have.

Vincent

Alder wrote:
05.25.05 at 4:52 PM

Vincent,

Thanks for the comments. All excellent points. Another thing to note is that the margins that small wineries make on their wines by selling them retail are about 50%, and they are clearly more than the shipping costs and overhead involved in the operations (up to a point).

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