Technorati Tags: Regulation, wine

By the way, the comment discussion on this over at Tom Wark’s place is really good.

From Vinotrip: A Maryland Wine Blog:

It is important to note this: proponents of direct wine shipping to Maryland are not trying to dismantle the three tier system and run distributors out of business. If direct shipping to Maryland becomes legal, distributors will still thrive doing what they do. They provide a service and fill a need to the retailers and restaurants and this need will continue to exist. Millions of Marylanders are still going to buy from their local shop. Very little will change.

From Vintology:

Since I’ve become active in the online wine community, I have always been supportive and empathetic towards those poor misfortunate souls who have the bad luck to live in backwards states that won’t allow them to receive wine shipments from out of state. This morning, I woke up as one of those people, living in one of those states…The ruling yesterday (sent) Texas consumers back to navigating the byzantine 3-Tier system…Texas has several large metropolitan areas who will probably not feel the sting of this decision as much as some of the smaller areas.

I live in Lubbock, a city in West Texas that really does not have a true wine shop. We go to the liquor store to buy wine. Some stores have better wine selections than others, but there are some varietals and types of wines, especially imports, that are simply not available here. I try to shop locally as much as possible, but if I wanted a bottle of Brunello, I had to order it from an online retailer. Now I just have to live with the fact that I won’t be able to purchase these wines without driving several hours to one of the metropolitan areas. Lubbock has 200,000 people, so I can only imaging how bad the selection is in some of the even smaller areas.

From On the Wine Trail in Italy:

For the record, I am not against wineries that cannot get their wine going through the regular channels to try to find ways for their wines to reach the public. At the very least, those folks will get an education in the blunt realities of getting your wine to the final consumer. It is already not easy through the established channels, so if someone finds a way to the New World, good on them. Spend two weeks on the road knocking on doors and it is very clear. Very few people “in the industry” have time to read blogs, wine or otherwise. They just want their wine delivered at the right time and with the right discount.

From Schiller Wine:

There are little incentives for those in the wine business and the legislators to change the system as it works fine for them, with the latter often getting generous campaign contributions from the former. In other words, the system serves the interests of a group of insiders at the expense of consumers…

From A Year in Wine:

The Wine & Spirits Wholesalers of America Inc. is an outgrowth of the 21st amendment to the Constitution of the United States. That’s the amendment that repealed Prohibition. It also laid the foundation for the three-tier system of wine and spirits distribution in the U.S. This scheme requires a third party – the wholesaler – to handle distribution of alcoholic beverages between producers and retailers. The government, in effect, gave wholesalers the key to the cellar door, and they’ve been reluctant to share it with others ever since, especially in recent years, as wineries turned to direct shipping of their releases to consumers as a way to build audience, remain solvent and embrace freedom. That would seem to be the American way, emphasizing competitiveness and liberty, but the wholesalers don’t look upon the three-tier system as an irrelevant relic of Prohibition, but as their justification to continue to make big bucks under the pretense of preserving state rights.

From The Secret Fork:

In South Dakota, our “three tier” alcohol distribution system esentially means that certain distributors have dibs on certain wines. Accordingly, one would expect that the veritable monopoly this creates means that prices of a certain wine from the distributor to the retailer remain identical across the board. Not necessarily. Some retailers get deals- maybe based on volume, maybe based on relationships- there is not always rhyme or reason to this. Needless to say, though, retail prices can vary. The only way to get a feel for those prices is to get out and check them out.

From Family Winemakers of California et al. vs. The Massachusetts Beverage Control Commission:

We hold that § 19F violates the Commerce Clause because the effect of its particular gallonage cap is to change the competitive balance between in-state and out-of-state wineries in a way that benefits Massachusetts’s wineries and significantly burdens out-of-state competitors. Massachusetts has used its 30,000 gallon grape wine cap to expand the distribution options available to “small” wineries, including all Massachusetts wineries, but not to similarly situated “large” wineries, all of which are outside Massachusetts. The advantages afforded to “small” wineries by these expanded distribution options bear little relation to the market challenges caused by the relative sizes of the wineries. Section 19F’s statutory context, legislative history, and other factors also yield the unavoidable conclusion that this discrimination was purposeful. Nor does § 19F serve any legitimate local purpose that cannot be furthered by a non-discriminatory alternative.

We further hold that the Twenty-first Amendment cannot save § 19F from invalidation under the Commerce Clause. Section 2 of the Twenty-first Amendment does not exempt or otherwise immunize facially neutral but discriminatory state alcohol laws like § 19F from scrutiny under the Commerce Clause. We affirm the grant of injunctive relief.

Joe over at 1 Wine Dude did the editing. Blame him for anything you think is stupid.

The kind of disruption these reforms would cause would primarily affect the wholesale tier of the industry. But given the near absolute control over the sale and distribution of alcohol that wholesalers have been able to obtain, it should be no surprise their numbers would be most affected by leveling the playing field for the rest of the industry and giving the new and growing group of wine lovers the chance to legally pursue their interest in artisan beverages.

Make no mistake about this: I’m unhesitatingly in favor of direct shipment. Wark is right that the world has changed and the current system is unsustainable. The status quo grows more rotten every day, building toward its inevitable Berlin Wall moment. In fact, even in a state with laws as Draconian as Kentucky’s, shipping regulations barely rise to the level of inconvenience.

In his impassioned call for what Internet visionaries used to call “disintermediation,” Wark posits a transition largely without pain – except, of course, for the wholesalers, who are politically manipulative and, according to Wark, add little or no value to the value chain. The thing that Wark misses, I think, is that the thriving market in California wine country, where he lives, is substantially different from the struggling wine market in places like Kentucky, where I live.

In touting the undeniable benefits of a free and open market, Wark has failed to acknowledge some of the changes a totally free and totally national market will cause. The wine culture out here is operating, metaphorically, without a net. Regulatory changes will dash dreams and wipe out the life savings of operators who aren’t rich and powerful. Granted, that’s as much the nature of business as success; economists call it ”creative destruction” and it’s critical to any thriving economy. But it’s worth noting that the changes will not all be good, at least out here in flyover country.

Retailers, obviously, will face new competition and some won’t survive. Wine isn’t quite a zero-sum game, but it’s also not an infinitely expandable market. The purchases people make online and over the phone are purchases they’re not going to make at a local store. The main hit will not be taken by drug stores stocking KJ. It will be the stores that depend on the sale of bottles expensive enough to justify shipping charges. Those are the stores that wine lovers love: the independent, informed, involved wine shops that are the street-level promoters of American wine culture. Hopefully, they’re also the operators with the tools to survive, service oriented “friends in the wine business” who can help their customers navigate the 50,000 brands of wine available in the U.S.

Perhaps ironically, the wholesalers who are going to face the most pressure are not the multistate Boss Hoggs that Wark has no use for. Those guys will do just fine, because they’ve got capital and contracts and there are always going to be drug stores in need of $10 brands. The supply chain from Modesto to the big box out by the highway depends more on logistics and sales acumen than sensitivity to terroir.

No, the guys who are going to feel the most pain as direct shipping takes hold are the niche distributors that have sprung up to supply artisan wine to aficionados in places like Kentucky. Those niche operators do more than just sell wine. They sponsor wine tastings and dinners, and put together promotional tours that bring winemakers from Wark’s neighborhood out to the outback to meet their customers.  Those operations are going to be disintermediated right out of business as customers and suppliers begin to deal directly with each other.

Finally, there is this: much as Wark believes that direct shipping will make all wines available to all people, most of the wines at the center of this debate are produced in small amounts. Direct shipping is not going to miraculously increase the supply of those wines; they’re going to be just as rare as they were when the stupid regulations were in place.

Again, I don’t disagree with Wark on just about anything in his 8800 word screed. But I think he’d make his case more effectively if he’d acknowledge that changing the underpinnings of a multi-billion industry is not going to be, as they say, all peaches and cream. There are going to be unintended consequences, and some of the collateral damage is going to be among the very people wine lovers like best.

Technorati Tags: wine

At the going by-the-word rate for wine writing, if the manifesto had been published in a wine magazine rather than on Wark’s blog, he would have been paid almost $100.

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Last year, the U.S. exported 418 million liters of wine at an average price of $2.18 a liter. In 2008, the U.S. exported 491 million liters at an average price of $2.05.  That’s an average price increase, by my calculation, of almost 9%, indicating that people — at least overseas — may be drinking less, better wine, rather than more, cheaper wine.

Asked about the apparent difference between their statistics and conventional wisdom, Wine Institute Communications Manager Gladys Horiuchi did her own math and came up with a 6% increase. (She’s right, by the way. But still.) She also noted that individual markets were higher or lower depending on all kinds of variables, including exchange rates.

“This is not,” she wrote, “a simple question.”

Which is true, but I’m not about to let a little thing like that keep me from reaching a simple conclusion.

In other news gleaned from the very same press release (new blog motto: all the posting with half the work!), while exports to Europe were down 21% overall, there were two eye-catching bright spots:

• Sales of American wine in Norway were up 65%, from, like, 12 bottles to 19, or something like that.
• The victory march of White Zinfandel in Great Britain continues, a boom based on what The Wine Institute calls “the consumer’s affection for the Golden State and our wines and lifestyle imagery.”

British Millenials clearly want to drink White Zin just like everyone in California. Do you think it would help if we told the Brits that White Zin is also very popular in Kentucky? (Compare for yourself: California lifestyle imagery here. Kentucky lifestyle imagery here.)

The Wine Institute’s press release and attached statistics can be found here.

In a couple of weeks, Underdog Wine Merchants is going to introduce the Octavin Home Wine Bar. It’s a tall, eight-sided bag-in-box “cask” that a company publicist (always a trustworthy source) says will “take this growing part of the market to a whole new level.” Standard puffery? Perhaps. But the shape of the box isn’t the only thing different about Octavin. The strategy Underdog has in place for Octavin just might be a big step forward in the battle for high-quality wine in boxes.

Underdog is a subsidiary of The Wine Group, the world’s largest seller of boxed wine, mostly under the Franzia label. Underdog’s mission is marketing to Millenials, whose lack of brand loyalty and random purchasing habits have wine marketers bumfuzzled. They’re trying all kinds of stuff to get Millenials to behave the way wine buyers have behaved for the last 25 years, and not having a lot of luck.

One of the things marketers are trying is alternative packaging. The theory is that Millenials will adopt casual packaging as a kind of rebellion against their stodgy, dining-room-table-bound parents. Millenials, marketers agree, are more likely to be swayed by the value/convenience/environmental appeal of  wine in something other than heavy bottles, and less likely to associate non-traditional packaging with inferior quality.

“The Millennial consumer is putting that idea in the rear-view mirror,” emails Patricia Schneider, hired by Underdog to handle publicity for the launch. “They are seeking high quality wine in the best package possible.”

Apparently to differentiate Octavin from other boxed wine, Underdog is departing wine industry orthodoxy and building its boxed wine product line based on the strength of existing bottle brands. Of the six wines that Underdog will release in Octavin, three are also available in bottle: Pinot Evil Pinot Noir, Silver Birch Marlborough Sauvignon Blanc and the star of the show, Big House Red, which Underdog bought from Bonny Doon in 2006.

To date, wine marketers have been hesitant to gamble brand equity by moving bottle wines into boxes, since boxes have been see as inherently downscale. As one winery operator told me recently, “No one is going to do that to a decent brand.”

That’s the great leap Underdog is taking, and if it works watch for others to follow.

Granted, Underdog is risking $10 brands, and the world won’t really change until someone is brave enough to box a $20 or $30 estate-bottled wine. But selling an established brand side-by-side in bottle and box is a gutsy move. The logic, clearly, is that the bottle legitimizes the box in a way that creating a new box wine brand wouldn’t.

Whether the brand is suddenly and irrevocably debased once boxed is one of the things the Octavin line will test. The box won’t be the only factor in the wine’s success or failure, of course, but people with an interest in alternative packaging should pay attention.

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