California vintners fight with wholesalers over on-line sales - Weekly Specialty & Import Beer Report

Modern Brewery Age, Jan 19, 2004

AP--California vintners are hoping mail-order and online sales will deliver new profits this season, with more states than ever allowing consumers to have wine shipped to them direct from the producer.

"There'll be lots of wine in people's stockings, I hope," said Tom Shelton, president of Joseph Phelps Vineyards in St. Helena. "I think we've made extraordinary progress this year."

A decade ago, only a handful of states permitted wineries to ship directly to consumers. But the number is now at 26, with recent federal court decisions striking down bans in Michigan, Texas and Virginia. The issue is expected to wind up before the Supreme Court.

Laws governing wine shipments go back to 1933, when the 21st Amendment repealed the 13-year dry spell of Prohibition and gave states the right to regulate alcohol.

The result is a hodgepodge, with some states allowing customers to order from in-state but not out-of-state wineries while others allow customers to order only from other states with which they've signed reciprocal agreements. Meanwhile, some states have made direct wine shipments a felony.

Wine producers say the laws are arcane and need to be jettisoned.

But wholesalers argue doing that would trample state rights, cut tax revenues and give teens unprecedented access to alcohol.

"You have a small handful of elitist kinds of thinkers who want to get their wine or the particular version of wine that they can't get. They're trying to change the whole system and make it more dangerous, less controlled." said Craig Wolf, general counsel for the Washington, D.C.-based Wine & Spirits Wholesalers of America.

Both sides have hired big names to press their case. The wine industry has Kenneth Starr, best known for prosecuting the Monica Lewinsky case against President Clinton; liquor distributors have Robert Bork, the former federal appeals court judge rejected by the Senate in 1987 for a Supreme Court post.

Proponents of wine shipments say they give customers more choice and boost smaller wineries that don't have the clout to get into major retailers.

"Some boutique wineries will probably see a pickup simply because they're going to put a lot of effort behind this," said Peter Ekman, of wine.com, an online retailer.

Pro-shippers say concerns raised by wholesalers are overblown.

Wineries are willing to work out a system to pay sales taxes, said Shelton, and he doubts that allowing more shipping will seriously dent the current three-tier system in which wine is shipped from maker to wholesaler to restaurants and retailers. "Here in California we've been direct shipping for 20 years and we have a very robust wholesale tier that makes a lot of money," he said.

As for teen drinking, shipping proponents argue it's harder for teens to order wine over the phone or by Internet, which requires a credit card and an adult's signature for delivery, than to go the old-fashioned route--get a fake ID or hang around a liquor store in hopes an adult will buy for them.

FedEx spokesman Howard Clabo said his company is currently training its drivers to deliver alcohol properly and only accepts packages from companies enrolled in its wine shipping program.

A report this summer by the Federal Trade Commission found that direct shipping states with safeguards against shipments to minors were reporting few problems.

However, Wolf said the report wasn't based on hard evidence and said allowing wine shipments will cause problems. "You can't rely upon the carriers," he said.

The FTC report, generally favorable to wine shipments, boosted proponents' hopes.

"There's just a level of awareness of this issue that we've never seen before," said Jeremy Benson, executive director of a Napa-based pro-shipments group called Free The Grapes.