The Campaign to Create a National Market for Wine Retailers

Posted on | April 1, 2008  
Writen by | Ian Griffith

It’s pretty clear that retailers have been slow to organize in their own defense. For at least ten years, wineries have been campaigning for the right to ship direct to consumers, their triumph being the Granholm vs. Heald Supreme Court decision in May 2005. As a result wineries have access to direct shipping in a total of 35 states, up from 27 states in 2005. Meanwhile, state legislation in response to Granholm has led to a tightening of restrictions on retailers. In contrast to the access wineries enjoy, only 14 states are available for retailers to ship direct, and this number drops to 13 in July when a new ban in Illinois goes into effect.

It was a year after Granholm before retailers collaborated in an effort to protect their interests by forming the Specialty Wine Retailers Association (SWRA). Since it was founded SWRA has been fighting legal battles and lobbying state legislatures in an effort to reverse the slide on retailer shipping privileges.

SWRA is arguing that the principle of the Granholm decision, that “states may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses,” applies equally to retailers as it does to wineries. A Federal District judge in Texas recently agreed with this interpretation, meanwhile a Federal District judge in New York ruled last Fall that Granholm doesn’t apply to retailers. Clearly these decisions now head to the Courts of Appeal and potentially the Supreme Court.

The legal strategists for SWRA try to pick their battles carefully when challenging state laws. It can be helpful to know the bias of the bench, for instance the Appeals Court of the 5th Circuit is perceived as being philosophically aligned with this campaign. Identifying allies for their arguments can be crucial. While it might appear logical that wineries should be the retailers’ natural allies in their effort to open states to direct shipping, state winery associations have killed legislation in committee and argued against allowing out-of-state retailers access to their home state.

Another important ally should be stores in the local state; however the attitude of retailers to having their market opened to new competition can be unpredictable. In Texas retailers were initially willing to limit their own rights in an effort to minimize competition from out-of-state retailers. Ironically it took retailers from California to persuade them that their interests lay with the national campaign. However, it is not unusual to come across parochial attitudes that chose to protect the status quo in favor of an unpredictable future. It turns out the only consistent allies on this campaign are consumers who don’t like being told they cannot have access to a wine because of state laws.

A troublesome reality in the way retailers conduct business online today is that many knowingly push the limits of where they can legally ship. To be fair it is not always clear which states have changed their shipping laws for retailers. In their legal challenges and lobbying efforts SWRA represents its members as law abiding and any evidence to the contrary undermines the legitimacy of their arguments. Indeed it is quite likely that a variety of sting operations are being planned by SWRA’s opponents in an effort to discredit their legal arguments.

Wine.com recently mounted its own sting operations to highlight the difference between their legal shipping model and illegal shipments by other prominent retailers. It was illuminating, as Eric Asimov of the New York Times pointed out, that “the strongest response from the states involved was to send letters to some of the retailers asking – not telling – them to stop what they were doing.” Given this climate it is a challenge to convince retailers to voluntarily restrict their access to key markets; it will probably take some leadership by example from the largest online stores or more direct enforcement by the states. Meanwhile, opponents of direct shipping are arguing that retailers are not to be trusted and the only way to control the abuse of state law is to ban direct shipping for all retailers.

Yet, despite the challenges this campaign faces it looks like momentum is gaining in its favor. Member retailers have begun alerting their customers to this struggle and asking them to donate to SWRA. If they are successful, retailers nationwide may some day enjoy widespread access to wine drinkers in the majority of states. While this access will likely come with the burden of collecting taxes and maintaining permits in these states, the benefit of operating a business without the threat of fines or license suspension will surely be worth it.

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