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mixed case: opinion and advice

Where'd You Get That Wine?

Direct shipping sales have grown to $1.35 billion in just seven years, but they could grow a lot more
Photo by: Mark Weinberg

Posted: Sep 27, 2012 4:00pm ET

By Mitch Frank

Fall tends to be my favorite time of year, a sentiment many wine lovers apparently share. After a long, hot summer, temperatures are finally dipping—and lower temperatures bring happy boxes to my door. When the weather cools off, wineries I order from can ship bottles to my New Orleans home without fretting that summer heat will turn their Merlot into Madeira. A new study finds that October is the busiest month for direct shipping orders from U.S. wineries.

More than seven years have passed since the Supreme Court's Granholm decision, which said that state governments cannot prohibit out-of-state wineries from shipping to residents while allowing in-state wineries to do so. Today, 39 states allow some form of direct shipping, up from 27 before the 2005 ruling.

The new report, authored by Ship Compliant, measured the direct shipping market from August 2011 to July 2012, surveying every U.S. winery in Wines & Vines' comprehensive directory about their direct shipping sales. They found that consumers ordered 2.98 million cases of wine in that time. With a value of $1.35 billion, that wine represents 8.6 percent of the total wine market in the United States by value. (Tasting room sales that were shipped to customers' homes were not included, which would make the growth even bigger.)

Since Granholm, direct shipping has grown to a sizable share of the market from what was apparently a trickle, though, at that time, no reliable data was collected on how much wine was shipped directly. The Wine Institute and other winery trade groups estimated the market for home delivery of fine wine pre-Granholm at less than 1 percent of the total U.S. wine market.

Ship Compliant is a service that helps wineries comply with shipping rules from state to state. Obviously they're delighted in the growth of direct shipping. But the report provides an interesting snapshot of the direct shipping market.

Wine wholesalers argued that legalizing direct shipping would lead to a stampede of minors ordering wine online and a substantial loss of tax revenues for states. But they also argued that most Americans didn't want the regulations changed, that the system shouldn't be thrown into upheaval only to cater to a tiny group of wine geeks looking for high-end, mailing-list Cabernets.

While the minors don't appear to have shown up and pro-shipping regulations appear to have dealt with the tax collection, the wholesalers were partially right about one thing. The report found that 34 percent of the wine shipped direct is from Napa Valley, mostly Cabernet Sauvignon with an average price of $76.58 per bottle. That's hardly what the average American consumer is drinking. Another 21 percent comes from Sonoma County, particularly Pinot Noir.

The people ordering wine online are wine geeks—they're you, our loyal readers. But you're not a tiny bunch. Not if you're ordering almost 3 million cases. The rapid growth of direct shipping shows that a sizable chunk of the American population wants access to a better selection of wines. (And it's not all high-end California wine; 17 percent of the shipments came from other states, with an average price of just under $25.)

But consumers still face plenty of barriers to getting their hands on what they want. Eleven state governments don't allow direct shipping. Others have erected barriers that effectively keep most out-of-state wines out of their states.

There's also the question of whether out-of-state retailers should be allowed to ship to consumers. Advocacy groups like the Specialty Wine Retailers Association (SWRA) believe Granholm covers retailer-to-consumer shipping. But 36 states still don't permit direct shipping from out-of-state retailers. Their laws mandate that wine must go through a state-licensed wholesaler and a local retailer before you can buy it. Some retailers ignore the laws; others are challenging them in courts.

Having lost Granholm, wholesalers have lobbied extensively to keep those rules firm and have pushed state governments to enforce them. Wholesalers aren't that worried about small wineries going around them by shipping directly to consumers; that may be 8.6 percent of the market by value, but it's still a small volume. But out-of-state retailers bypassing the local wholesalers could be a much bigger deal.

I have never been one to tar wholesalers. They are a valuable part of the wine industry, bringing brands to market, working with wineries to build brands. Some of the most enthusiastic wine lovers I know are wholesalers. Most medium and large wineries could not succeed without good wholesalers working for them on the ground in various states. And I don't begrudge them trying to protect the three-tier system that mandated that wines travel from producer to wholesaler to retailer since Prohibition was repealed. If you had a guaranteed spot in the supply chain, wouldn't you lobby to keep it?

But the wine world is so much bigger than it was when Prohibition was repealed. Tens of thousands of bottlings are available in the United States. However, the average wine consumer doesn't see the majority of them in their local market. Wholesalers don't carry them all. For good reason: It's not profitable to carry a small winery's product that only a few people want.

Shouldn't those people be able to order it from somewhere? The Ship Compliant report found that 74 percent of that $1.35 billion of wine shipped direct came from wineries producing 50,000 cases a year or less—small wineries who have trouble getting distribution. The beauty of wine is that it is so diverse. You could drink a bottle every night for the rest of your life, and never drink the same bottle twice. At the end of the day, true wine lovers want to explore all wine has to offer.

So what do I think of 2.98 billion cases of wine shipped direct? It's a good start. But what do you think? Where do you order your wine from and can you obtain every bottle you'd like to try?

Eric Hall
Healdsburg, CA —  September 27, 2012 10:19pm ET
Just wait, here comes Amazon Wine Marketplace!

Wall Street Journal:

http://online.wsj.com/article/SB10000872396390443328404578023152961977418.html

Roadhouse Winery
Healdsburg, CA
Joseph Trdinich
Mars, PA —  September 27, 2012 11:01pm ET
Touched a nerve with me. I live in wonderful Pennsylvania and have my wine club shipments sent to my mother-in-law in New York. There are some retailers out of state that now ship to PA but it comes and goes. We never can be sure how long they will continue to ship. It is horrible being a wine geek in Pennsylvania!
Don Rauba
Schaumburg, IL —  September 28, 2012 12:54am ET
"...the average wine consumer doesn't see the majority of them in their local market. Wholesalers don't carry them all.... Shouldn't those people be able to order it from somewhere?"

Yes, yes they should. And to prohibit it is wrong.
Ann Vaughan
Wimington, Delaware —  September 28, 2012 3:35pm ET
I agree with Joseph. Pennsylvania is bad but Delaware is the worst! If you're creative, there are a few ways to get around the roadblocks. I'd rather have the laws changed and pay the tax to the state, however.
Louis Robichaux
Highland Village, Texas —  September 30, 2012 7:26pm ET
Most participants (but not all) in the middle tier of the 3-tier system are large corporate interests that are more interested in protecting their statutorily-mandated market structure than helping the industry evolve in a balanced way to the benefit of all consumers, including wine geeks. They should take a lesson from the music industry and figure out a way to remain relevant / profitable while responding to a changing marketplace in a consumer-oriented manner. Seems their favorite pastime thus far has been introducing DTC-restricting federal and state legislation every chance they get. I also wish states would do away with laws that prohibit corkage at restaurants.
John I Hanbury
Hattiesburg, MS —  September 30, 2012 10:48pm ET
You folks should try living in Mississippi. The state IS the wholesaler. Wine shops can only buy what the state sells. You can go into any wine shop and the offerings are always the same. Cheap plonk and vastly overpriced good wines.

As a lawyer, I think these laws not allowing direct shipment by retailers are unconstitutional. But I have found plenty of ways around them and can almost get any wine I want.
Shelley Gans
Townsend, Mass. —  October 4, 2012 8:25am ET
I have my shipments mailed to my sister's house in N.Y. ;however, I have to travel 3.5 hrs to retrieve it since there is no shipping to Ma.
I have on occasion seen on-line companies (Lot 18, etc.) that list Mass as a state they can ship that particular wine to - this is the exception.
I'd like to hear how you all "get around" the obstaclles.
I am fortunate that I live only a couple of miles from the N.H. border where the State Liquor Stores have a wonderful and tax free plethora of great wines.
David Cable
Santa Barbara —  October 9, 2012 9:48pm ET
The best recent news that we have received is that we can now ship to PA. We have done it many times, and have picked up new Wine Club members in that state.
The worst news is losing Texas. We have shipped to TX for many years, only to have them send us a cease & desist letter. It seems that now, if we want to ship to TX, we have to buy all of the wine we ship there from a TX distributor! How's that for a nonsense ruling, not at all in favor of TX residents who want wines that they cannot find in their local stores - wines they discover when they visit California.
www.eastbeachwine.com
Eric Hall
Healdsburg, CA —  November 8, 2012 11:18am ET
Amazon Wine Marketplace Announced:

http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1756273&highlight=

Eric
Roadhouse Winery

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