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mixed case: opinion and advice

Direct Effects

A state-mandated study of winery direct shipping in Maryland yielded overwhelmingly positive results for consumers and the government
Photo by: Mark Weinberg

Posted: Jan 29, 2013 4:00pm ET

By Robert Taylor

When Maryland state comptroller Peter Franchot presented a "Study on the Impact of Direct Wine Shipment" to the state's General Assembly this past December, it confirmed everything direct-shipping proponents have been saying since the 1980s: Direct shipping offers consumers greater choice, brings more tax revenue in for the state, and poses no credible risk of increased underage drinking.

Direct shipping of wine from in- and out-of-state wineries to Maryland consumers became legal in the state on July 1, 2011. With the passage of the law, the Maryland comptroller was asked to monitor how direct shipping was used by consumers and wineries, and how it affected the state, from the time of passage through the end of fiscal year 2012.

According to Franchot's report, Maryland issued 629 direct wine-shipping permits, with 49,350 gallons of wine shipped directly to consumers during fiscal year 2012, compared with nearly 14.66 million gallons sold through Maryland wholesalers during that same period. Direct sales accounted for just 0.3 percent of the volume of wine sold in Maryland last year.

Considering that most of that wine wasn't available through a Maryland wholesaler, it's hardly a crumb of the wholesaler pie. Yet as happens wherever alcohol direct-shipping laws have been introduced, wholesalers and their wallets were there to oppose Maryland's direct-shipping legislation. Their concern with direct shipping is that it bypasses the middle tier—where the wholesaler distributes the wine from winery to retailer—of the three-tier system, and when you've been taking a cut of every wine sale in your territory since Prohibition, change in the form of direct shipping is a scary thing.

Thanks to direct shipping, Maryland collected $125,800 for the $200 permits, and $567,524 in tax revenue on those 49,000 gallons of wine sold through direct shipping (which amounted to nearly 250,000 bottles sold at an average price of $24 each). With just more than 2,000 government-employee man-hours required to implement the shipping program, and far fewer required going forward now that it is in place, winery direct shipping netted the state more than a half-million-dollar profit in its first year and is expected to bring in even more, while having "minimal to no impact on Maryland wholesalers," Franchot's report read.

Franchot also wrote that direct shipping created "a measurable positive impact for product availability and consumer choice." He measured availability using Wine Spectator's Top 100 Wines of 2011, of which 45 wines were made in the United States. Of those, 29 were available through Maryland wholesalers, and an additional 13 more were made available through direct shipping.

As for direct-shipping opponents' assertion that minors would gain easy access to alcohol by purchasing it online, "there have been no incidents of access to underage persons reported to the Office of the Comptroller," Franchot wrote. "Additionally, there have been no significant complaints specific to the law or its implementation from the industry, permit holders or consumers in the 17 months since the law took effect."

There are now 39 states that permit winery direct shipping, and that may not change for a while. There is no new legislation under consideration that would affect winery direct shipping in any state.

Franchot's report is a happy conclusion to Maryland's long struggle with shipping laws, and a confirmation that the other 38 states that allow direct shipping are on the right path. While wholesalers often come across as the bad guy in direct-shipping disputes, they do provide a valuable wine industry service by supporting and promoting the brands they distribute, especially smaller start-ups, so it's positive reinforcement of direct shipping laws that consumers can be afforded a wider selection of wines without endangering the livelihood of the local distributor.

Perhaps now, with the Maryland comptroller's conclusions in mind and no proposed legislation to fight, wholesalers can return to spending their valuable resources on bringing more exciting new wines to local markets rather than fighting progress for the sake of the status quo.

David W Voss
Wisconsin —  January 29, 2013 5:52pm ET
Wholesalers were never interested in bringing in any more wines than they do now. If they could prevent direct shipment of wines that they don't want to carry, they feel that the consumer will be forced to buy the wines that they (wholesalers) carry. It is consumer be damned if the wholesalers got their way.
Ian Powrie
Goolwa North, South Australia, Australia —  January 30, 2013 4:37pm ET
I write from Australia but with the perspective of internal comparisons. The logistics and delivery systems in Australia are different from those in the USA e.g. much smaller market but similar in other perspectives e.g. widespread markets and costly distribution of a heavy, breakable and valuable cargo.
Without the three tier distribution system in Australia there are still around 30 process steps between the end of bottling lines and a glass in your hand (comprised of both product movements and re-order routines). With three tiers and at least 10 functional steps at each my guess is that you guys are paying for >40 functional steps and the working capital cost associated with three levels of inventory with no satisfaction of improved service to offset these costs. B2C shipments with modern logistic systems support would improve efficiency.
Hugh L Sutherland Jr-m
owens cross road,al 35763 —  February 5, 2013 5:23pm ET
There is an idea that you cannot ship wine to Alabama. This not true. If you go to ABCboard.state.al.us,to online services, and then to direct import authorization, you can legally ship wine into Alabama. The form necessary to order the wine is found there. The local ABC store collects its $.30/bottle tax. This also answers the problem of underage children collecting the wine. I and some of my friends have done this especially with the "flash" sales.
Ned Osborn
Phillydelpia —  February 5, 2013 11:17pm ET
If you're interested in maximizing alcohol consumption among the populace, Pennsylvania has the perfect system. You can't buy less than a case of beer under ordinary conditions. Good luck. However, I care only about wine, and you can find good values. The PA website allows you to search statewide, the selection is decent, and you can order special wines with an added cost. Actually not too bad. At least due to the blessing of geography you can find just about anything you want between neighboring Delaware, New Jersey, and New York. However, there are no direct shipments. It's generally tolerable, but damn, I still want to try the elusive bottle of 100% Alicante Bouchet for historical purposes. I still say keep the status quo, if only because Corbett is a creep.

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