The Federal Trade Commission came down firmly on the side of wine lovers today with a new report on e-commerce and the wine market. The commission found that Internet sales of wine benefit shoppers, and that states can still effectively control alcohol sales without resorting to outright bans on direct-to-consumer shipments.
"E-commerce can offer consumers lower prices, greater choices and increased convenience," said FTC chairman Timothy Muris. "In wine and other markets, however, anti-competitive barriers to e-commerce are depriving consumers of those benefits."
More than half of the states in the country either prohibit or greatly restrict wineries and retailers from shipping alcohol beverages directly to consumers, citing concerns such as underage access and tax collection. But according to a study by FTC officials, such practices prevent consumers from saving as much as 8 percent to 21 percent on high-end wines. Also, some of these states allow shipments from local wineries, raising the question of whether their laws serve primarily to protect in-state businesses from out-of-state competition.
The report concludes that states can prevent sales to minors using restrictions other than bans on direct shipments, according to Todd Zywicki, director of the FTC's Office of Policy Planning. Among those methods are requiring wineries to label their packages as containing alcohol, requiring the package carrier to verify the age of the customer by obtaining an adult signature at the time of delivery, requiring out-of-state companies to obtain shipping permits and setting up penalty and enforcement systems.
Such safeguards are already included in "model" direct-shipping legislation endorsed by winery trade groups such as WineAmerica, the Wine Institute and Family Winemakers of California. And, said Zywicki, officials in states that do allow direct shipping under such restrictions have reported few problems.
FTC chairman Muris said he hoped that the report would be a resource for states in formulating their policies on e-commerce and wine. In recent years, several consumer lawsuits challenging state shipping bans have been working their way through the federal courts. In response to court rulings or to pressure from voters, some states, including Virginia and South Carolina, have recently passed or considered laws allowing direct shipments of wine. A statement from the FTC noted that two states have already asked the commission to comment on bills that affect direct shipments.
The report "will forever change the terms of debate on the direct shipment issue, and will have an extraordinary impact on state legislatures and the federal courts in the months ahead," said WineAmerica president David Sloane. "This report makes clear that the interstate shipment of wine is beneficial to consumers, that states can and are effectively regulating such sales, and that the arguments against direct shipment simply do not hold up under scrutiny."
To compile their report, FTC officials did a study of wine sales in McLean, Va., assessing the impact of bans on online sales on prices and availability of wines. That study found that 15 percent of a sample of popular wines available online were not available from retail stores within 10 miles of McLean. While bricks-and-mortar stores may offer better prices on less-expensive wines, the study findings suggested that consumers can save money by purchasing wine online, with the biggest savings on expensive wines (as the cost of shipping wine does not vary with the cost of the bottle). Using the least-expensive savings methods, according to the McLean study, those savings could range from an average of 8 percent to 13 percent on wines costing more than $20 per bottle and 20 percent to 21 percent on wines costing more than $40 a bottle.
In addition, FTC officials spoke to state officials to gather data about the effects of direct shipping on underage drinking. "We also found no evidence suggesting that direct shipping increase underage drinking beyond the levels attributable to sales by bricks-and-mortar stores," said Muris. "The primary consumer benefit of e-commerce in wine -- access to lower-cost sources of high-end, expensive wines -- appears unlikely to be important to most underage drinkers." However, the FTC was unable to obtain evidence on the effectiveness of the adult-signature requirement in states that use it.
The report did not address other issues, such as collection of state taxes, other than to note that officials in states that attempt to collect taxes on direct shipments reported few problems. The FTC also did not tackle the fundamental issue of the constitutionality of state restrictions on direct-to-consumer shipments of wine. The 21st Amendment gives states the rights to control alcohol sales within their borders, but the federal lawsuits challenging bans on interstate shipments argue that those laws violate the Commerce Clause of the Constitution. Also, the FTC did not examine online sales of beer or liquor, or international direct shipments of wine.
The report grew out of the FTC's Internet Task Force, which was convened in August 2001 to evaluate government regulations of particular products and services that could hurt online competition. Last October, the FTC held a workshop on anti-competitive barriers to e-commerce in 10 areas, including casket sales, contact lenses and real-estate services. During the session on wine, the FTC heard testimony from state officials, winery trade groups, the Wine and Spirits Wholesalers of America and an economist.
Read past news on the FTC hearings:
For a complete overview and past news on the issue of wine shipments, check out our package on The Direct Shipping Battle.
Read other recent news about direct shipping: