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Ohio Bill Aims to Cut Mandatory Markups on Wine

Legislation intended to lower prices for consumers would eliminate wholesalers' fixed markups and exclusive territories

Eric Arnold
Posted: July 7, 2005

A new bill supposedly aimed at reducing wine prices for consumers was introduced on the final day of Ohio's legislative session, but it was met more with controversy than commendation.

The bill won't have a committee hearing until the legislature reconvenes in August. In the meantime, the state's wholesalers have become entrenched in a bitter dispute with each other and retailers are uncertain what stance to take on the bill, saying they aren't sure if the end result would hurt them or even truly benefit consumers.

Since the repeal of Prohibition, wholesalers in Ohio have enjoyed a fixed markup of 33.3 percent on wine, as well as exclusive territories for selling to retailers. Within these territories, wholesalers all offer different brands, and therefore do not compete with each other directly.

Bill author Rep. Bill Seitz (R) argues that this has led to higher prices for consumers. (In 2002, the Cleveland Plain Dealer reported that Ohio residents pay more--between 25 percent and 50 percent more--for a bottle than wine drinkers in other states due to the state's liquor laws.) House Bill 306, which Seitz introduced on June 29 with 11 cosponsors, would remove the fixed markup and the exclusive territories, which Seitz believes will create a competitive, free market in the wholesale wine business.

"People say Two-Buck Chuck costs four bucks in Ohio. One doesn't need to be Einstein to realize that double layers of markup are part of the reason why," Seitz said. "Ohio is one of only two states"--the other being Washington--"that retains wholesale minimum markup on wine. We do not have it on beer; the world hasn't ended."

The state also has minimum markups from retailers to consumers, an issue that prior legislation attempted to address, but the measure did not pass. This time around, Seitz said, "We're not doing any violence to the retail minimum markup, basically because you can only do so much at one time, and many states still have retail minimum markups."

While Seitz claims the idea behind the current bill is to level the playing field, the Wholesale Beer and Wine Association of Ohio doesn't see it that way. "There's a lot of talk about price and competition, but it's what I would call a smokescreen," said Bob Tenenbaum, the organization's spokesperson. He claims that the measure has more to do with the plans of Texas-based wholesaler Glazer's Distributors to expand in the Ohio market.

Should big wholesalers such as Glazer's be able to expand in a free-market Ohio, Tenenbaum argued, small retailers would be ignored. "Typically in a situation where one distributor controls the market, they tend to concentrate on the big retailers--the Wal-Marts of the world," he said. "The end result is that the small retailers lose service and the ability to offer the kind of selection they want."

Seitz counters that the Ohio wholesalers simply have a legally mandated flow of income they don't want to lose. "We are one of only a relative handful of states that build contractual protection of wholesalers into our statutes. It's simply an interference in free-market forces," he said.

Glazer's contends that the current situation in Ohio hurts its ability to be competitive. "The Ohio laws as they currently stand prevent a market in wine from occurring as it would in other states that have laws that have been more progressive," said David Sherman, vice president of governmental relations for Glazer's. "We are happy to work on what profit margin the market will bear, and we don't need the legislature or the state to tell us how much we need to make."

Sherman discounted the argument that operations such as his wouldn't work well with smaller retailers. "We want to get all the business we can. You do that through service, and we know that," he said.

In the middle of all this, some retailers, such as Bob Fishman, owner of the Grapevine in Cleveland, aren't sure how they feel about the bill. "We've got mixed emotions on it," he said. "Being a small retailer, it could affect us with big companies coming in and undercutting everyone as far as prices go."

But Seitz said the bill contains two provisions designed to help small retailers. One allows wholesalers to extend credit to retailers, which they cannot do under the current law. The other explicitly bans wholesalers from offering quantity and volume discounts to retailers, which Seitz said "is a strengthening of the prohibition in Ohio's current laws against price discrimination. We do not want a Wal-Mart to be able to buy wine from wholesalers at a materially lower price than Joe's Corner Market."

Either way, Fishman doesn't know if retail prices will drop should the bill pass. "It's kind of a fallacy that all wine is expensive here," he said. "What's expensive in Ohio are a lot of the mass-marketers--the Beringers, the Mondavis, the Kendall-Jacksons, the Columbia Crests. But on a lot of the small producers, prices are going to be about equal to where everything else is in the country. Some we're going to be higher on, some we're going to be lower on."

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