Across the United States, a war is being fought over how wine should be sold. The clashes are taking place among wineries and wholesalers, legislators and lobbyists, traditional wine shops and online retailers -- all of whom have a stake in whether a consumer in one state can buy a bottle of wine being sold in another state. But when these groups duke it out in courtrooms and state capitals, the true winners or losers are the wine drinkers themselves.
When the 21st Amendment repealed Prohibition (the 18th Amendment), it gave states the right to regulate the sale and distribution of alcoholic beverages within their borders, as well as the transportation or importation of alcohol across their borders.
The liquor laws in each state have since become minefields of complex jargon and varying prohibitions that often leave consumers confused about what is permissible when it comes to buying wine from out-of-state sources.
Some states have chosen to have a fairly open market, such as California, where residents can have wine shipped to them directly from local wineries and from sources in other states with similar laws. Other states control the sale of alcohol through state stores, as in Pennsylvania, where the government essentially acts as the wholesaler. Yet others give individual localities authority over alcohol sales, such as Texas, where many counties are "dry."
However, most states typically follow the "three-tier system" of alcohol distribution. In this system, a winery (or producer of other alcoholic beverages) sells its products to a wholesaler. The wholesalers then distribute the many brands they represent to their clients, the retailers, from which you buy wine. Three steps -- to the wholesaler, to the retailer, to your shopping cart.
But in recent years, the number of wholesalers has dropped, while the number of wineries has grown. Small wineries, which may produce as little as a few hundred cases a year, sometimes cannot find or afford wholesale representation in other states. Their business may not be that attractive to wholesalers, which often prefer larger producers that are more profitable. As a result, many small wineries complain that they are suffocating under an antiquated system that serves only to keep them out of competition with the big boys.
These wineries generally depend on direct sales, and they can boost their business by shipping cases, or bottles, to customers in other states. In addition to on-site tasting room sales, they may take orders via Web sites, e-mail, phone, fax or mail and then send the products to their customers' homes, bypassing the wholesalers and retailers altogether.
Some traditional wine shops have likewise capitalized on the growth of the Internet, going online to expand their sales beyond their local market. New online-only retailers have sprung up, hoping customers will be attracted by a broader selection than most brick-and-mortar stores can carry and by the supposed ease of shopping from home.
Such direct shipments can be a godsend for wine collectors who want to buy fine and rare bottlings that are not available at their local retailer, for people who want to send gifts to friends and relatives in other states, and for travelers who tour wine regions but can't carry all their purchases home on the plane. However, direct shipping of alcoholic beverages is outright illegal or restricted in the majority of states.
Interstate direct shipments challenge wholesalers on their own turf, posing a potential threat to their businesses. Wholesalers argue that the three-tier system is a tried-and-true method of regulating alcoholic beverages, preventing their sale to minors and providing states an effective way to collect taxes on liquor sales. They've found a sympathetic ear in many state officials who fear that Internet sales may make it easier for kids to buy alcohol or that their treasury is missing out on substantial revenue. In addition, various advocacy groups that combat underage drinking have spoken out against direct shipments, at least those without safeguards to be sure that minors aren't getting their hands on alcohol.
While the direct-shipping controversy had been brewing for some years, the issue took on new momentum on both the state and federal levels in 1999 -- driven in part by the dramatic growth of the Internet, increased lobbying by wholesalers and wineries, heightened fears of juvenile crime, and national media attention.
The U.S. Congress began debating legislation that put federal enforcement power behind states' direct-shipping laws, allowing state attorneys general to take out-of-state wineries and retailers to federal court for violating local laws. While wineries did get the bill amended, "The 21st Amendment Act," sponsored by Sen. Orrin Hatch, R-Utah, eventually passed near the end of the 2000 legislative session after it was attached to a popular bill intended to curb sex trafficking and violence against women.
But all that measure really did was put the issue back in the hands of the states, as it didn't rule on the overall legality of direct shipping. So numerous state legislatures have passed or are considering wholesaler-supported bills that would ban interstate direct shipments of wine or even make violators subject to felony penalties. Wineries have pushed for their own bills to allow direct shipments, usually with age identification checks required before delivery; Hawaii and Wyoming are the latest states to loosen their laws in response to outcries from local wine lovers and in-state wineries that want to do business with buyers elsewhere.
Meanwhile, fed-up consumers are taking their cases to federal court, challenging existing state bans on the grounds that they violate their constitutional right to free trade and amount to economic protectionism for in-state companies. Wine lovers initially received encouraging news when a federal district court judge ruled that Indiana's direct-shipping ban was unconstitutional. But that ruling was later overturned in appeals court, and the U.S. Supreme Court declined to hear the case. However, in a similar Texas case, the judge wrote a strongly worded decision in favor of wine consumers; that case is awaiting further action. Lawsuits are pending in five other states -- Florida, Michigan, New York, North Carolina and Virginia -- and may have their turn in the courtroom by the end of this year.
Wine Spectator Online will keep you updated on the latest developments in state legislatures, federal courts and anywhere else the battle flares up. In this package, you can find a roundup of all the previous articles, an explanation of shipping terms and the key players behind the news, and a comprehensive state-by-state list of shipping regulations. Welcome to the front!
-- Jacob Gaffney and Dana Nigro
