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New York Faces New Wine Sales Restrictions

Consumers could have fewer choices if legislation squeezes small wholesalers, while State Liquor Authority forbids some third-party wine sales

Robert Taylor
Posted: April 25, 2013

Wine lovers may be stuck with higher prices or a smaller selection if the New York legislature passes a controversial measure that would require all New York wholesalers to store their wine within the state.

Two little words are once again at issue in the Empire State: "At rest." Legislation, introduced in February by state Sen. Jeffrey Klein, would require all alcoholic beverages sold by New York wholesalers to remain "at rest" in a warehouse in New York for at least 24 hours prior to delivery to a retailer or restaurant. The stated goal of the bill, SB3849, is to create new jobs in New York and "level the current playing field" for the state's wine and spirits wholesalers.

About 150 of New York's approximately 200 wine wholesalers currently use storage space in New Jersey for their inventory, with most of those 150 based in or around New York City. SB3849 would require those wholesalers to obtain suitable secure, temperature-controlled warehousing in the New York City area, to replace the 800,000 to 1 million square feet of space they currently lease in New Jersey. The bill's opponents claim this amount of unoccupied storage simply does not exist.

The New York Alliance of Fine Wine Wholesalers says its smaller members can't afford to build new temperature-controlled warehouses in New York—which would take years. Those wholesalers who could afford the little available high-rent storage space in New York would offset the costs by raising wine prices. If passed, the at-rest requirement would take effect Jan. 1, 2014.

"It's basically saying, if you're currently in New Jersey, you're out of business," said Constance Oehmler, CFO of Verity Wine Partners and secretary for the New York Alliance of Fine Wine Wholesalers. "Making a law for imaginary jobs that you hope will happen when you know there is a true job cost is not a good idea."

Requiring wholesalers to store wine in New York state "could create over 1,700 jobs and the creation of new warehousing facilities in New York," the bill's justification memo read. Sen. Klein has yet to reply to a request for comment on the bill.

In contrast, an impact report commissioned by the Alliance and prepared in March by Appleseed, a non-profit organization that specializes in economic and social research, concluded that an "at-rest" requirement is "more likely to result in a net loss of several hundred jobs" and "could increase what New York consumers pay for wine each year by several hundred million dollars."

The impact report also predicts that the proposed law would make the industry less efficient and "would primarily benefit a few large wholesalers who already operate their own warehouses in New York."

New York's two largest wholesalers are Southern Wine and Spirits and Empire Merchants (a subsidiary of the Charmer Sunbelt Group). Neither has publicly stated support for the bill so far, but both have contributed to New York politicians. Southern contributed nearly $30,000 to New York lawmakers during the 2012 election year, while Empire made more than $330,000 in contributions to New York politicians during that time. Empire Merchants LLC has given a total of $30,000 to Sen. Klein since 2009.

The legislation is not yet up for a vote; SB3849 has been referred to the Investigations and Government Operations Committee, and companion bill AB5125 has been referred to the state assembly's Economic Development Committee. A similar measure was rejected last year as an amendment to the 2012 New York state budget.

But if the at-rest legislation were to pass, "What probably would happen is a massive merger and a lot of guys going out of business," predicted Oehmler of Verity, which employs 43 people.

The New York Alliance of Fine Wine Wholesalers—which also includes Admiral Wine Merchants, BNP Distributing Co., David Bowler Wine, Opici Wine Co., Polaner Selections, Martin Scott Wines, Michael Skurnik Wines, Monsieur Touton Selections, Winebow and T. Edward Wines—estimates the number of wholesalers that would close at 100.

If that happens, Oehmler claimed, wine selection in New York could be drastically reduced. "States where there are massive monopoly liquor houses like Florida" have very limited selections, she said. "Florida has 5,000 wines; we have over 24,000 wines available in New York, and it's because of all the little guys. … We would turn into a land of Gallo and Yellow Tail."

New York State Liquor Authority Restricts Third-Party Wine Sales

Meanwhile, companies trying to facilitate wine sales between consumers and wineries and retailers have encountered a new hurdle. The New York State Liquor Authority (SLA) recently issued a declaratory ruling that could affect popular wine sales sites such as Amazon, Facebook, Gilt and Lot18, as well as wine clubs such as those run by the Wall Street Journal, the New York Times and Williams-Sonoma.

The ruling, issued April 9, addresses third-party wine sales—those in which a wine club, Internet retail portal or other such advertiser is not licensed to sell alcoholic beverages but handles a direct wine purchase between a consumer and a licensed winery or retailer.

The SLA did not go so far as to ban these third-party provider wine sales altogether, but determined they would be in violation of New York state law if any of the following circumstances applied: 1) the licensed seller takes a passive role or incurs no business risk; 2) the unlicensed third party is permitted to perform retail functions such as determining what products to sell and for how much; 3) the compensation to the third party is a substantial portion of the sale.

The SLA intends to hold public hearings on the matter and issue a subsequent, more comprehensive advisory.

The April ruling does not affect wineries' sales directly to consumers via the Internet, phone or mailing list, even if they are facilitated by a third party that handles some logistics, such as ShipCompliant, which had asked for clarification of New York's alcoholic beverage laws.

"This declaratory ruling in no way impacts winery-to-consumer shipping in New York," read a statement issued by ShipCompliant. Though the company called the decision "unfortunate," it said "the ruling is part of an ongoing process by which New York and other states are dealing with new and emerging technologies and advertising models that are used in other industries."

A similar ruling was issued by California's Department of Alcohol Beverage Control in June 2009, advising wineries that third-party providers had to be licensed to sell alcoholic beverages. Despite the hindrance to direct sales in California, the number of unlicensed third-party providers continued to rise, and in late 2011, the California ABC reversed course, permitting unlicensed third-party providers as long as the licensee maintains control over the transaction—not as stringent a measure as, but also not entirely dissimilar from, the new regulations now in place in New York.

Michael Shaw
New York —  April 26, 2013 12:46pm ET
Another example of the huge liquor wholesalers trying to monopolize a market. The pressure to sell the wines from their largest suppliers forces the sales rep not to do the right thing for his customer. If this "to rest" law comes to fruition it will be a sad day for fine wines in NY. NY already has some of the most archaic restrictions on wine sales. The rules for quantity discounts (lack of assorting wines from a winery or wine brand) are the same as they were 40 years ago.

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