The fear behind America's wine shipping battle

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Related tags: Supreme court of the united states

Small vineyards claim that US wholesalers are fighting against
direct shipping in order to preserve the "monopoly" they hold. If
not this, then what exactly does the wholesaler fear? asks Kim
Hunter Gordon.

The US Supreme Court has begun hearing a case​ that could have major implications for the way in which alcohol is sold in America - and in particular whether producers will be able to sell directly to consumers without it passing through a wholesaler.

Legal drinking age in the US is 21, three years after most Americans get hold of a credit card. Underage drinkers could therefore easily order alcohol over the Internet if direct shipping was allowed between states - an argument at the centre of the case put by wholesalers.

But, underage Americans can already order wine direct from in-state wineries, should they so desire, and large selections of wine, beer or spirits from online shops, such as Internet Wines and Spirits​ in Illinois, which ships to all but nine states. So this particular battle cannot really be about protecting minors.

Michigan Beer & Wine Wholesalers Association (MB&WWA), one of the parties involved in the Supreme Court case, is just one of many wholesaler organisations across the US to have invested in costly legal campaigns to prevent direct shipping of wine - suggesting that these groups are genuinely fearful of change. In fact, the extent to which US wholesalers have defended laws preventing the direct shipping of wine has begun to obscured the arguments about whether it is right or wrong.

"They've hit us hard."​ said Peter Saltonstall, a board member of the New York Wine and Grape Foundation and owner of a small vineyard. "They have a nice little monopoly, if I had a nice little monopoly like that, I'd want to protect it too!"​ But, it is hard to imagine that Saltonstall exporting his wine directly to consumers in New Jersey will put wholesalers out of business. About 90 per cent of wine sold in the US comes from California, and most of that from large producers such as E&J Gallo.

So do the wholesalers fear that the big Californian producers would cease to use them if it wasn't compulsory to do so?

Gallo, according to spokesman John Segale, is "prepared to do business with any decision the court makes,"​ a distinct change of heart for the company which in the past had offered explicit support for the wholesalers. But Segale would not say whether 'being prepared to do business' meant that they would use direct shipping if it became an option.

Jeremy Benson from lobby group Free The Grapes!, which is leading a nationwide campaign to allow inter-state shipments, is confident that direct shipping will not mean the end of the wholesalers. "California producers currently have the option of shipping directly within California and that's not what they're doing. The middle tier is necessary for most consumer packaged goods for economic reasons,"​ he said.

"I don't think they're afraid so much that they'll lose the big contracts, but that direct shipping will dilute their market."​said Peter Saltonstall. But, Benson argues that this small dilution would in any case be to the long-term commercial advantage of wholesalers. "Exposure of lesser-known brands using direct shipping builds them in new markets, which can then lead to wholesaler interest and representation."

It is difficult, then, to see why the wholesalers should go to such lengths to object to the direct shipping issue. Bill Nelson, from the Washington trade organisation Wine America, is surprised that they have been so vocal.

"The wholesalers, a long time ago, decided that this was a huge threat to them. I never really understood why."​ In fact, he suggested that it would be in the wholesalers' interest to avoid public scrutiny of any variety. "This ruling, which is about wineries that they're not even interested in, isn't going to change much for them. But, having the courts meddle in this area is a bit of a danger,"​ he said.

Wholesalers and state authorities have a relationship that may interest the Supreme Court in itself, he claims. "The wholesalers are in with the authorities. For example, a bar in Georgia can't change wholesaler without permission. It's called franchise protection, but unlike with McDonald's, the wholesaler is under no obligation to perform. The bar has to pay; it has to buy itself out of the contract."

This kind of relationship, Nelson argues, is unlikely to stand up to close scrutiny by the competition regulators, and keeping a lower profile would perhaps be the best course of action for the wholesalers.

Yet the wholesalers wish to maintain the status quo, which is why they are fighting to block the direct shipping attempts.Dennis Hybarger, vice president of the MB&WWA organisation, explained to BeverageDaily.com​ that he was more concerned about the possible actions of the state authorities than the loss of business to direct shipping.

"We're afraid that if this control is taken away [by allowing direct shipping], then there could be a backlash bringing even tighter restricitions. You perhaps have to be from a country that has been through Prohibition to understand this. As soon as [alcohol] gets beyond the controls, the controls come back with a big bang."

Hybarger added that one-third of Americans are teetotal. The public perception of minors gaining access to alcohol over the Internet if direct shipping is permitted (in spite of the fact they already have it in most cases), he beleives, could frighten the state and local authorities to the extent that they would impose even stricter regulations on the distribution of alcohol. This, he said, is where the wholesalers really see a threat to their livelihoods.

The question of why the state authority of Michigan is fighting the case against direct shipping is even more baffling, assuming, as has been demonstrated, that there will be no loss of tax income by allowing producers to bypass wholesalers.

But according to Bill Nelson, there is neither a complex hidden reason nor logical moral stance. "The state authorities always have a knee-jerk response to defend their laws, that's where they're coming from."

Whatever the reason wholesalers have for trying to maintain the current system - protecting minors, avoiding tougher regulations or ensuring tax revenues - most expect that the supreme court is unlikely to agree.

Related topics: Markets, Beer, Wine, Spirits, Cider

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