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Out-of-state wine retailers face threat

WITHOUT CORRECTIVE LEGISLATION, CALIFORNIANS WOULD BE UNABLE TO BUY FROM OTHER STATES’ RETAILERS

NORTH COAST – California wineries have been able to sell directly to consumers in increasingly more markets nationwide in the past three years, yet the state’s wine lovers may find it more difficult to order directly from wine shops, auction houses and importers in Chicago, New York or anywhere else outside the state as of next year.

After the 2005 U.S. Supreme Court decision in Granholm vs. Heald on direct shipment of wine to consumers, the governor signed Senate Bill 118, allowing “winegrowers,” or wine producers with bonded winemaking facilities in other states, to obtain permits for shipping wine to California consumers.

But retailers were not included in the bill, so Knightsbridge Wine Shoppe near Chicago sued the Department of Alcoholic Beverage Control. The newly formed Specialty Wine Retailers Association brokered a deal in November 2006 to table the lawsuit and enforcement against out-of-state retailers for two years to allow time for legislation to be brought forward to resolve the situation.

“Thousands of Californians buy futures [for wines not yet released] from Illinois and New York retailers and importers,” and those purchases are now threatened, said Tom Wark, executive director of the association.

Without legislation, “virtual vintners,” or wine producers without winery licenses, as well as retailers and importers would have to establish a California location, according to Mr. Wark, noting WineMonger.com has done so recently.

No remedy legislation is pending, and Mr. Wark said legislators have been cool to introducing any.

The association has a similar lawsuit pending in the Sixth Circuit Court of Appeals regarding Texas law. Illinois recently allowed only bonded wineries to ship to its residents. Other groups are challenging retailer-to-consumer hurdles in Michigan and New York.

In other news in direct-shipping, Napa-based Inertia, which has developed a system for automating order handling and regulatory compliance through the three-tier system, now is more actively promoting its program for direct-to-trade shipping, commonly called self-distribution, to a dozen U.S. markets with seven pending, according to Kristi Taaffe, vice president of marketing.

Previously, Inertia offered wineries that use its REThink system for direct-to-consumer shipping the ability to ship wine directly to trade accounts that place orders online, starting with New York in December 2006. Later, the company invited certain wineries to participate.

Now, Inertia has bolstered its salesforce to promote automated self-distribution.

Currently, Inertia offers direct-to-trade shipments to Arizona, California, Connecticut, the District of Columbia, Florida, Illinois, New York, Ohio, Oregon, Vermont, Washington and Wyoming.

However, self-distribution legislation and litigation has been active since the Granholm decision and last year’s Costco case in Washington, according to Steve Gross, director of state relations for the Wine Institute.

Six states have effectively banned self-distribution, and more than a few of the 38 states that allow it do so under restrictions ranging from caps on winery production excluding larger wineries to use of some in-state grapes as in Georgia.