© Fedex | Ultimately, the issue of direct shipping is all about retaining a slice of the pie.
Wine wholesalers won a battle in their fight against US wine lovers on Wednesday, as the Uniform Law Commission passed a model Alcohol Direct-Shipping Compliance Act that could make shipping wine more difficult and expensive.
This does not mean that ordering wine online from wineries will become more difficult overnight. But it does hand a powerful weapon to distributors. They deliver wine from a winery to retail stores, and get about 30 percent of the retail cost of each bottle you buy for doing so. Naturally they want to protect that cut, which they don't get if you order directly from wineries.
After my first story on this model act, I spoke with Aaron Gary, the Wisconsin attorney who drafted it. Gary wanted to correct some of my impressions about how the act came into being. We had a good discussion in which I got to tell him that as a California resident, I don't want my liquor laws designed by Alabama and Kansas –? because that is where an important provision of the act comes from. As a wine lover, I'm concerned about the act. It favors big wine companies and makes work more difficult for smaller ones. It treats wine like a dangerous product.
"It sounds like another idiotic move on the part of the large distributors to make life tough for everybody else," said Tom Gamble, owner of Gamble Family Vineyards in Napa.
But I do want to set the record straight about its genesis, with some more insider details.
Wednesday's vote was the end of a years-long battle at an obscure, well-meaning commission that was created in 1892 to help states create uniform laws, so there will be less variance state-to-state. The ULC's greatest hit is the Uniform Commercial Code, which sets rules for financial transactions. When the ULC creates a model Act, state legislatures can then decide to enact it, or not. A model Act by itself is nothing, but the Uniform Commercial Code was enacted by all 50 states.
Until 2019, the ULC stayed away from alcohol because the 21st Amendment, which ended Prohibition, specifically gave states the power to individually regulate alcohol. That year, Kentucky asked the ULC to consider creating a model act for spirits shipping. Currently, while 47 states allow some form of wine direct shipping, only 11 allow it for spirits.
Gary said the ULC researched spirits shipping for a year and decided it was too controversial. He said the ULC tries to avoid controversy. So the ULC decided to try to create a uniform wine shipping act, because every state's laws are different.
At that point, Gary said the Wine Institute stepped in and said it didn't want the ULC to touch wine shipping, because it fears that any model Act, when taken to state legislatures, will have little tweaks added in each state that will make wine shipping more difficult. The informal term for this is a "Christmas tree" act, with little gifts for interested parties like the Wine and Spirits Wholesalers Association (WSWA).
So the ULC decided instead to try to create a uniform bill for states to enforce each other's direct shipping laws. Gary said they thought that would be less controversial. He also said that the ULC thinks it will make direct-shipping easier because companies will have fewer sets of rules to follow.
"We thought the Wine Institute would support it because it would make things so much easier," Gary said.
In fact, the Wine Institute and WineAmerica, which represent wine producers, oppose the act, as does the National Association of Wine Retailers. Part of the reason is that they fear the "Christmas tree" effect.
But they also just don't like the model act as written. It's concerned with punishment and enforcement, especially regarding a little-known branch of the wine industry: fulfillment houses, which package wine for shipping. They are located around the country and they reduce both the cost and environmental footprint of ordering wine.
Gary said that six states require out-of-state fulfillment houses to get a license: North Dakota, Tennessee, Virginia, Kansas, Alabama and New Hampshire.
So, as I pointed out, Kansas and Alabama and the four others just got to write state alcohol laws for the rest of the country.
Gary told me that some of these states are worried about illegal product being shipped into their state. Is wine dangerous? I told him that I can get a gun shipped to me here –? true –? and that's a lot more dangerous than any bottle of wine.
© Washington's L'Ecole No. 41 | Wineries like Washington's L'Ecole No. 41 rely on fulfillment houses to complete their deliveries.
Order fulfilled
Now that the model act has passed the ULC, Wine Institute, WineAmerica and NAWR plan to fight it in every state that introduces it.
"The wine press hasn't noticed this. That just shows how stealthily this was done," said Michael Kaiser, vice president of WineAmerica. "It's just another way for the wholesale tier to try to curb what we've been doing legally for years."
The act treats fulfillment houses like a source of potential illegal activity. In fact, fulfillment houses are basically like an Amazon warehouse for wine: they expedite products for a lot of producers. Very big wineries don't need them; they have their own in-house operations. A small winery might ship few enough wines that it can handle the shipping themselves. But for a mid-size winery like Washington's L'Ecole No. 41, they're an essential part of business.
"We use a fulfillment house because we have 2500 wine club members," L'Ecole No. 41 owner Marty Clubb told Wine-Searcher. "You have different options in your wine club. It's a big effort to build all the boxes for a shipment. A fulfillment house does it for a lot of wineries and they're staffed up to do it. We used to do it by ourselves but the heartburn was so intense."
Gamble said fulfillment houses are better for the environment because they consolidate and shorten shipping routes. They're better for customers for the same reason. Wines can go from Napa to, say, an Illinois fulfillment house in a climate-controlled truck full of wines from other wineries, and from there to customers closer by, rather than bouncing across the country one-by-one in un-airconditioned FedEx or UPS trucks.
It's worth noting that if you are in Indiana and order a wine from Napa, the Indiana tax on that wine is supposed to be paid by the winery, where the transaction occurs. The fulfillment house is just a warehouse; it doesn't make the sale and it doesn't deliver the wine itself.
"The consumer is starting to get from these facilities more Amazon-like package tracking," Gamble said. "This gives more confidence that the package is going to arrive in good shape. It also allows you to place an order on Thursday and have it on Friday, and not have it stuck in some place that's not temperature-controlled over the weekend. If the wines are stored in New Jersey, an East Coast consumer is paying for shipping from New Jersey instead of shipping from California. What these services are offering is a better experience for the client. I don't see who the winners are in any of this besides lawyers. Losers are just about everybody, including the consumer and the environment."
Drawing battle lines
Harry Tindall is one of the ULC commissioners from Texas. He voted no on the act.
"The argument was made that states cannot track the direct sale of wines that pass from maker to consumer because they pass through facilitators. That they need to be registered in the states where they send the wine," Tindall told Wine-Searcher. "I think it's a ruse. Number one, if wine is going to a state, what is the right of that state to regulate these distribution centers located in other states? None of these distribution centers that I'm aware of transport the wine directly to consumers. The wine is being delivered into the state by FedEx, not by these distribution centers.
"My fear is the states will start imposing punitive fees on these facilitators," Tindall said. "Tennessee almost passed a USD$10,000 annual fee for these distribution centers. Wholesalers were behind it. They would like to kill off these facilitators. Wholesalers hate direct sale and they'll do anything they can to stop it."
WineAmerica's Kaiser said that his organization and others now have to gear up to re-fight some battles that they thought they had already won.
"We've gotten all these laws passed that have opened up states I never thought we'd get open, like Alabama and Kentucky," Kaiser said. "Now we've got almost the whole country to allow some form of DTC (direct to consumer) shipping. This is just an attempt to get around that. The fulfillment house debate is the next level of DTC debate. A lot of this is really arcane. What seems innocuous on its face is often not."
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