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04.21.2010  
 

Outcry Over Attack on Direct Shipping

ANALYSIS: Wine consumers and wineries outraged, but beer distributors' bill is unlikely to advance

 
by Paul Franson
 
 
Mike Thompson HR 5034
 
Rep. Mike Thompson likened the surprise bill to "a poke in the eye" from a friend, but termed its enactment "a long-shot."
Napa, Calif. -- The latest volley in the fight against direct-to-consumer wine shipping by beverage alcohol wholesalers is raising enormous consumer interest fueled by social media tools. Spreading by “viral” marketing, objections to proposed U.S. House of Representatives bill HR-5034 are flooding the Internet and drawing condemnations from wine industry groups all over the country.

The proposed bill would reassert state control of alcohol marketing and stop lawsuits that challenge restrictions to direct shipping, making the Commerce clause of the Constitution subordinate to the 21st Amendment that ended Prohibition and gave states unique control of alcohol. H.R. 5034 would allow states to enact discriminatory shipping laws that favor in-state over out-of-state wine shippers without the burden imposed by the 2005 Granholm vs. Heald Supreme Court decision. If passed and signed into law, the bill would essentially overturn that landmark decision.

But is passage of the bill even possible? Rep. Mike Thompson (D-St. Helena, Calif.) says, “The bill isn’t going anywhere. Speaker Pelosi is on board (the opposition).” Thompson is co-chair of the Wine Caucus in Congress. Pelosi, like Thompson, owns a vineyard in wine country, and surely is aware of the bill’s potential consequences.

Ironically, the bill wasn’t sponsored by wine distributors and isn’t really concerned about direct shipping of wine to consumers, the greatest concern of the wine industry and wine lovers. It was written by the National Beer Distributors Association. Its effect on wine shipments to consumers is merely potential collateral damage.

Beer distributors aren’t concerned about direct shipping; few consumers would pay $40 to have a case of specialty beer shipped to their homes. The bill is about direct sales from producers to retailers -- particularly major chains like Costco or Wal-Mart -- bypassing distributors. That could have a devastating impact on distributors, who have huge political clout.

The bill is naturally supported by the Wine and Spirits Wholesalers of America as well as by the attorneys general of 39 states, which want to reduce lawsuits about the subject.

Likewise, though direct shipping to consumers is vitally important to many of North America’s 7,011 wineries (Wines & Vines IndustryBase), it’s of little concern to the three wine companies that produce half of the nation's wines, or even the 10 companies that produce 75% of U.S. wine. They get attention from distributors and have organized their businesses to profit from this channel. Even they might like to sell direct to chains, however, and litigation in Washington state and Texas has so far proved unsuccessful in achieving this aim.

Both Bronco and Kendall-Jackson have even established their own distributors to recover some of the markup. Wineries can sell direct to retailers in California, but few do.

Nevertheless, all major wine industry associations are opposed to the bill, and tellingly, so are Anheuser-Busch and Miller-Coors, as well as the National Beer Institute, the association of large brewers.

The bill was, ironically, introduced into the Courts and Competition subcommittee of the House Judiciary Committee, although it’s in favor of stifling competition. The bill seemingly came out of nowhere, and only Thompson and Rep. George Radanovich (R-Mariposa, Calif.) had an opportunity to testify against it. “It’s like you’re getting along fine with friends and all of a sudden, they poke you in the eye,” Thompson notes.

The next step would be hearings on the bill -- if they are to happen -- then a vote to refer the bill to the whole committee. If approved there, it would be scheduled for a vote in the House, a long path. A companion bill in the Senate would have to be introduced and follow a similar path.

As Rep. Thompson notes, it seems a long-shot, but he clearly values the consumer outcry against the bill. And it’s not wise to underestimate the power of the beer distributors.

The National Beer Wholesalers Association has contributed more than $15 million to congressional campaigns during the past 10 years, and is No. 24 on the All Time List of Top Donors To Congressional Campaigns according to opensecrects.org.

“There may be wineries in every state,” Thompson says, but “There are two or three beer distributors in every congressional district.” He points out that those distributors belong to the same clubs as members of congress, and their kids play on the same Little League teams. “Beer is a far bigger issue than wine or spirits.”

Wine industry groups and consumer advocates were caught unexpectedly by the bill, but are now mobilizing to fight it. Free the Grapes is organizing a letter-writing campaign and the Specialty Wine Retailers Association, whose members are even more affected than wineries, has launched a Facebook page, Stop HR5054 in opposition.
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LATEST READER COMMENTS
 
 
Posted on 04.22.2010 - 12:00:20 PST
 
Excellent article. Great explanation. This bill not only impacts direct shipping but also strenghtens the hand of wholesalers regarding franchise statues, credit terms, wine promotional activities, tastings, and everything else. In addition to California, the participation of industry members in other states will be crucial.
 
BK
 
Benicia, CA USA
 
 
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