Commentary: Online Wine: Pull Out The Stopper
For years, California winemaker Terry Speizer put up with the shackles on his business. He was resigned to being unable to sell his pinot noirs and syrahs to nearly half the country because of restrictive state laws. But in 2000, he hit his breaking point. Michigan wine critics Ray and Eleanor Heald asked to review a pinot from his Domaine Alfred winery -- and he couldn't ship them one measly bottle. Michigan is one of 11 states that bar out-of-state wineries from sending bottles directly to consumers, while allowing in-state wineries to do the same thing. Soon after, Speizer and the Healds filed a lawsuit challenging Michigan's law. "It makes no sense," says the winemaker.
Now, Speizer is getting his day in the nation's highest court. On Dec. 7, the U.S. Supreme Court is scheduled to begin hearing oral arguments in his lawsuit and a similar suit from New York. These cases pit alcohol wholesalers and dozens of state attorneys general against wineries and online wine stores. The plaintiffs say the Constitution gives the federal government -- not the states -- the right to regulate interstate trade. Defendants assert that the 21st Amendment, which ended Prohibition in 1933, gives states the near-absolute right to regulate the sale of alcohol. This conflict between state and federal rights has existed for decades, but the advent of the Internet and the explosion of new wineries has put the issue front and center.
While there's merit on both sides, the Supreme Court should strike down the restrictive state laws. For starters, the legal arguments of Michigan and the 10 other restrictive states are questionable. In 1933, few wineries anywhere were shipping to customers. But since then, local wine businesses have proliferated, and these 11 states have created laws favoring in-state wineries. That's exactly the kind of discrimination the Constitution prohibits. What's more, lower courts have noted there are nondiscriminatory ways to protect states' interests.
In addition, there's little question that lifting state bans would benefit consumers and small wineries. That's true in those 11 states, and in 13 other states that ban all direct shipping. A 2003 Federal Trade Commission study found that direct shipping and online wine sales would "significantly enhance consumer welfare." One big reason is price. The FTC found that online wine sellers offer savings of 8% to 21% over brick-and-mortar stores. Another benefit is choice. There are 3,700 wineries in the U.S., but the lion's share can't reach many areas because traditional wholesalers can't afford to work with most small vineyards. Only 13.4% of California's 800 wineries had distribution in all 50 states last year, says the Wine Institute, an advocacy group for the state's wineries.
No question, there are reasons to be wary of direct shipping. Some state attorneys general and liquor wholesalers argue that opening a state's borders makes it easier for merchants to avoid sales taxes and for minors to drink. Indeed, states have struggled to collect taxes on out-of-state purchases, as online sales of books and autos have shown. Still, the wine industry has voluntarily agreed to remit taxes. And the states don't have to rely on blind trust. They could follow the lead of the 26 states that allow direct shipping by requiring out-of-state wineries to obtain licenses and report sales. The FTC report found that these "states report few, if any, problems with tax collection."
Underage drinking may be even less of an issue. A 2004 National Academy of Sciences study found that parties, friends, and strangers are the most frequent way kids obtain booze. Still, to deter underage drinking, the states that allow direct shipping require an adult signature upon delivery. That's not a perfect solution. But with vigilant enforcement, it's a reasonable option.
Let's hope the Supreme Court sees the wisdom of direct shipping. Then, more folks could enjoy vintages from Domaine Alfred and hundreds of other wineries -- and pay reasonable prices.
By Spencer E. Ante