"A bottle of wine contains more philosophy than all the books in the world." Louis Pasteur, French scientist, 1822-1895.
Will you buy wine online?
The recent Supreme Court decision in the New York and Michigan cases on interstate shipment of wine brings that question into focus along with many others. Michigan and New York had their existing law overturned because they allowed in-state wineries to ship to consumers, but blocked shipments from states like Virginia. The 24 states that have similar laws have been put on notice: in-state and out-of-state wineries must be treated the same under the law.
In New York, Governor Pataki has already proposed the adoption of new legislation that would permit such shipping, and the state legislature is gearing up for a major fight on the issue. His proposal follows closely the Model Direct Shipping Law of the National Conference of State Legislatures, Task Force on the Wine Industry (seewww.freethegrapes.com for the text). With a growing $500 million dollars per year, New York winery industry on one hand and the established distribution system and retailers on the other, fireworks are expected.
In Indiana, where in-state wineries have shipped to consumers for 30 years, a letter was sent to Indiana wineries by the state reminding them that it was a misdemeanor for them to make such shipments. Indiana bans shipments from out-of-state. This appears to be a reaction to the Supreme Court decision by the authorities, and the winery owners are upset by the potential loss of business.
State governments speak of loss of sales tax revenue and the potential abuse of alcohol if purchased by minors. Existing distributors and retailers are reluctant to see the system altered, feeling that their income will be threatened.
What does it all mean?
One thing is certain: change is coming. The exact nature of that change, and who it will benefit, is not yet clear.
I believe the states will not lose out on tax revenue. One way or another, the laws will require the shipper to collect the tax. I also believe that requirements for adult signatures on delivery and the added shipping costs will make the issue of underage purchasers a small one, probably far less of a problem than the current situation in local retailers.
Small wineries have long railed against the system. Large wineries have the wherewithal to take advantage of the existing three-tier distribution system, but small ones do not. They feel artificially shut off from their customers by the regulations. They feel they will lose the opportunity for follow-up sales because of unfair laws.
I can testify to that. We once found a winery we liked while traveling to a wedding in West Virginia. We were delighted, and came away with a case of wine. We would order more now, but the winery is hundreds of miles from our home and their wine is unavailable in stores here. If there were an easy way to do so, we might well order from them once or twice a year.
But with opportunities come challenges. The laws require reciprocity. If Virginia wineries can ship to New York consumers, then New York wineries can ship to Virginia as well. Competition can be both good and bad for a business, and wineries will be no different. It is unlikely that consumers will be ordering mediocre wine this way, and there are many good alternatives available once restrictions are lifted. The opportunity to market a good wine and keep those casual customers who visited once will be there. So will the opportunity to lose customers to far-off wineries who make superior wine.
I believe, when all is said and done, the effects of the changes on wineries will seem small. Some will take advantage of the opportunity and prosper. Some wineries, particularly small wineries, will not and will see little difference. Consumers will have more choice, but buying patterns will only change slightly. Collectors and those who must have the latest hot wine will thrive on it, but that is really a sliver of the market. Most people will continue to drop by their local retailer when they need a bottle or two for dinner. The cost of shipping and the convenience of a local store will mitigate against great change here.
I do believe there may be a profound change on the retail and distribution side. If standardizing the laws and ensuring fair and free trade between the states comes about, I think there may be a move to a different type of competition here. Internet retailers have tried to crack the wine market for years, with some success and noted failures. The conflicting laws and regulations impose costs those companies would dearly like to see lifted so that they can market in new areas and compete more effectively on price.
You can see some of these Internet retailers on the Weekend Winery site: wine.com, Prime Wine, 800wine.com, Wine Messenger, etc. (Note: these are sponsored links; we receive a small commission on any purchase you make after clicking from our site.) If you try to order wine from any of them, you will often be annoyed by restrictions on what is available in which state, or totally blocked from shipping to your home address if you live in the wrong state.
Some of these would be fierce competition for local retailers. Some local retailers would like the opportunity to compete with them. For example, Governor Patakis proposed law in New York raised a squawk because only wineries would be allowed to ship out-of-state. Retailers with an eye on expanding their business objected. I am sure they see chance to grow their own businesses by providing a service, and do not want to be cut out of the deal.
Wineries might profit from this. A retailer might be able to represent many local wineries, handling all the shipping and documentation requirements that would otherwise be burdensome to a small winery operation. The winery gets increased representation to a wider market, less hassles, and can concentrate on making his wine. The retailer gets specialty items, volume, and a repeat market. Competition rewards those who provide the best service and benefits, so there will be some winners and losers here, unknowns appearing from nowhere as well as existing giants attracting new business.
Another area I believe is primed to profit here is the wine club. Always popular, they also will be able to expand their markets as the laws standardize and regulations become simpler. As restrictions ease, they can market to more and more people, offering their selections to new states. The Internet is an ideal vehicle for such organizations to use, avoiding the high costs of traditional advertising.
So will you buy online? Probably you will, but only for a portion of your purchases. Convenience will still send you to your local store for many purchases, but special bargains and access to a wider spectrum of offerings will also bring you to the Internet for special buys. The future is coming it just is not here quite yet.
Last modified: August 07, 2007