Thought I should share.
Wholesale Robbery in Liquor Sales
By DAVID WHITE
Published: April 3, 2011
IMAGINE if Texas lawmakers, in a bid to protect mom-and-pop bookstores, barred Amazon.com from shipping into the state. Or if Massachusetts legislators, worried about Boston’s shoe boutiques, prohibited residents from ordering from Zappos.com.
Such moves would infuriate consumers. They might also breach the Constitution’s commerce clause, which limits states from erecting trade barriers against one another. But wine consumers, producers and retailers face such restrictions daily.
Last month, Representative Jason Chaffetz, Republican of Utah, introduced a bill in the House that would allow states to cement such protectionist laws. It should appall wine snobs, beer swillers and even teetotalers. In this case, the law would protect not small stores and liquor producers, but the wholesale liquor lobby.
Like virtually all of America’s liquor laws, this proposal traces its origins to the temperance movement. When Prohibition was repealed by the 21st Amendment in 1933, states were given the authority to regulate the “transportation or importation” of “intoxicating liquors” within their borders.
States were allowed to decide whether they wanted to remain dry. As alcohol again started flowing freely, states either assumed control over its sale and distribution, or created a wholesale tier to sit between producers and retailers.
Before Prohibition, many bars were owned by brewers or distillers. Temperance advocates blamed these bars for some of the ills associated with drunkenness, and believed that keeping the producers away from the business of selling directly would help society.
Lawmakers hoped this wholesale tier would weaken producers. And indeed, the wholesaling industry grew quickly, as most alcoholic beverages had to pass through it before ending up at liquor stores, bars and restaurants. It was, essentially, a state-mandated middleman.
Today, wholesaling is big business. Together, the nation’s two largest wholesalers — Southern Wine & Spirits and Republic National Distributing Company — have revenues of about $13 billion.
A chunk of that cash is funneled to lawmakers. The National Beer Wholesalers Association maintains the nation’s third-largest political action committee, and since 2000, it has donated $15.4 million to candidates for federal office — about $5 million more than the A.F.L.-C.I.O donated in that time.
In the past decade, it spent $5.6 million on lobbying Congress; the Wine and Spirit Wholesalers of America spent $9.3 million.
The expenditures make sense. The wholesaling industry’s survival depends on maintaining today’s highly regulated system. It is estimated that because of wholesalers, consumers pay 18 percent to 25 percent more at retail than they otherwise would.
And in recent years, the industry’s dominance has been threatened.
Last year, the United States passed France as the world’s largest wine-consuming nation (in bottles, not yet per capita). America’s love affair with wine deepened in the early 1990s, when many people developed a preference for high-end wines and started ordering directly from producers.
Wholesalers didn’t like being cut from these transactions, so they pushed state lawmakers to prohibit “direct shipping.” Many did. By 1999, just 19 states allowed consumers to order wine from out-of-state producers.
But in 2005, the Supreme Court ruled in Granholm v. Heald that the 21st Amendment “did not give states the authority to pass nonuniform laws in order to discriminate against out-of-state goods.” Thus, lawmakers could prohibit out-of-state wineries from shipping into a state only if they were willing to block their own wineries from shipping out.
In the six years since, several states have liberalized their wine laws. But many restrictions remain.
Alabama oenophiles can order wine only from an out-of-state producer if they have received written approval from the state’s Beverage Control Board. Wineries can ship into Indiana and Delaware only to consumers who have visited the winery and made a purchase in person. In 37 states, residents are prohibited from ordering wine from online retailers or auction houses or even joining wine-of-the-month clubs.
The bill under consideration in Congress will make things even worse.
This proposal would allow discrimination against out-of-state producers and retailers if lawmakers can prove that such laws advance “a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.”
That means that if a state’s discriminatory liquor laws produce tax revenues, for instance, they can’t be challenged in court.
But instead of burdening consumers by foisting more restrictions on alcohol sales, lawmakers should free the market and expand consumer choice by scrapping this bill and letting wholesalers know that it won’t be considered again, as the commerce clause reigns supreme.
Nationwide, there are more than 6,000 wineries, and about 7,000 American wine retailers have Web sites. Wine clubs affiliated with newspapers (including this one), gourmet stores and even rock bands are taking off. Yet most Americans have access to only a small fraction of what’s available.
The wholesaling industry is right to be nervous. After all, consumers have shown that they will order directly from producers and specialty retail shops if given the chance. But that’s no reason to save an antiquated system that gives Americans fewer choices and makes them pay more.
David White is the founder and editor of the wine blog Terroirist.
