State Liquor Control Boards Attack Innovation – legislators stand and watch!

Quite interesting really that millions of dollars of wine ships illegally around the country, if it did not many of our small producers and retailers would struggle more than they do already. Ironic as it is, by not having licenses to ship there is little anyone can do against these shippers. Now if they get a license and make a minor error then the regulators come down on them hard and heavy. A permit system is okay so as to control who gets to sell wine and have a mechanism for collecting taxes, I acknowledge this is not coffee and so some control is required, but not a mandated sales route.

When studying the current regulations you find they are very antiquated and you see that they were set up originally for the mass movement of wine via the three tier system. A truck of product moves from California to Indiana and then gets distributed from there. However, when those rules were set no one considered the likes of FedEx or UPS and there ability to carry small quantities economically by moving many small packages at the same time. Also, it was unfathomable that “Joe or Jane” in North Carolina would want to buy one or two bottles of Pinot from California. The current regulations need to be updated to allow these small transactions take place in an efficient manner. The idea of having to go to a retailer for a special order and have them request a wholesaler to buy the two bottles, ship it to the wholesale to the retailer and then to the consumer is very inefficient, costly and has a huge carbon footprint.

Now some businesses have set up “networks” to do this and have different bank accounts to hold money in trust etc. – you have to question the necessity to do this to work around the rules, kind of smells to me - not their fault they are just trying to help or are they?

Now here comes the internet that allows a super highway of efficiency to be applied to the process and as it is all bits and bites everything can be tracked in detail. However, technology bumps in to the old regulations. The last ten years has left a stream of bodies and walking wounded because the regulators have not kept pace with the markets.

As can be seen by the latest pronouncement by the CA ABC – the regulators are trying to stifle innovation but are trying not to take the blame and saying it is the legislators that need to make the changes. The teeth behind the regulators as they cannot go after the unlicensed sellers, is they are going after the wineries with rather nasty and threatening letters – wineries beware!

Of course at the same time you have certain industry associations campaigning against change through false statement such as more wine will get in to the hands of minors, or we collect taxes in an efficient manner etc. Funny though, if you look to the enforcement side of the ABC’s you find that their “bread and butter” income is from violations for serving minors – this is not from the internet but via the three tier system as it stands today.

There are some very old rules still in existence and as many wineries and retailers will say if anyone approaches this industry and applies common sense to it, they will fail, because the legislators and regulators obviously do not apply common sense to the processes.

What is the industry to do? As long as the states keep any organization whether it be the Wine Institute or the Family Winemakers of California fighting on a state by state basis, very little progress will be made. Should this be settled at the Federal level?

The progress that these organizations covert themselves with is also questionable. They definitely have had an impact and if you are a large winery with lots of resources then compliance is not as big an issue. If you are one of the majority of wineries under 5,000 cases a year then a nightmare of regulations has been created.

Many sellers have statements such as this:

“We Can legally ship directly to customers in the following states: AK, AZ, CA, CO, Ct, DC, FL, IA, ID, IL, IN, LA, MA, MI, MO, NC, ND, NE, NJ, NM, NV, NY, OH, OR, VA, WI, WV, and WY. All wine is sold in California and title passes to the buyer in California. We make no representation to the legal rights of anyone to ship or import wine outside of California. The buyer is solely responsible for shipment of wine.”

Sad that this kind of thing takes place – the selling state benefits because they get to collect some taxes but the receiving state misses out completely.

Why is it that our legislators are so passive in making changes and bringing the industry up to modern times. It is not going to create the collapse of the three tier system, you still need distributors and always will as long as retailers/restaurants want a single point of supply – this we all get. But that should not be the driver to stop innovation.

We have recently seen major innovators in the industry either blow up or change direction and others based upon published numbers demonstrate how fast innovators can loose money as they struggle around the regulatory issues . But again where are the legislators?

All States are loosing significant amounts of direct revenue and indirect revenue as their domestic wine industries are being limited in their growth.

If you look across the various States you have terms such as “bump the dock”, “come to rest”, “possession”, “passing of title” etc. that get in the way of this industry. All other industries allow drop shipments from the producers, that’s just how our economy works. Title passing and credit offered is a way of business, without it the economy crumbles, to say an iPod changes hands the moment it ships is okay but that a bottle of wine changes hands only when it is physically picked up by the buyer is strange and the lack of credit - what is with that, it should be sellers choice? The utilization of technology makes tracking and auditing of transactions much easier today.

Many industries typically have some form of distribution channel but states do not get involved with who sells to who, what price they charge, what payment terms they have, who ships the product.

What is the industry to do? Where are our legislators and what are they going to do to help build the industry? Who benefits really from these restrictions, the consumer does not (loss of choice), the state does not (loss of taxes), the winery does not (loss of sales, restricted growth), then who?

I believe our new President and the First Lady have quite a taste for wine – do they really know what the small winery has to go through or the restrictions that are being put on innovation? Someone needs to bring this to their attention as well. If we can bail out the banks with billions of dollars, then we can change a few rules and let an industry flourish – natural economics of supply and demand will keep the market in check.

This message should be the starting point, those bloggers out there that have a large following, take up the discussion with your followers, those in the press start looking in to this issue and get articles out there, the people do have the power to change and with the economy as it is, ideas for change is what our country needs. Spread the word, get the attention the industry needs rather than worry if a wine got 89 or 90 points – what does that matter if we cannot purchase or sell the wine?

The Anonymous Vino Blogger