Historic Clashes in the Wine Industry

The wine industry is facing historic changes that may either help it modernize or stay hopelessly stuck in the past, tied to the Three-Tier system and policies created a century ago. Unlike any other time in recent history, we are staring at a seismic shift as retailers and wholesalers clash and fight with craft producers over the right to sell. If they all stood back a little and considered that all the success is dependent on the consumer, then the overall market could grow. Standing still saying “well it worked for many years” is not how a market and country progress. Does the U.S. really want to be left behind as modern economics move forward?

President Biden’s executive order and the Treasury Department’s corresponding report issued earlier this year called for more competition in the beer, wine, and spirits markets and have created a national conversation that, over time through its regulatory process, may slow or stop the consolidation of major beverage companies and vastly improve conditions for small, independent producers - starting by identifying what has historically held them back.

“Some of the laws and regulations, both state and federal, may impose a disproportionate burden on small and medium-sized producers without corresponding justifications based in public health or the prevention of anti-competitive behavior,” says the Treasury Department’s report. “Some of the rules in question include labeling preapproval requirements, bottle size restrictions, mandatory classification of beverages, and complex application requirements to qualify for a permit to produce alcohol.” It does work well for 1% of the wine producers, but is a crushing burden on the other 99%.

On the other hand, the Uniform Law Commission’s recommendations in the Alcohol Direct-Shipping Compliance Act would, if they listened to the wholesalers, have dangerous impacts on small producers, killing any wineries that produce less than 5,000 bottles annually. If adopted by state legislatures, the policies impose devastating regulations for craft wineries throughout the nation. The U.S. is a “free market” and because of this you need a healthy craft business structure, and with a modern economy it allows them the same capabilities of the large producers to level the playing field.

Now out of date, the “Model Shiping Bill” was created in 1997 as a great compromise to help modernize the economy with the use of technology. It needs updating for the few states that remain blocked to direct shipping. For example, there is no place for monthly quantity limits (doesn’t happen in a retail store), dry areas don’t mean you cannot drink in your home, so neither should shipping directly to your door be impacted by this. Also, there was never mention of fulfillment facilities or drop shipping of orders.

Modern technology allows regulators and producers to track an order electronically from the second it is purchased to the second it is delivered. Reports can be filed electronically to make the process efficient and in 2019 most states adopted Marketplace facilitator laws to simplify sales tax collection. As with so many industries, the Internet has great promise to transform the wine industry.