Fine Wines and Wine Fines

Restrictions on interstate sales of alcoholic beverages turn oenophiles into smugglers.

Coffee. Condoms. Salsa. Socks. You can have the finest of each, delivered monthly to your doorstep, anywhere in the United States. In this era of niche marketing, it seems that anything you could possibly desire is just a phone call or mouse click away. Except fine wines--their availability is limited by your state's liquor laws.

Lately such laws have been getting tougher. Last year Kentucky joined Florida, Georgia, and Tennessee in making it a felony to ship alcohol across state lines for personal use. This summer Maine repealed its law allowing residents to order wines from states that afforded Maine businesses the same privilege. Now sending or receiving wine for personal use is a misdemeanor in Maine, as it is in about 15 other states. Bob Frohling, head staffer of a task force on the wine industry for the National Council of State Legislatures, expects more of these laws. "At least a third of the states will reintroduce felony legislation next year," he predicts.

The states' interest in all this is quite simple--money. In recent years, Frohling estimates, the mail-order alcoholic beverage business has taken in $500 million to $1 billion annually, about half of it in wine sales. The business is growing rapidly, with many wineries taking orders on the Internet and placing ads in increasingly popular wine magazines. That's a lot of untaxed commerce.

As a hangover from Prohibition, states have special authority to regulate interstate trade in alcoholic beverages. The 21st Amendment, ratified in 1933, immediately ended the federal prohibition of alcohol and turned the booze over to the states, declaring, "The transportation or importation into any state, territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."

About a dozen state governments have laws of the kind Maine recently repealed, allowing residents to receive small amounts of alcohol for personal use, provided the shipper's home state has a reciprocal law. But the practice has been outlawed in at least 20 states, including the four where both wine shippers and purchasers face felony charges if they dare to sell or buy a rare vintage not available at the corner liquor store. "We shouldn't be ranked up there with ax murderers, but I guess that's where we are," says Matt van Steenwyk, managing partner at Adelaida Cellars in Paso Robles, California. Many of Adelaida's customers have to cross their fingers and hope a nearby wine shop carries a selection from van Steenwyk's family winery.

The impetus behind the new laws isn't limited to revenue-hungry state governments. The classic coalition behind "blue laws" that ban liquor sales on Sunday consisted of Baptists, who didn't want anyone drinking on their day of rest, and bootleggers, who enjoyed windfall profits on Sundays. The Baptists are still around--most states with laws against direct alcohol shipments have a rich prohibitionist history. But the role of the "bootleggers," the people who benefit financially from restrictive laws, is now played by local distributors and vintners eager to limit competition.

Wholesalers and retailers don't like the fact that wineries can bypass them by selling their products directly to the consumer. Distributors typically portray restrictive laws as necessary to keep the tax base from eroding, since out-of-state wineries don't pay state taxes. They also play the child card. Rep. Leo Daughtry, a Republican North Carolina legislator and wine wholesaler, recently told the Raleigh News and Observer, "There's the idea of control [on the sales] to keep it out of
the hands of minors. With mail-order, you have no idea
who they're shipping to." But these purchases are made by credit card, and most states that allow direct shipping, as well as most wineries, require a signature from an adult upon receipt. Most delivery companies (it is illegal to send any alcohol through the U.S. mail) require age verification as well.

Daughtry supported (but, he insists, played no part in crafting) a law signed by Democratic Gov. Jim Hunt requiring anyone who ships wine to consumers in North Carolina to purchase a wholesalers license. Wholesalers must own, rent, or lease property in the state to get a license. The North Carolina Beer and Wine Wholesalers Association said the law was necessary because direct shipments have increased dramatically, encouraged by the convenience of Internet shopping.

A calcified, state-licensed system leaves little room for innovation. Two hundred years ago Thomas Jefferson tried unsuccessfully to start a vineyard in Charlottesville. In the past decade or two, however, resourceful and creative Virginians have been able to beat the hostile climate, and the Virginia wine industry is widely considered to be second in quality only to California's. But such experiments can't succeed if they can't find their market, and the ability of consumers to try new wines is limited by where they live.

Van Steenwyk cites Adelaida's Chenin Blanc as an example. Twenty years ago, "We called it Chenin Plonk. It was a terrible wine." Chenin Blancs were over-planted and cheaply made, and they earned a reputation as a bottom-end wine. Believing a Chenin Blanc made with care could be a great wine, Adelaida cultivated and fermented its own grapes. "We sent it out to our club, and now there are a thousand people who love this wine, who drink this wine," says van Steenwyk. "That never would have happened if I had to use the normal distribution channels." Adelaida, since it was willing to bear a risk comfortable distributors weren't, had a hit on its hands.

Van Steenwyk says mail-order wines "salt the mine," expanding the market and creating demand that wholesalers and retailers fill. Faced with more choices than ever, consumers looking for the right wine visit wineries, attend local tastings, and use the Internet and special-interest publications to gather information. With direct marketing and home delivery, retailers lose their chief advantage in serving their customers: convenience. To survive, they have to know their customers' tastes, keep abreast of the latest vintages, and stock and recommend appropriate wines. "The good ones can take care of themselves," van Steenwyk says. "They know their customers better than I do."

Small wineries like van Steenwyk's bear the brunt of the laws restricting interstate sales. "The big wineries could care less," says Dave Chesterfield of Gold Medal Wine Club. Van Steenwyk agrees. "The wholesalers don't get the deals from me and other small wineries," he says. "They get the deals from Gallo." Famous-name wines from large companies already have a sturdy distribution network. They are sold in grocery stores and wine shops throughout the country, so they don't need direct shipments to make money or make a name for themselves.

The resulting paucity of choices irritates wine aficionados like Clint Bolick, director of litigation at the Institute for Justice in Washington, D.C. "It's extremely frustrating that you can mail-order almost anything, but you can't mail-order your favorite wines," he says. "As with most other wine enthusiasts my tastes run to the small wineries. If there's no mail-order business, the odds of finding my favorite wines in a Virginia ABC store are virtually zero." It's the small wineries that are able to take risks on a premium Chenin Blanc. Large wineries, if they have guaranteed contracts with a distribution system that enjoys a near-monopoly, have little incentive to innovate--or to change the law.

Even medium-sized vintners, if they have alternative means of distribution, may not be hell-bent on deregulation. Louisiana, which used to ban all direct wine sales from out of state, now permits them if the winery obtains a license and pays taxes. But for Gloria Ferrer Champagne Caves, a 70,000-case-a-year winery in Sonoma, California, the paperwork and taxes "are more hassle than it is worth to us," says Tom Scot, the company's hospitality director. "I have other avenues, and this one isn't big enough for us."

It's not clear how effective the restrictions on interstate wine sales are. Although Scot is quick to say his vineyard ships "to the states only where it is legal to do so," and Bolick sometimes finds himself paying a premium to specially order wine through an ABC store, another Virginia wine enthusiast names two out-of-state wineries he still receives deliveries from. But he quickly adds, "don't mention us grateful Virginians if you speak with either of them." Neither winery is mentioned in this article.

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