About a month ago, prompted by an email exchange I had with Representative Kevin McCarthy, I wrote about HR 5034, a bill introduced into the U.S. House of Representatives by the beer and wine wholesalers associations that would, among other impacts, likely restrict or eliminate out-of-state winery direct shipping.
In the month since I posted, the political process continues to move. On the positive side, I joined a group of local wine community delegates for a reassuring meeting with McCarthy, and he provided his clearest statement yet of opposition to the measure. I also received a positive note from Senator Diane Feinstein, and many of the country's major newspapers have come out against this bill.
But the bill remains a threat. Proponents of the bill continue to sign up co-sponsors, and are up to 106: almost exactly one-quarter of the 435 members of the House. And from what we've learned from our elected representatives and from the reporting that the media has done, this is a long-term effort by the wholesalers and we're only seeing the first salvo.
A good meeting with Kevin McCarthy
Perhaps the most positive development over the last month came in the form of a reassuring meeting with Kevin McCarthy. Within a week of my last post, he had reached out to set up a meeting with a delegation of vintners from his district (which includes the Paso Robles and Edna Valley wine regions). By the time of the meeting, he had clearly made the effort to learn what was behind the bill and was well-informed as to the potential consequences to wineries should it pass. He reported that the beer and wine wholesalers associations were making a major push behind the bill, and that he'd been visited by lobbyists for both groups to try to recruit him as a co-sponsor (he declined).
He also made it clear that he felt that wine was a fundamentally different business than beer and liquor, as the experience of visiting a winery, and the necessary requirement that wineries be able to ship their products to these new customers, drove a different business model. I don't see it that way; I believe that any producer of alcohol -- whether they be a craft brewer, a distiller or a winery -- should be able to sell their product to any interested customer of legal age. And I believe that the type of alcohol is irrelevant to the logic that the Supreme Court used to overturn discriminatory wine shipping laws. But it does hint at a way that he can try to split the difference between explaining that he's not against the three-tier system while still protecting an important local constituency.
I found most interesting his analysis that winery shipping is not the principal focus of the wholesalers' efforts. Sure, most of them don't like wineries shipping direct and cutting out the wholesaler tier. But they recognize that due to economies of scale, consumer-direct shipping of wine is never going to be sufficiently widespread to make a serious dent in their profits. What they're more worried about is the threat from larger retailers who can use the Supreme Court's logic to argue that they should be able to buy direct from producers, or from wholesalers in other states. Consider Costco's 2004 lawsuit in Washington State, where the nation's largest wine retailer attempted to become, in effect, its own distributor (it lost in the 9th Circuit Court of Appeals).
McCarthy also gave us his opinion that the bill, despite its relatively large number of co-sponsors, didn't seem to have a lot of momentum in the House. First, he said that the Democratic leadership, including Nancy Pelosi, was squarely against it, and he didn't think it would make it out of committee. Second, he thought that the House had so much other business (we all interpreted this, correctly I think, as "other more important business") on the docket that it seemed a long shot to make it to the floor this session.
When we left the meeting, all of us felt better, although we didn't get a declarative statement from McCarthy on his position. We've been following up with his office for the last months to receive one, and are told it's in the works. So, it was very nice to read last week that he told the Wine Spectator's Rob Taylor "There are over 200 wineries in the 22nd Congressional district, and I am always concerned about legislation and regulation that would negatively impact such an important part of our local economy. I met with a diverse group of wineries about H.R. 5034 recently, and smaller wineries, especially, told me this legislation would negatively impact their ability to sell to their customers directly, and I will continue to support their right to do so."A nice note from Diane Feinstein
When I used the great email generator that Free the Grapes built using CapWiz (http://www.capwiz.com/freegrapes/issues/alert/?alertid=14948676) to send an email to Kevin McCarthy, I decided that it couldn't hurt to also send messages to our senators Barbara Boxer and Diane Feinstein. I haven't heard from Senator Boxer yet, but received a nice note from Senator Feinstein last week. After giving a little background on the circumstances in which she feels the federal government should supersede state laws, she continues:
I have long supported the ability of wineries to ship directly to consumers. Direct shipping enhances consumer choice and can be an important market for small, niche wineries - many of which are located in California.
On April 15, 2010, Representative Bill Delahunt (D-MA) introduced H.R. 5034, the "Comprehensive Alcohol Regulatory Effectiveness Act." This legislation would declare that it is the policy of Congress that each State or territory shall have the primary authority to regulate alcoholic beverages and that state alcohol regulations shall be accorded a strong presumption of validity when they are challenged in court. I understand your concern that this bill could allow states to discriminate against or otherwise limit direct-to-consumer shipments from local wineries in California to out-of-state customers.
H.R. 5034 has been referred to the House Committee on the Judiciary, and companion legislation has not been introduced in the Senate. Please be assured that I will keep your concerns in mind should this bill or related legislation be considered by the Senate
It seems clear that she would fight a bill similar to HR 5034 were one to be introduced into the Senate.Recent developments
Perhaps the most important development in the last month has been the engagement of the wine press. A number of major media outlets (including the New York Times, San Francisco Chronicle, Washington Post and Wine Spectator) have written articles on HR 5034, all of them critical of the bill. A Web site (http://www.stophr5034.org/) and a Facebook campaign have been created.
For all that, I still don't think that either the general public or the winery community is sufficiently engaged on the issue. The Facebook campaign has gathered 13,000 adherents in a month, which is only a tiny fraction of the wine drinking population in the country (or, for that matter, a tiny percentage of the wine club membership population in the country). Most wineries I speak to have not yet sent out alerts to their mailing lists and wine club membership, and don't have anything posted on their Web sites. Most consumers I speak to are at best only vaguely aware of the bill. While wineries and consumers remain unengaged, the wholesalers' lobbyists keep working, and the nearly $15 million that the wholesalers' associations have donated to national campaigns in the last decade guarantees they have access. The number of co-sponsors has doubled in the last month, and more are signing on each day.
I guess it's nice to know that the wholesalers' associations didn't specifically target the small winery community with this bill. Still, it's clear wholesalers would be fine with a law that would put a significant number of wineries out of business as long as they maintained their cut of the sales to big box stores. And make no mistake, the risk is real. We calculated that at Tablas Creek 21% of our revenue last year came from wine we shipped to consumers outside of California. I am sure that for many small wineries losing 20% of their revenue would mean financial ruin.
I urge wineries to continue to spread the word to their customers, and consumers to suggest to the wineries who they patronize to do so. And everyone should be speaking to their elected representatives. As always, Free the Grapes is a great place to start and has the tools to make this all easy.