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Our crazy state alcohol laws: a farce in nine acts

You probably don't need me to tell you our alcohol laws are often crazy. But, well, our alcohol laws are crazy, particularly if you look at the state and local level.  The national level, for what little it has to do with alcohol, tends to be positive, like the Granholm v. Heald decision that helped reduce protectionism and create a more level playing field for American wineries.  State alcohol laws shelter behind the 21st Amendment's protection -- written in the aftermath of prohibition -- that gives them broad leeway to write laws to suit their local mores about alcohol.  Of course, that protection, which was intended to allow states or counties to remain alcohol-free, has allowed powerful constituencies to write protections for themselves into their state's alcohol legislation. The results can be frustrating, infuriating, unexpected and even funny.  Here are a few favorites:

  • Minimum markup laws.  In Ohio, retailers and wholesalers are required by law to mark up wine a minimum amount: 33% at the wholesale level, and either 40% (on cases) or 50% (on individual bottles) at retail.  Written into the law is a remarkable justification: "to prevent abuses caused by the disorderly and unregulated sale of wine ... prevent aggressive sales practices that improperly stimulate purchase and consumption ... discourage intemperate consumption of alcoholic beverages ... eliminate discriminatory sales practices that threaten the survival of wholesale distributors and retail permit holders". The admission at the end is breathtakingly honest: that "the survival of wholesale distributors and retail permit holders" is a goal of the legislation.  Typically, price competition -- the foundation of the capitalist system -- is protected, not labeled a "discriminatory sales practice".
  • Price posting. Many states require that wine wholesalers post the price at which they're offering their products, and then enforce with varying degrees of rigor that no customer is given preferential treatment. In New York, for example, you are required to post the price that any licensee will pay for your wines.  You are allowed (expected) to offer a better price if someone buys 2 or 3 or 5 cases than if they buy just one. In Oregon, wholesalers are required to post prices per bottle, and are not allowed to offer discounts on quantity (or to charge extra to deliver purchases of just a few bottles).  On the other hand, they're also not allowed to extend credit, so they receive payment at the time of delivery.  That helps with the cash flow problems created by all the tiny deliveries!
  • Franchise laws.  In some twenty states (AR, CT, DE, GA, ID, KS, MA, ME, MI, MO, MT, NC, NM, NJ, NV, OH, TN, VA, VT, and WI) once you've chosen a distributor to represent you, you cannot leave that distributor and move to another even if they perform badly, lose their key personnel, or are purchased by another firm. There are in some cases exceptions to these franchise laws -- or review boards to which you can appeal with cause -- but in every case, it tilts the balance of the playing field even further toward the state-licensed distributor.  I wrote about this at length last year in the article the costs of state alcohol franchise laws.
  • The Johnstown Flood Tax.  In Pennsylvania, which sells all its wine and liquor through state-run stores, all alcohol sales are assessed an 18% tax earmarked to pay for repairs from the Johnstown Flood.  Which happened in 1936.
  • Wet, dry and damp counties.  In Texas, like much of the south and midwest, there are counties that are "wet", where alcohol may be sold.  There are counties that are "dry", where it may not be sold.  But there are also quite a few counties where wine may only be sold if it is 14% alcohol or less.  I remember doing a presentation to our sales team there and having many of the reps making notes on which of our wines they could sell, and which they couldn't because those wines were on the wrong side of the 14% law.
  • State control.  In Wyoming, you are not allowed to sell a wine without being with a state-licensed broker.  And by sell, I mean talk about.  You aren't really selling the wine anyway; the state of Wyoming is the only licensed wholesaler.  But their job pretty much stops at warehousing and delivery.  If you want to help convince the local retailers and restaurants that they should ask the state of Wyoming to deliver your wine, you'd better be with someone with a license.  Same thing in a few other states.  Want to pour wine at a festival in Maine?  You'd better get the state license.
  • Direct shipping protectionism.  The arcane barriers to direct shipping, nearly all erected to protect wholesalers but couched in language about encouraging responsible alcohol consumption or ensuring the collection of tax revenue, could fill a post by themselves.  There are still roughly a dozen states that effectively prohibit all wine being shipped in, but (like with dry counties) that's a choice. The ones that get me are the inexplicable ones, like Maine not allowing us to ship half-bottles there (minimum size: 750ml). Or states like Rhode Island, South Dakota, Arizona and Delaware that allow us to ship wine if the customer makes an in-person purchase here, but not if they pick up their phone and call us, or want to order online.  Or those with bizarre or minimal limits per month or year, like South Dakota's limit of 5 bottles per shipment, Texas's limit of 46 bottles per individual per calendar month, or Wyoming's limit of 2 cases per household per year.  Or (and this starts to go from ridiculous to serious) those with capacity caps, the distributor lobby's wedge issue of choice at the moment. Arizona decided that wineries that produce fewer than 20,000 gallons per year -- conveniently, just above the size of Arizona's largest winery -- can ship to consumers, while larger wineries like us can't. These encroachments and others like them will get increasingly onerous unless people stand up. Free the Grapes is a great place to start.
  • Sampling restrictions.  In Vermont, you are not allowed to sample multiple accounts on a single bottle of wine.  In fact, you are not allowed to bring a sample of wine into a licensed establishment.  If you, as a winery or distributor representative, want to show a wine to an account, you have to convince the account to buy the wine from the warehouse, then you have to buy it from the establishment, open it and taste it with the proprietor, and then repeat the same process at each stop in your work day.  You can imagine how well this works.
  • Massachusetts.  Finally, we'll devote a paragraph to the Commonwealth of Massachusetts, which passed a direct shipping law so obviously anticompetitive -- the sponsors explained in the legislature, during the debate about the law that the law's limits were set so as to allow all the in-state wineries to ship to consumers while prohibiting as many out-of-state wineries as possible -- that a federal court declared it unconstitutional. Of course, this declaration was moot, because the law also contained a clause making the common carrier (think UPS or FedEx) liable if they delivered a shipment to a consumer in excess of the 26 cases/household/year aggregate limit.  Think about this.  The carrier is supposed to know whether or not this customer has bought more than the aggregate limit already that year, that could have been delivered by another carrier.  Even before the law was invalidated, both UPS and FedEx announced that they wouldn't accept any shipment bound for the state, and now, four years later, nothing has changed, though there's a glimmer of hope, as the Massachusetts House of Representatives passed a budget that includes reasonable wine shipping provisions.  It's now awaiting action at the state Senate.  If you live there, or know any wine lovers who do, there's a template at Free the Grapes that will help you ask them to move it forward.

Perhaps the most surprising thing from my perspective is the degree to which the restaurants, retailers and consumers in these different states accept the status quo.  Nearly all of these laws enrich some entrenched interest at the expense of the consumer.  Wineries, restaurants and retailers are often collateral damage.  As much fun as this craziness can be, I, for one, would like to order a little sanity.  But I'm not holding my breath.

Game Theory, the Prisoner's Dilemma and... Winery Membership Organizations, Part 1

Game theory describes a branch of science at the intersection of economics, psychology and mathematics which explores models of interaction between rational actors, seeking to explain why and when these actors (be they individuals, companies or even nations) will choose to cooperate or to betray each other.  Many of these games are iterative, a fancy way of saying that they happen again and again, like many actions in life, where the actors can learn from their previous actions and the previous actions of their competitors.

One of the classic examples of game theory is the prisoner's dilemma.  Imagine the situation where two co-conspirators are arrested on light evidence, and each independently offered the opportunity to inform on the other in return for escaping jail time.  If neither chooses to inform, the prosecution doesn't have much of a case and so both get light sentences (say, 1 year).  If both choose to inform, both get moderate sentences (say, 3 years).  If one chooses to inform and the other doesn't, the one who informs gets no jail time, but the one who doesn't, and sees his co-conspirator testify against him, gets 5 years.  You can set up the four possible actions in a grid:

 A TestifiesA Stays Silent
B Testifies A gets 3 years
B gets 3 years
A gets 5 years
B gets 0 years
B Stays Silent A gets 0 years
B gets 5 years
A gets 1 year
B gets 1 year

At first glance, the actions that the actors should take in this game seem pretty clear: whatever one prisoner does, the other comes out better if he testifies, serving no time (vs. 1 year) if the other person stays silent, and 3 years (vs. 5 years) if the other prisoner testifies. And yet the best outcome for the duo happens if both behave irrationally (or perhaps trustingly) while the worst outcome occurs when both behave rationally (or self-interestedly).  Real-world applications of this abound, from arms reduction treaties to curbs on greenhouse gases to the production of individual countries in the OPEC oil cartel.

Graphic courtesy Wikimedia Commons, which has a great interactive Prisoner's Dilemma
example -- from which the screenshot above was taken -- here.

How is this applicable to wine associations?  I'm happy you asked.  I've been spending a lot of my time thinking of this recently thanks to my positions on the board of directors of two organizations: the Paso Robles Wine Country Alliance (PRWCA) and the Rhone Rangers.  In both cases, I believe that the organizations provide a valuable service to their members, but there are significant free-rider problems that discourage membership.  Think about it this way.  If the Rhone Rangers is successful in its marketing and makes Syrah easier to sell, all Syrah producers benefit, not just the ones who are members.  Similarly, if the PRWCA is successful in its promotion and brings more people to area tasting rooms, or raises the profile of Paso Robles so its wines sell better off retail shelves and wine lists, any Paso Robles winery will benefit, whether or not they have paid their membership dues.

And the dues, for the PRWCA at least, are not cheap.  We've had two important local wineries drop out of the alliance this year, each saying that they were going to reallocate their marketing dollars to efforts that more directly benefited their bottom lines.  These decisions shot a significant (though not crippling) hole through the PRWCA marketing budget.  Were the wineries behaving rationally?  Actually, yes, they almost certainly were, though if their behavior was generalized everyone, including them, would be worse off.  It's a prisoner's dilemma-type example!

The main reason that wineries band together is to gain efficiency with the money they spend.  It's generally accepted that an advertising campaign gains efficiency with repetition and with consistency.  So, a single marketing campaign, well targeted and well run, is typically more effective at driving behavior than ten different advertising campaigns each one-tenth the size of the original campaign.  And the PRWCA gains additional efficiency because of its expertise -- unlikely to be found in-house at any individual winery -- both because of the people running it (thank you, Jennifer Porter) and because of the outside consultants it is able to afford.

Let's look at an example that will require a little math. I'll round the numbers to help them make sense, but it doesn't really matter what the numbers are: the conclusion still holds, as long as we agree that wineries are unlikely to be as efficient spending individually as the group would be spending their money in a coordinated campaign. For ease of calculation, I will assume that there is a 50% loss in overall spending efficiency when a winery splits their money from the group's to spend it individually.  And we'll round numbers to 200 wineries, with a contribution of $5000 each (leaving a total budget of $1,000,000).  I'll look only at the power of advertising to drive people to local tasting rooms, and assume that each visitor makes 5 tasting room visits when they're in town, and assume that the PRWCA gets one person to make the decision to come to town for each $5 they spend.

OK, back to specifics.  Let's look at the impact of the PRWCA's spending of $5000 -- one winery's portion of the total budget -- as a part of their master marketing campaign.  This $5000 brings 1000 customers into town.  These customers make 5 visits each, or 5,000 visits total, split among the 200 wineries.  Each winery receives 25 of these tasting room visits. 

Now, let's look at the scenario where Winery X takes the $5000 that they were going to give to the PRWCA and reallocates it to running radio ads in Fresno, Bakersfield and Orange County.  This advertising is only 50% as efficient as the PRWCA's marketing, so the winery might expect to pay $10 per customer (double the PRWCA's cost).  But the people that this advertising drives to Paso Robles will all start at Winery X's tasting room.  So they get 500 visits for their $5000.  Other tasting rooms in the region still benefit, as these visitors make on average 4 more visits to other tasting rooms when they're in town.  But those 500 customers, who make their additional 2,000 total visits to other Paso Robles tasting rooms, account for only about 10 new visits to each of the other 199 wineries -- less than they would have each received had the same money been spent by the PRWCA.  So Winery X ends up 475 customers ahead, whereas every other winery in the area ends up 15 customers behind.  Winery X is behaving rationally, and can even point to the fact that its advertising is helping their neighbors gets customers.

Like in the prisoner's dilemma example, the problem comes in the aggregate.  What seems like a small loss per other winery looks a lot larger when you multiply that loss by all the wineries affected: the region loses 2,985 tasting room visits from the 199 other wineries, and only gains 475 for Winery X.

If every winery were to make the same decision to spend their $5000 individually, with the same results, they too would get 500 customers to start in their tasting room, and would each contribute 2000 other tasting room visits to the region.  Across the 200 wineries, that pool grows to 400,000 visits.  Divided equally, each winery gets 2000 of these, plus the 500 from the advertising they paid for themselves.  That's 2,500 customers total.  If the same $1,000,000 had been spent by the PRWCA, it produces 200,000 customers who make 1,000,000 visits total: or 5,000 visits per winery.  By spending their money rationally (an economist might equally say selfishly) they have cut their total number of customers in half.

Of course, not every winery makes this decision.  And that's the most frustrating thing for those of us who do contribute to the group's spending.  Winery X receives most of the benefits of the marketing that an organization like the PRWCA is doing with the member wineries' money... whether or not they are members.  Sure, there are a few ways that they lose out: they're not on the organization's printed map; they're not included in the group's media outreach; they're not a part of the trade outreach that the organization does; and they lose a modicum of goodwill from their neighbors.  I actually think that these benefits on their own probably pay for the costs of membership.  But if their principal driver of revenue is their tasting room traffic, they still probably come out ahead, at least in the short term.

How does one quantify the benefits that do accrue directly to the members from their membership?  And how does a regional organization best respond to this? Game theory has answers for this, too.  I explore how to quantify the value of membership in part 2 and will delve into game theory's suggestions for how an organization should respond to those who drop out in part 3.

The red wines from the 2013 vintage come into focus

Blending is always an exciting time for me.  Up until that time, the different wine lots in the cellar have been potential, and we're looking at them principally in terms of the problems that they might present.  One might not be through fermentation.  Another might be a little oxidized, or a little reduced.  Yet another might still be spritzy.  In each case, we're trying to round these component pieces into form so that we can make our evaluations on them and aim them at the appropriate wine.  This period can last as long as six months, starting with harvest and not concluding until April.

Once the lots are behaving, blending can happen startlingly fast, and these components that we have been regarding as potential problems (or, if you prefer, as diamonds in the rough) can in a week become the young wines that we'll spend the next years or decades getting to know.  In addition, that week provides our best opportunity yet to get to understand the personality of the vintage and try it next to its predecessor for context.  The finished products:

Red blends 2014

When we blend, we start by tasting every lot from each varietal, blind.  This year, we had 14 Grenache lots, 12 Mourvedre lots, 8 Syrah lots, 3 Counoise lots and 3 lots that we'd blended early in the fermentation process (including the Scruffy Hill lot that forms the base of our En Gobelet each year).  Each lot is given a grade between 1 and 3, with 1 being the best.  My notes from this year are below; note how many 1's there are and how few 3's: the sign of a good vintage and one that is polished enough to evaluate:

Red blending notes may 2014

Once we've graded and discussed each lot, we start from the top, blending the Panoplie first from the lots that received "1" grades and exceptional comments.  [In the notes above, I use an asterisk to identify the first Mourvedre lot and the sixth Syrah lot as clear Panoplie candidates.]  We taste a handful of possible blends blind against one another until we reach consensus. Once we're satisfied with the Panoplie, we remove the lots that went into it from our calculations and start the same process on the Esprit, and so forth through the Cotes de Tablas and our varietal wines and eventually to the estate lots that will be declassified into our Patelin de Tablas.

Since each blend may contain 20+ lots, each of which themselves might be composite blends of dozens of barrels, it takes the cellar a while to blend the wines we have to taste, and it's nearly impossible to make decisions on more than one tier a day.  So, the seven blending days that we took this year is just about the minimum possible, and another sign that the components were in good shape for blending.  Below are my notes from last Wednesday's tasting of the finished blends.  At this tasting, I was joined by my dad, my brother Danny and our winemakers Neil, Chelsea and Tyler.

  • 2013 Patelin de Tablas: A spicy, meaty nose with leather and mineral notes.  In the mouth, Syrah is at the fore: creamy, with chalky texture, very savory, with charcuterie and tobacco coming first, then brambly black fruit, and some welcome black licorice on the finish. Final blend: 45% Syrah, 29% Grenache, 22% Mourvedre, 4% Counoise.
  • 2013 Cotes de Tablas: The nose is juicy, generous, raspberry and spice, with a little leather lurking behind.  The mouth is clearly marked by Grenache, with juicy wild strawberry and chalky tannins that balance the lushness. The finish is long and silky, with red licorice notes lingering.  Neil said he thought it was "the deepest, most thoughtful Cotes we've made".  55% Grenache, 30% Syrah, 10% Counoise, 5% Mourvedre.
  • 2013 Esprit de Tablas: A nose of dark red fruit, currant and plum, black cherry and meat drippings, and a loamy minerality that Neil called "after a rain out in the vineyard". The wine is mouth-filling, rich with bittersweet chocolate and blueberry and the powdered-sugar tannins that are for us a sign of great Mourvedre. Danny called it "classy and refined". 40% Mourvedre, 28% Syrah, 22% Grenache and 10% Counoise.
  • 2013 Panoplie: The nose is rich, inky and inviting, with spicy purple fruit, a meaty note that someone identified as reduced beef stock and I thought was like a leather armchair.  In the mouth, plums, black raspberry and black cherry vibrate between red and black and the texture is rich and chewy.  Despite only being 10% Syrah, it was the darkest color, with an exceptionally long finish showing off grilled meat, licorice and chalky tannins.  Wow.  70% Mourvedre, 20% Grenache, 10% Syrah.
  • 2013 Grenache: The nose was immediately identifiable as Grenache: milk chocolate and cherry, with a little white pepper adding spice. The mouth was open and generous, with more red cherry and strawberry fruit and a nice chocolatey note.  Tangy acids come out on the finish to keep things balanced, but the impression is of lusciousness and baby fat right now.
  • 2013 Mourvedre: The nose has an appealing, classic cedary, foresty, loamy note on top of mint and currant fruit.  The mouth shows very similar flavors, with nice chunky tannins at the end. It's serious, dry, and long, and should be fun to watch evolve.
  • 2013 Syrah: Classic Syrah nose, with chalk, black olive, coffee grounds and squid ink predominant. Not much fruit showing yet, but a little sweet oak.  In the mouth, you find the fruit: blackberry, with big tannins that suggest it will benefit from the next year-plus in barrel, and likely additional time aging in bottle.  Very chewy and dark.

One of the things I was happiest with was the definition between the different blends, between the different varietals, and between the varietals and the blends that were led by those grapes.  It's important to us that the Cotes de Tablas not taste too much like the varietal Grenache -- and that it not taste too much like the Esprit or the Patelin.  This year, I think we nailed it: each varietal wine is a classic expression of its varietal characteristics, and each blend shows the signature of its leading grape but is, as we typically find, more than the sum of its parts.

It will be a pleasure to get to know these wines over the coming years.

With an early flowering, we start the clock on the 2014 harvest

There are annual milestones we look at that help us gauge the progress of each harvest, of which flowering is the second. Budbreak (when the buds sprout) is first, but unreliable in our climate as an indicator of harvest time because of the frequency of spring frosts. Veraison (marked by color change) comes in July or August, and typically means we're looking roughly 45 days to harvest. And, of course, first pick and last pick, at which point you've set the dates that will define your vintage.

Flowering provides our first indicator of harvest dates, though there remains a great deal of variance that will be determined by the crop levels and our summer weather.  The typical rule of thumb suggests 100 days from flowering to harvest, which we've found to typically be an underestimate in our cold-night climate.  But figure a little under four months, and you're probably around an average for us.  That suggests that we're looking at harvesting some of our early grapes (think Viognier, here) around late August, with the harvest unfolding after that.

Grapevine flowering is not particularly spectacular.  The flower clusters assume a fuzzy look but otherwise don't show any particular color.  A few photos will give you an idea.  First, a view of several Grenache clusters, in context of their vine:

Flowering 2014 - grenache long view

Next a close-up of Grenache, in full flower.  Note the little white fuzz, which are the blooms.

Flowering 2014 - grenache close up

Grenache is early to sprout and early to flower, but takes an unusually long time between flowering and veraison, and between veraison and harvest, so while it's at the same stage as Viognier (below) now, we expect to harvest a month later than we do Viognier.  Note also how much smaller the Viognier cluster is than the Grenache cluster.  That won't change.

Flowering 2014 - viognier

Finally, a photo of the other grape I found in flower, Marsanne.  Marsanne isn't quite as early as Viognier, but is close.

Flowering 2014 - marsanne

At the same time as these grapes are in flower, we have varieties like Roussanne and Mourvedre that are just getting fully sprouted.  As you might expect, both of these grapes bring up the rear of harvest, typically not coming in until mid-October.

The vineyard's health looks terrific, and the flowering (which can be disrupted by rain, excessive heat, or strong winds) seems to be proceeding under good conditions, today's few unexpected sprinkles notwithstanding.  It's been breezy, but nothing too extreme.  It's been cool the past couple of days, but no frost.  Next week is supposed to warm up, but doesn't look like it's supposed to get dangerously hot. 

From these early indications, we're expecting an early harvest, similar to last year's. If we can replicate 2013, we'll happily take it.

20 Seconds of Serenity in the Vineyard

It will come as no surprise to followers of this blog that it has been an unusual weather year. We started the year off dry and warm, in a season it's more typically cold and wet.  Then, in March, when it's usually drying out, it started raining.  The combination has meant that we didn't get much cover crop growth at the time of year when we typically see it, but just as we're getting ready to knock it down and give the vines unimpeded access to the soil's water and nutrients, it's growing like crazy.  On top of it all, budbreak was at least two weeks earlier than normal, and we've been incredibly fortunate to avoid a spring freeze. The result has been a rare combination of green hillsides and green vines in an environment where you typically have one or the other, but not both at the same time.

And, the wildflowers are blooming, spectacularly.

We're working as hard as we can to get the cover crop turned under so that the biomatter decomposes and enriches the soil, but because of our late start due to the late rain -- and our desire to get good cover crop growth to generate that biomass -- we're behind.  The result has been a beautiful color palette in the vineyard, like an impressionist painting.  This twenty second video was taken just outside our winery, and shows off the California poppies that are everywhere right now, as well as the foot-high oats that are a part of our cover crop and the new green sprouts on the grapevines.

We suggest that you repeat this video as necessary until you achieve serenity.