Are direct-to-consumer sales really failing to lift the wine industry?

Last month I was surprised to read a headline on the industry portal Wine Industry Network titled Direct to Consumer Sales Fails to Lift the Wine Industry.  As a winery whose business model works only because of direct sales, I was curious to learn more about what the author Brian Rosen, consultant and former proprietor of Sam's Wine & Spirits, meant by the headline.  I posted my thoughts on Twitter:

Direct sales tweets 1

After which, he and I shot a few tweets back and forth, elaborating our positions:

Direct sales tweets 2

Brian's article was particularly interesting to me because it plays against the dominant narrative right now, that direct sales are on an inexorable rise, and that wineries should do everything that they can to make sure they're well positioned in this channel. What's more, that dominant narrative certainly jibes with our own experience here at Tablas Creek.  When we started, we believed that we would sell all our production through the wholesale channel.  Between the reputation of Beaucastel and the marketing muscle of Vineyard Brands, we thought that we could focus on grapegrowing and winemaking and the rest would take care of itself.

Five years of experience taught us that our initial expectations were unrealistic, and we made the decision in 2002 to take a much more active role in our marketing and sales.  We opened our tasting room, started our wine club, began participating in a wider array of events, worked harder and more closely with our distributor partners, and started participating more consistently in the promotional efforts of the regional and varietal organizations to which we belonged.  Little by little, we clawed our way out of what was a dangerous period when we were bleeding cash each year and became profitable.

In the steepest period of this climb, where we went from selling just under 4000 cases of wine in 2001 (all in wholesale) to nearly 20,000 cases of wine in 2007 (split between wholesale and direct) we saw significant growth in all our channels.  Our wholesale sales increased more than 250% over that period, to some 11,000 cases.  Our direct sales grew from nothing to some 9,000 cases.  But each year, as we looked at our financial reports, it became clear that our growing wholesale sales, far from driving our profitability, were only about a 50/50 bet to cover the cost of selling our wine in this channel.  As a company, all the profit that hit our bottom line came from the direct sales.

The greater profitability of direct sales should be intuitive, but it's likely even more important to wineries than you think.  Most wineries aim to achieve the same price out in the wholesale market and in their direct sales.  For product destined for the wholesale market, wineries back out the expected wholesaler and retailer markups, leading to a wholesale sell price half of full retail price.  Given that the cost of producing a wine is likely half or more of the wholesale sell price, the profit of selling a case direct isn't double that of selling it in the wholesale market; it is several times greater.  It is this disparity that means that a winery can offer good discounts to its wine club members and still come out far ahead. 

Further increasing the relative attractiveness of direct sales is that most wineries find, as we have, that the mix they sell direct skews toward their higher-end wines, while the mix that sells in wholesale skews toward wines that are less expensive, both because the wholesale market is naturally more price-competitive and because of the practical limit on wholesale price for wines that restaurants can pour by the glass.  When we did the math we realized that 75% of our revenue was coming from the 45% of our wine we sold direct, while just 25% of our revenue came from the 55% of the wine sold through the wholesale channel.  In simpler terms, we sold our average direct case for three and a half times what we sold our average wholesale case for.

OK, that was a lot of background.  But it gives you what you need to understand why I took objection when I read in Brian's piece, "I can tell you with 100% certainty that the DTC movement is not what you think it is and will not provide the added revenue that wineries around the globe are seeking."

The crucial question, and one that Brian himself addresses later in the article, is which wineries will benefit from direct-to-consumer sales, and which won't.  A winery's direct sales is limited naturally by its cachet, its tasting room traffic, and its perception of scarcity.  Even with high traffic, high cachet, and the perception of scarcity, there are only a handful of wineries selling more than 25,000 cases direct.  And most wineries' direct customers are far fewer than that; even established wineries I speak to around Paso Robles typically count a few thousand wine club members.  So,  imagine the challenge that faces a winery making a million cases a year, trying to have direct sales matter on the bottom line.  Even if they are able to build up to 25,000 direct cases per year (likely difficult given the challenge of creating the perception of scarcity) and able to sell those direct cases for 3.5 times what they sold their wholesale cases for, the direct sales channel would account for just 8.2% of the company's revenue.

Yet direct-to-consumer wine sales have grown to a $1.58 billion dollar industry: nearly the size of the total of wine sales to restaurants (some $1.8 billion last year).  It's still dwarfed by the $7.34 billion in retail wine sales, but it's growing.  So, is DTC important to wineries, or not?  It depends on your size.  Most wineries are small; by the Wine institute's estimate, 90% of wineries produce fewer than 50,000 cases, with three-quarters producing fewer than 5,000 cases.  Every one of those wineries should be looking to consumer-direct sales to make their business viable.  But most of the wine produced in America is produced by large wineries; estimates are that the three largest wine conglomerates produce half the wine sold in America each year.  And the twenty largest firms account for 90% of the market. For them, as the math showed above, direct sales are not going to make a significant difference in profitability.

If you're the average bottle of American wine, produced by one of the big companies in lots of tens or hundreds of thousands of cases, you're not likely looking at a future that involves transport via UPS or FedEx.  But if you're an average winery, producing a few thousand cases of wine a year, you should be focusing on selling a high percentage of however many bottles you produce directly.

Three final notes.  First, why, if they'll never notice it on their bottom lines, do the big wine companies still have tasting rooms and wine clubs?  I think (and based on the effort put into their direct sales by many of these large wineries, they agree) that it's valuable marketing: each direct relationship that a winery maintains is going to have a positive ripple effect as that customer communicates his or her enthusiasm to friends, and will support the work of distribution in a way similar to -- yet more profitable than -- advertising.

Second, you may be wondering why a relatively small winery like us bothers with wholesale sales at all.  Like a large winery with its direct sales, we think of it as powerful marketing, for which we get some revenue to offset the costs.  Having wine in great restaurants and wine shops means that customers don't have to come to us to discover us, and we have literally thousands of wine-savvy professionals around the country telling our story.  If we can get all this at something close to break-even, it's a big asset.

And third, if 90%+ of wineries rely on consumer-direct sales for their livelihood, why did Brian say that it won't provide the revenue wineries are seeking?  I think that there are two reasons.  First, Brian comes from a retail perspective.  The regulatory environment still makes it much more difficult for retailers to ship around the country than it does wineries.  And retailers are all competing to sell wines their competitors can buy at more or less the same price they can.  This level playing field, the regulatory patchwork, and the high cost of expedited shipping on a perishable, heavy item like a bottle of wine all combine to shield smaller local retailers from competition.  Will this equilibrium last forever?  Probably not. Given that Amazon is on their third foray into trying to sell wine, the e-commerce giants must see some potential here.  And here is an important area that I agree with Brian: whether you're a retailer or a supplier, Amazon and its ilk are likely to be neither savior nor apocalypse in the near term.

But all that's beside the point to a small or medium-size winery.  If that's who you are, you likely already know that direct-to-consumer sales isn't just your future.  It's your present, too.


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.


Celebrating 11 New AVA's in Paso Robles

At long last, nearly seven years after it was submitted to the TTB (the Tax and Trade Bureau -- the office of the federal government that oversees wine regulation) we received news this week that the petition from the Paso Robles wine community to establish eleven American Viticultural Areas (AVA's) within the current Paso Robles AVA has been published for comments.  This is the critical step called a "notice of proposed rulemaking" at which the TTB (tasked, among its many other responsibilities, with protecting the public from misleading or confusing information about wine) has reviewed all the geological, climatological and historical information presented in the petitions and determined that they pass muster.  It doesn't mean that the region can start using them on wine labels this week, but it's an important validation of the proposed AVA's and boundaries, and the last step before final approval.  The map, as published for review, is below.  Click on the image for a larger version or here for the official PDF: 

Paso Proposed AVA Map

Over the next 120 days, interested parties (which, in this case, means pretty much anyone) can submit a comment at the TTB Web site in support of or in opposition to the plan.  I'm hopeful that with all the hard science that went into the petitions, and the broad cross-section of the Paso Robles wine community that was involved in their submission, approval will be relatively straightforward.  The Paso Robles AVA Committee included 59 different grower and winery members -- including Tablas Creek -- from every one of the proposed AVA's. 

For the Paso Robles region, the publication for review of our AVA petition is an important and necessary milestone. Paso Robles is currently the largest un-subdivided AVA within California at approximately 614,000 acres. By contrast, the Napa Valley appellation (which includes sixteen AVA's delineated within its bounds) is roughly one-third the area at 225,000 acres. When the Paso Robles AVA was first proposed and approved back in 1983 it contained only five bonded wineries and less than 5000 planted acres of vineyard.  Big swaths of the AVA, including the area out near us, were largely untouched by grapevines.  In the last thirty years, Paso Robles has grown to encompass some 280 wineries and 32,000 vineyard acres.  This vineyard acreage is spread over a sprawling district roughly 42 miles east to west and 32 miles north to south.  Average rainfall varies from more than 30 inches a year in extreme western sections (like where Tablas Creek is) to less than 10 inches in areas farther east.  Elevations range from 700 feet to more than 2400 feet.  Soils differ dramatically in different parts of the AVA, from the highly calcareous hills out near us to sand, loam and alluvial soils in the Estrella River basin.  The warmest parts of the AVA accumulate roughly 20% more heat (measured by growing degree degree days) than the coolest; the average year-to-date degree days in the Templeton Gap since 1997 is 2498, while in Shandon far out east it's 2956.  This difference in temperatures is enough to make the cooler parts of the AVA a Winkler Region II in the commonly used scale of heat summation developed at UC Davis, while the warmest sections are a Winkler Region IV.  This is the equivalent difference between regions like Bordeaux or Alsace (both Winkler II areas) and Jumilla or Priorat (both Winkler IV areas). 

[A quick aside. The southern Rhone is classified as a Winkler III region... and the fact that our proposed Adelaida District is a transitional Winkler II/III jibes with our experience that the same grapes ripen here slightly later than they do at Beaucastel.]

Our region's diversity was well noted in the TTB's ruling.  In addition to the longhand descriptions of each region's soils, climate and topography, the TTB included side-by-side comparative charts -- unique, in my experience of AVA approvals -- that detailed why each new AVA was worthy of being distinguished from its neighbors.  I can't imagine anyone reading these petitions and concluding that there wasn't grounds for subdivision.

All this is not to say that Paso Robles doesn't share some important factors, and one important hurdle that the petitions had to clear was demonstrating that the region enjoyed sufficient macro-level similarity to remain an AVA.  The TTB's ruling recognized several characteristics that the entire region shares, including the 40-50 degree diurnal temperature variation, the relatively warm climate with limited incursion of marine air, and the moderate rainfall, less than the slopes of the coastal mountains but more than the arid Central Valley to our east. 

The AVA system is so powerful exactly because it has the flexibility to recognize macro-level similarities as well as important micro-level distinctiveness.  Think of France: that Burgundy shares overarching characteristics doesn't mean it's of no value to distinguish Chambertin from Meursault, or Chassagne-Montrachet from Volnay.  The appellation system, at its best, gives consumers both a broad-level understanding of what grapes will grow best and what character they should expect from the region's soils and climate. 

One risk in the creation of new AVA's within an existing one is that the existing AVA -- into the marketing of which the local wineries have invested enormous amounts of time and money -- will lose much of its significance as many wineries abandon that appellation name to make a name for their new, smaller one.  Happily, Paso Robles won't lose its identity -- or the accumulated marketing capital we've all built over the last three decades -- thanks to a conjunctive labeling law passed by the California assembly with the encouragement of the Paso Robles Wine Country Alliance in 2007. Conjunctive labeling means that wineries who choose to use one of the new AVA's will also be required to use "Paso Robles" as significantly.  This law was modeled on one passed for the Napa Valley in 1990 that has been widely credited with helping maintain Napa as the most powerful brand in American wine. 

The continued presence of Paso Robles on wine labels does not diminish the impact of having the different AVA's approved. These new AVA's will be a powerful tool for wineries to explain why certain grapes are particularly well suited to certain parts of the appellation, and why some wines show the characteristics they do while other wines, from the same or similar grapes, show differently. Ultimately, the new AVA's will allow these newly created sub-regions to develop identities for themselves with a clarity impossible in a single large AVA.

It's worth pointing out that no one needs to use the new AVA's.  Wineries who wish to continue to use only the Paso Robles AVA are welcome to.  And many will likely choose to do so as the new AVA's build their reputation in the market.  Not all the AVA's have a critical mass of established wineries, and it seems likely that a handful of the new AVA's will receive market recognition first, while the reputation of others will take time to build.  But I believe that it will be several of the currently less-developed areas that will benefit most in the long term, through the ability to identify successful winemaking models and build an identity of their own.  We shall see; having a newly recognized AVA is not a guarantee of market success, just a chance to make a name for yourself.  The cream will rise to the top, and consumers will benefit.


The High Costs of State Alcohol Franchise Laws

The power to take your business elsewhere is fundamental to capitalism. This power of choice keeps prices reasonable, incentivizes efficiency and customer service, and keeps the business environment healthy by forcing companies to innovate and winnowing out those that don't keep up. Remove the ability to choose another partner and commerce becomes far less efficient.

Wine bottles in chains

But in the world of wine, there are large swaths of the country where such an open market is only a dream. And I'm not talking about the ability for customers to purchase wine freely from wineries and have it delivered to their door (that's a whole different issue).  I'm talking about alcohol franchise laws, which govern the relationship between a winery and the state-licensed distributor that can sell that wine to that state's restaurant and retail customers.  Franchise laws distort the supplier-distributor relationship by granting the distributor indefinite and typically exclusive rights to sell a supplier's product, no matter how good or bad a job they do, no matter whether their key employees stay or leave, and even no matter if the company is sold.

There are currently some twenty states with a version of this alcohol franchise law, in regions as diverse as the northeast (CT, DE, MA, ME, NJ, VT), southeast (GA, NC, TN, VA), upper mid-west (MI, OH, WI), great plains (AR, KS, MO) and mountain west (ID, MT, NM, NV).  There are variations in the extent to which they give recourse for the suppliers.  Some have production limits, so suppliers smaller than an arbitrary size can get out of their franchise ties.  Some require that suppliers keep existing relationships but allow a supplier to add a second distributor.  Some allow you to take your case to a hearings board and leave your distributor if you have cause.  But in all cases it tilts the balance of power in a supplier/distributor relationship even further in the direction of the distributor.

It's not as if distributors need the help.  Most distributors are much larger than most of the wineries they represent.  As a small-to-medium sized winery, I'm sure there isn't a single distributor of the 50+ we use around the country to whom we represent even 1% of their business.  In most cases, we represent a tiny fraction of a percent of their business, and the franchise law's justification -- that small, local distributors need protection from capricious removal of custom from out-of-state liquor goliaths -- is a relic from pre-Prohibition fears of "big liquor" and simply doesn't apply to fine wine.

The costs of franchise laws are significant.  It should be obvious that removing a supplier's ability to choose to move its business elsewhere reduces the incentives to serve the interests of that supplier.  But there are costs to consumers as well, as distributors in states with franchise laws typically work at higher margins than in states without them.  If no other distributor can attract away your high-profile brands with the promise of selling more wine on a thinner margin, distributors are only behaving rationally to make a little more money on what they sell.  Franchise laws also discourage innovation and investment as a distributor can't attract new suppliers by doing a better job and convincing other distributors' suppliers to move. The only way for a distributor to get new business is to buy other distributors, or, in a process that resembles major league baseball's pre-free agency days, arrange for a trade with another distributor.

Distributor consolidation -- in which the number of wine distributors has shrunk by two-thirds over the same two decades where the number of wines for sale in the United States has doubled -- is an issue even in non-franchise states, but it's balanced there by the ability of new distributors to enter the market and attract suppliers dissatisfied by the ever-larger distributors.  It is much less attractive for a new distributor to open in a franchise state, where they can only attract wineries new to the market, and the larger average size of distributors in franchise states reduces the choices that suppliers (and restaurant and retail customers) have and constricts the supply chain.

As in non-franchise states, franchise state wholesalers run the gamut from excellent to indifferent, and we have the pleasure of working with some sterling franchise state distributors. These distributors are among those most hurt by franchise laws because they can't parlay their hard work into more business. Ultimately, franchise laws cause a gradual calcification of the wine market in the states they affect, reducing that market's growth. Many small suppliers I speak to won't sign with a distributor in a franchise state and instead choose to focus their efforts elsewhere, worried that should their needs change they will be locked in and unable to move.

I have yet to read a convincing explanation of why franchise laws are constitutional.  In fact, it seems to me that they violate antitrust laws as well as the Commerce Clause of the US Constitution, which prohibits states from interfering in the free exchange of goods across state lines.  If any readers out there are versed in alcohol franchise law, please jump in in the comments section to explain, if you can.

Despite the potential coalition of suppliers large and small, restaurants, retailers, consumers and innovative distributors, it's rare to hear about the issue of franchise laws.  A potential solution might be found in the model developed for the ongoing and increasingly successful fight for direct shipping, which combines a consumer-focused mouthpiece in Free the Grapes and a few well-funded nonprofits behind it to wage legislative and legal challenges.  If and when this model emerges, you, as a wine lover, will know which side you should support.


We celebrate the release from quarantine of four new Rhone grapes

By Robert Haas

This week we are filing a petition to recognize Terret Noir, Vaccarese, Picardan, and Bourboulenc for use as grape varietal names on labels in the United States. The petition, ready to go out yesterday afternoon:

TTB petition

In 1990, when Tablas Creek Vineyard was founded, it was our intention to establish a Châteauneuf-du-Pape-like, Rhône-style vineyard and winery in the Paso Robles AVA.  Châteauneuf-du-Pape is famous for planting thirteen grape varieties, although over 70% of the acreage in the appellation is Grenache Noir, and many estates use only the “big three” of Grenache, Syrah and Mourvèdre for their red wines and Clairette and Grenache Blanc for their whites.  Beaucastel is noteworthy for planting and using all thirteen (actually fourteen if you count Grenache Noir and Grenache Blanc as two) approved grape varieties.  We wanted to do all thirteen here, too.  Because some of the thirteen didn’t exist in California, and we had doubts about the quality of those that did exist here, we decided to import cuttings from France and put them through USDA quarantine.

The first imports of cuttings of the major varieties were in 1990, and because the California USDA station was closed, they were brought through the USDA station in Geneva, NY.  Indexing was finished in 1993.  Nursery Manager Dick Hoenisch and I went out to Geneva in wintertime, washed the bare roots of the dormant plants and prepared the FedEx shipment to California. I remember that Geneva winter trip.  There were several feet of snow on the ground and it was freezing cold.  It seemed a long way from grape planting territory.

Those cuttings included Mourvèdre, Grenache Noir, Syrah, Counoise, Grenache Blanc, Roussanne, Marsanne, and Picpoul Blanc. All except Counoise, Grenache Blanc and Picpoul had already been recognized varietals in the U.S.  Tablas Creek subsequently successfully petitioned for acceptance of the last three, each of which has proven to have value both in our blends and on its own.

We have always wanted to plant, experiment, and work with all thirteen varieties authorized in the Châteauneuf-du Pape appellation of origin, but at the time we began, the other varieties weren’t available in the French nursery service for us to import, and we felt that taking field cuttings (which would likely be virused) would add a long, unpredictable delay to our launch.  But once we saw how successful the trace varieties in the first wave had been, we decided to move forward.  In 2004, we took cuttings of the remaining unrepresented varieties in a selection massale [field selection] from the Château de Beaucastel vineyard and sent them to (the now operating) Davis station for indexing and for eventual release to us. 

We were right that the vines were likely to have a tortuous process ahead of them.  All tested positive for virus, and had to be cleaned up by the scientists at UC Davis.  We received the first two of these (Terret Noir and Clairette) in 2010 and we just received news that Cinsault, Picardan, Vaccarèse, and Bourboulenc are being released. When we get Muscardin (hopefully in 2014) it will complete the virus-free collection of all the authorized Châteauneuf-du-Pape varietals in the United States.

13 Cepages Poster

What these grapes will do in Paso Robles is a good question.  For a few, there is so little planted in France that there is not much to go on.  But the success we and others in California have had with our other formerly unknown varieties such as Counoise, Grenache Blanc, and Picpoul Blanc makes us hopeful.  Here’s what the literature says:

  • Bourboulenc is a vigorous and late budding white grape, which should be good news in our frequent spring frosts. It ripens late and maintains moderate sugars and good acidity.
  • Picardan is also a late budding white variety that gives a pale colored wine with good acidity.  This grape is one on which there is the least information available; we’ll likely be planting the first new block anywhere in the world in several decades.
  • Terret Noir is one of the Languedoc’s oldest red varieties.  It too buds late, and in southern France brings lightness and freshness to its blends with varietals such as Grenache.  We hope that it will do the same thing in our vineyard.
  • Vaccarèse is a fourth late budding variety that, according to the ampelographer Pierre Galet is said to have an “uncontestable original floral aroma, a fresh and elegant taste, particularly interesting for modifying the alcoholic ardor of the Grenache in the rosé wines of Chusclan and the red wines of Châteauneuf-du-Pape.”

Before we or anyone else can use the grapes on a wine label, they need to be accepted by the TTB into the lexicon of recognized American grapes.  Cinsault and Clairette are already recognized.  The petition we are sending off this week has assembled the available research for Picardan, Bourboulenc, Terret Noir, and Vaccarèse. 

It will require patience to test our theories.  First, the bud material will have to be multiplied and then grafted.  Then, once the vines are propagated in sufficient quantities, we’ll plant a small block (perhaps a half-acre) of each. We’ll wait three years to get our first crop and vinify each separately.  Only then will we start to see what they’re good for.

We should have the vines’ names recognized in plenty of time.


Another detour along the road to American organic wine

About three months ago, the National Organic Standards Board (NOSB) made a ruling that didn't get a lot of press, but is likely to produce a remarkable trifecta of negative results, discouraging organic viticulture and ensuring that the reputation of American organic wine remains dubious, all while putting American wineries at a competitive disadvantage to their counterparts around the world.  The NOSB's decision: to keep the rules prohibiting sulfites in organic wines, against the unanimous recommendation of the committee tasked with studying the issue.

The current state of affairs for organic wine is not a satisfactory one.  Sulfites play two roles in fine wine, preventing oxidation and discouraging the action of vinegar-causing bacteria.  Organic wines, which must be made without added sulfites, tend to be unstable and unsuitable for aging.  Nearly all oxidize rapidly, and in order to prevent them turning to vinegar, they must be filtered sterile.  The resulting organic wines are of uneven quality, have to be consumed young, and are marketed toward consumers who choose organic but who are not wine knowledgeable.  Most sell in the $8-$12 range.  It is small wonder that the reputation of American organic wines is low.

All this might be understandable -- a sacrifice made in the interest of a worthy ideal -- if sulfites were a synthetic product.  But they are not.  Sulfur is a naturally mined mineral, both legal and widely applied to organic vineyards.  Sulfites are also naturally produced in the fermentation process.

Sulfites do have potential health impacts, although most of the people who have negative reactions to wine are not sulfite sensitive.  I wrote about this in detail a few years ago in the post Sulfites in Wine - What's Causing my Headache.  The relatively small number of people with sulfite allergies (roughly 0.2% of the US population) need to be very careful with what the eat and drink, not just with wine, but with condiments, dried fruits, potato chips, and many other products.  But wines with sulfites already have to show the "contains sulfites" warning on the label.  The EU, typically more rigorous than the United States on labeling and safety requirements, has for years allowed their organic wines to include a maximum 100ppm of sulfites and required these wines to add "contains sulfites" to their labels. 

It is a testament to the positive impact that organically farmed grapes have on the wines they make that that so many vineyards and wineries have chosen to farm organically even thought the market has not rewarded it.  These wineries have mostly not bothered with certification.  But I think that it is indisputable that there would be more wineries farming organically, and more certifying themselves organic, if, as with vegetables, the market rewarded organic wines with premium prices.

There is a category written into the National Organic Program (NOP) standards for wineries who -- like us -- use organic grapes but also sulfites.  But it's not ideal either.  These wines are permitted to print "made with organic grapes" on their labels.  This "made with..." phrasing is what is allowed for other consumer products that include a minimum 70% organic ingredients, but don't qualify for the 95% threshold of "organic".  Think "pizza made with organic tomatoes".  This carries the implication that there are other things in there that aren't organic, and possibly other things that aren't even grapes.  Sulfites, which are measured in parts-per-million, typically make up less than one one-hundredth of one percent of a finished wine.

Back to the recent NOSB ruling.  We have not been alone in recognizing the perverse impacts of the organic standards on wine.  A group of nearly 100 growers, wineries and their supporters petitioned the NOSB in 2010 to allow all wines that were farmed organically to be labeled organic, whether or not they used sulfites in the winemaking process. This would have put us in line with the EU and Canada, among others.  When the NOSB handling committee voted 5-0 last October to recommend the change, it seemed likely that American organic wine was on its way out of its labeling purgatory.  But after a group dominated by a handful of market-leading no-sulfite-added wineries lobbied against the change, the full NOSB board voted the change down 9-5.

Where does this leave us?  The same place we've been, I guess.  But I worry that the window for public acceptance of organic wine is closing.  Certainly we'll see a continuation of the trend toward wine-specific third-party certifications like Biodynamic and SIP (Sustainability in Practice), both of which permit the use of sulfites in winemaking.

But it does feel like the world of wine is trapped in quicksand, at the same time that organics are making dramatic inroads into many foods and consumer products.  As evidence, I wrote about the challenges facing organic wines in the very early days of this blog back in 2006, musing on the low market image of organic wines and considering a proposed marketing campaign to raise their image.  I thought that was premature:

I remain convinced that if there is a marketing campaign planned, it should be aimed at revising the laws so that they are in synch with Europe, where wines that are organically farmed, and which are under a certain maximum number of parts per million of sulfur, can call themselves organic.

I can't help but feel that with the NOSB's recent decision, the wine community has missed an opportunity to both rehabilitate the reputation of organic wine and to dramatically increase the rewards for and prevalence of Earth-friendly viticulture.


The power grab behind New York's proposed "at rest" legislation

Editor's Note 2/4/2014: This post was originally written in March of 2012 and in part thanks to the outcry of wine lovers everywhere the 2012 legislative session expired without enacting the proposed legislation.  It was reintroduced in 2013, but wasn't enacted. Like a zombie, it's back again, and it's up to all New York-area wine lovers, or anyone who buys or sells wine in this vibrant wine market, to again sound the alarm. 2014's proposed legislation is effectively identical to the 2012 (and 2013) version; read on to learn what's at stake and what you can do. 

When investigating a potential new piece of legislation, follow the money, rather than the purpose that the legislation's supporters say it has been designed to achieve.  That would serve you well in investigating the anti-direct shipping laws that the big wholesalers are pushing at the state and federal levels.  They say it's about preventing underage access to alcohol and ensuring that states can collect the taxes they're due.  Yeah, right.

No different is the "at rest" law currently being debated in the New York legislature.  The law, if passed, would require that any alcoholic beverage sit in a New York warehouse for 48 hours before it could be sold [read the full text].  In a state like California, this wouldn't make much of a difference.  All serious California distributors have their warehouses in California.  But in New York, it would be a different story.  Because New York's fine wine business is so heavily concentrated in New York City, and because New York City is so close to both New Jersey and Connecticut, many (even most) fine wine distributors have one warehouse that covers both New York and New Jersey, and often Connecticut as well. This is the case for our New York distributor -- Verity Wine Partners -- as well as an estimated 80% of wholesalers currenly doing business in New York. These warehouses are typically located in New Jersey because warehouse space is cheaper there, and New Jersey also provides easy access to the ports where wines are typically unloaded from ships.  It's worth also noting that New Jersey has an "at rest" law of its own, which means that if you're going to locate a single warehouse to serve the two states, you would choose New Jersey.

This imbalance is what the law purports to fix: to "level the playing field" so that distributors who have chosen to locate their warehouse in New Jersey would have to add an additional warehouse in New York.  This would supposedly spur construction of new warehouse space in New York and make it easier to be sure that the appropriate excise taxes are collected.  Is there any evidence that distributors are not paying their excise taxes?  No; New York is probably the cleanest state we deal with due to the rigorous price posting requirements and a willingness to prosecute violators by state Attorneys General from Eliot Spitzer's day to the present. But it provides a veneer of "fairness" for an attempt to gain a legally sanctioned competitive advantage.

A look at who is lobbying for the legislation suggests a motive.  Principal backers are New York's two largest distributors, both of whom already have warehouses in New York State, and who could, with one signature, force their competitors to either invest in a new warehouse, significantly increasing their costs, or move from next-day delivery of orders to third-day delivery of orders, significantly reducing their competitiveness.  Either way, they are guaranteed to increase their share of a multi-billion dollar industry.  Who would be hurt?  The smaller distributors, of course.  But also restaurants, retailers and consumers, who would see their selection and service decline and prices rise, and the thousands of smaller wineries like Tablas Creek who are represented by these smaller distributors.

Dustups like this provide further evidence of the widsom of the founding fathers, who through the commerce clause of the US Constitution reserve for the federal government the power to regulate interstate commerce.  Seeing the convoluted patchwork of legislation that has resulted from the 21st Amendment's promise to allow states control over how alcohol is regulated and sold within their borders should be evidence enough for anyone.

Meanwhile, if you are in New York, or know anyone who is, please contact your state senator this week through the interface at nysenate.gov/senators and encourage them to oppose "at rest" legislation.


A Closer Look at Paso Robles' Microclimates

This morning, I had the pleasure of sitting on a panel with Adelaida Cellars' Terry Culton, Eberle Winery's Ben Mayo, and Victor Hugo Winery's Vic Roberts for an audience of fifteen or so visiting Canadian journalists and members of the Wine Institute.  Our topic was the ageability of Paso Robles wines, and each of us showed a current and an older release of one of our wines.  I'm not sure we met exactly the goal we were set, but I think that an even more interesting discussion unfolded during the seminar.

On the panel, I showed two vintages of Esprit de Beaucastel Blanc, our Roussanne-based white Rhone blend.  It was followed by two Adelaida Syrahs, two Eberle Cabernet Sauvignons and two Victor Hugo Petite Sirahs.  So far, no big surprises.  All of these varieties are relatively heat-loving, though each benefits in its own way from the good acids and longer hangtimes provided by Paso Robles' cool nights.  But the discussion took an interesting turn when Terry admitted that it was the opportunity to work with the historic HMR Pinot Noir vineyard that brought him to Paso Robles from his position at Pinot Noir mecca Calera.  The journalists, many of whom had never before visited Paso Robles, and who had arrived just the night before so hadn't yet had the chance to explore the AVA, were genuinely amazed that it was possible to grow cool-loving Pinot Noir in proximity to these later-ripening varieties that, in France, need to be grown hundreds of miles to the south.

While the attendees had received a Paso Robles AVA map, we were asked to show on the map how the AVA broke down for climate, soils, and rainfall.  We did the best we could from the front of the room, pointing to the areas that were warmer and cooler, drier and wetter, and more and less calcareous.  But it made me wish for some better tools to show the often remarkable variations within the AVA.  So, I went back to the office today and made some.  They're not perfect, but they're better than anything I could find publicly available, and I thought I'd publish them so they could help others trying to explain the region's microclimates.  All are based on the excellent Paso Robles AVA map developed by the Paso Robles Wine Country Alliance.

First, the map with overlays of areas that are warmer and cooler.  We're an unusual coastal valley because our valley does not cut through the nearby coastal range, instead following the Salinas River north-south inside the coast range a hundred miles north to the Monterey Bay.  This means that the direct ocean influence is limited to early mornings when the Monterey Bay fog has had a chance to creep all the way south to us.  This fog typically burns off early in the day and doesn't return until well after midnight.  The most proximate ocean air intrusion comes through the Templeton Gap, where the Santa Lucia Range drops down from about 3000 feet high to around 2000 feet high.  That's still a significant hurdle for marine air to overcome, but many summer days the heat in the interior valleys of California is sufficiently intense to pull that marine air over the range and through the gap.  As the Templeton Gap is in the southwest quadrant of the AVA, it is that area, and to a lesser extent the area in the southeast, that gets the most afternoon cooling.  Our location at Tablas Creek, at the western edge of the AVA, gets less cooling than many areas significantly further east. 

The map below shows a typical afternoon temperature gradient, with cool parts of the AVA noted in blue and warm parts in red.  Note that while areas to the far east of the AVA are indeed quite warm, the principal gradient is just as much north-south as it is east-west.  You can see that Tablas Creek is neither particularly warm nor particularly cool, sheltered from that afternoon incursion of marine air but still at some altitude.  Click on the image below (and the rest of the images) to see them larger.

Paso Robles temperature gradient

Rainfall is a slightly simpler story, but still more complex than most accounts would suggest, having to do with altitude as well as proximity to the ocean.  Areas that are relatively high as well as relatively close to the ocean get the most rain, while lower areas and those farther inland get less.  And the differences can be dramatic.  This past weekend saw the much anticipated arrival of a series of storms which combined to drop 4.87 inches of rain on the weather station at Tablas Creek.  The town of Paso Robles received 1.25 inches, barely one quarter of what we received.  It's not always this dramatic, but our average annual rainfall of 28 inches is almost triple what vineyards on the Estrella River heartland of the Paso Robles AVA can expect.  Another map showing the overlays of the rainfall, with green areas receiving 25 or more inches of rain, brown areas less than 15 inches, and unshaded areas somewhere in between (data for this overlay comes from the Western Region Climate Center):

Paso Robles rainfall gradient

I tend to think that the data, as dramatic as it is, understates my experience of the regional variations in rainfall.  But still, the fact that you can drive 10 miles within the Paso Robles AVA and see rainfalls double (or half) where you started is remarkable.

Finally, the sections of Paso Robles with primarily calcareous soils.  I've written before about the benefits to viticulture of calcareous soils, and it was one of the principal criteria in our initial search for what would become Tablas Creek.  The map below shows the largest blocks of high-calcium soils (in yellow) though there are smaller outcrops in other parts of the AVA due to the complicated folding of soil layers thanks to our active tectonics (for more details on how the soils of our area formed, see my dad's post from last August Why We Are Where We Are).

Paso Robles calcareous overlay

There were three things that we were looking for when we first came up with the idea of a southern-Rhone-inspired project in California.  First was the right kind of climate, with enough heat and a long enough growing season to ripen some exceptionally late-ripening grapes and yet still moderated enough to let the more cool-loving Rhone grapes shine.  Second was enough rainfall to farm without needing to irrigate, which we felt was essential to allowing our grapevines to show a powerful signature of their location.  And third were calcareous soils.  Combining the high-rainfall, calcareous soils and mid-range temperature overlays from the above map produces one region, with Tablas Creek at its heart.  I don't think it's a coincidence that this is Paso Robles' Rhone heartland:

Paso Robles trifecta overlay

We didn't have this data available when we were looking for Tablas Creek; my dad and the Perrins spent their four-year search visiting vineyards, tasting wines, talking to farmers and looking at rocks.  But it's a testament to their perseverance and to their ability to ask the right questions that the data that has become available in the two decades since we bought our property has only served to further convince us that we chose the right place.

One final note: the shaded region above is broadly similar to the proposed Adelaida District in the Paso Robles sub-AVA petition that is undergoing TTB review as we speak.  These new AVA's, when and if they are approved, could be a powerful tool in helping explain to consumers, media and the trade just how a region they know by a single name can have such remarkable diversity inside it.


Investigating an Attempted Wine Scam

I got the following scam email over the weekend:

From: Tim Ferrone [mailto:timferrone1@copper.net]
Sent: Saturday, May 28, 2011 2:44 PM
To: timferrone@me.com
Subject: wine order
I don't know if you got my last e-mail but am resending it again due to the problem i had with my mail account. please respond as to know how to proceed.

Hello, My name is Tim Ferrone an American .I live and work here in Thailand. Actually when I was home last time in NY, I got a bottle of one of your wines from a friend as a gift and I loved it, Since then I have been planning on getting your wines for my wedding coming up soon, here in Thailand ,I got your contact through your website and I want to know if you will be able to supply me some cases of those wines.I will be making my payment via my American based credit card . I am registered with a shipping agency in USA, which has other representatives in USA .So you are not to get the wines shipped but the wines will be picked up at your location by this licensed shipping agency. The shipping agency have all the appropriate exportation documents and permits, Therefore concerning the shipping of the wines , I will refer you to this shipping company that will come for the pick up of the wines in your location once I have made my payment .They have got like items shipped to me here twice without any delay .Kindly get back to me so that I can make my orders.
Thanks.

Tim
timferrone@me.com

At first, I was just going to delete the email, but then I thought that I might as well publicize it a bit should other people have received similar letters.  It's actually fairly clever for its kind.

Why it works
The note plays on a winery's desire to believe that their fans are so loyal that they would go to the trouble of securing their own shipping agencies and their own importation permits just to get their wines into a country where the winery doesn't have distribution.  And it's not unheard of; we have had several of our club members arrange to purchase wines for their domestic weddings.  Plus, they offer the apparent security of payment with a US Credit Card.  Wineries might feel comfortable letting the wines go if they thought they had already secured payment.  Finally, the supposed orderer has a nice American name and an American-looking email address.  Who knows... Tim Ferrone might even exist (though he's almost certainly not trying to order wine from us).

Why it's a fake
First, the writing is not quite credible for a native English speaker (and, honestly, who named "Tim" isn't a native English speaker).  Second, there is no mention of the name of the winery in the letter.  If you're going to try to convince Tablas Creek to send wine through an unusual arrangement to a faraway country, wouldn't you talk a little about what it is about Tablas, specifically, that would warrant such an expenditure of effort and money?  That fact suggests that it was sent to hundreds or thousands of California wineries in the hopes that one or more will bite.  On a related note, the "to" address is not to any visible address at Tablas Creek.  The address to which it was sent (visible only when you view the headers) is jobs@tablascreek.com, not an address that many people would choose to address a letter like this to.  Fourth, though most people wouldn't be expected to know this, Thailand has such expensive import duties on wine (adding nearly 400% of the wine's cost) that no one imports anything other than the cheapest stuff.  Fifth, there is no Tim Ferrone in our mailing list database.

What would happen if I followed through
If you haven't read it before, there is a wonderful series on Mary Baker's Central Coast Wine Blogs site called Inside a Wine Scam.  Her five-part exposé reads like a detective story, but the gist is that these sorts of wine scams almost all originate in (of all places) Lagos, Nigeria.  The goal is to get wineries to receive payment for the wine on a credit card and then to wire money for shipping fees to a bank account.  As the wines will have to be shipped overseas, the shipping fees are typically in the hundreds of dollars per case.  When the credit card turns out to be stolen and the charges are reversed, the money for the shipping is gone.  An American accomplice has removed the money from the account to which it was wired and (minus a fee) sent the rest off to Nigeria.  Mary, in her piece, reprints the correspondence with the Nigerian scammer and even tracks down the American accomplice in Oklahoma.

It's not just wineries who have been victimized by these scams; wine retailers have been targeted, and as there's nothing specific about wine in the crime, it's easily transferrable to other consumer products.  But shipping laws for wine are sufficiently labrynthine that it's just possible that wineries who are unfamiliar with export protocol will fall for it.  And at a few thousand dollars as the potential payoff and with a fraction of a cent cost for each spam email, it must pay handsomely.  The letter I received reads very much like the letter Mary posts, so it's possible it's even written by the same person, years later.

So, Tim Ferrone, whoever you are, you'll get no wine (or shipping fees) from us.  And hopefully, another winery who might have been taken in will read this and save themselves both headache and money.


Zombie legislation: HR 5034 lurches back to life as HR 1161

Last year, beer and wine wholesalers' associations spearheaded the introduction of HR 5034 into the US House of Representatives.  Although the legislation was never passed (it never even made it out of committee) by the end of the legislative year it had amassed 153 co-sponsors, or more than one-third of the House's total membership.  The bill would have effectively rolled back the status of alcohol law to where it was before the Granholm v. Heald decision required states to treat in-state and out-of-state wineries equally.  This is potentially significant to wineries like us because the voices of in-state wineries (and the local jobs that they represent) proved decisive in several state legislatures who were forced either to open up direct shipping to all wineries or cut off their own wineries from the bulk of their customers.  We can now ship to 32 states, with Maryland expected to be the next that will come on line later this year.

Beyond wineries, the principal beneficiaries of liberalized wine shipping laws are consumers, who receive greater choice and lower prices thanks to increased competition.

Although HR 5034 did not make it into law, on March 17th an updated piece of legislation was introduced into the 2011 Congress.  Perhaps the sponsors thought that last year's "Comprehensive Alcohol Regulatory Effectiveness (CARE)" title wasn't sufficiently caring; this year's bill is slightly renamed to the "Community Alcohol Regulatory Effectiveness (CARE)" Act.  It states its purpose "to recognize and reaffirm that alcohol is different from other consumer products and that it should continue to be regulated by the States".  More specifically, the legislation clarifies that "Silence on the part of Congress shall not be construed to impose any barrier under clause 3 of section 8 of article I of the Constitution (commonly referred to as the ‘Commerce Clause’) to the regulation by a State or territory of alcoholic beverages."  Interested readers can read the complete text of HR 1161.

Why would anyone want the US Congress to differentiate alcohol from other consumer products?  Because of the money at stake.  As a quick review (I wrote about this more extensively last year, to which I refer anyone wanting more background) the 21st Amendment to the Constitution, which repealed Prohibition, grants states the rights to regulate alcohol within their borders.  State legislatures have traditionally taken an expansive view of what this permits, at times bringing them into conflict with the Commerce Clause of the Constitution that gives the US Congress sole authority to regulate interstate commerce.  The end result has been the near-universal adoption of the three-tier system, where producers or suppliers of alcohol (the first tier) must sell to state-licensed wholesalers (the second tier) who must sell to retailers and restaurants (the third tier).  Only this third tier, in the classic three-tier system, can sell to consumers.  Each tier has its profits built into the system, which means that the typical price that a winery like Tablas Creek sells to a wholesaler is about half the end sale price to a consumer.

With the increasing ease of Internet and mail-order commerce -- and the move of small wineries and wine tourism into the American wine consuming mainstream -- cracks have appeared in the foundation of the government-protected wholesale tier.  Exceptions to the three-tier system are now the norm for wineries, and the Granholm decision made explicit the Court's opinion that states cannot discriminate against out-of-state wineries but must establish a level playing field.  Wholesalers see the logic used by the Supreme Court in Granholm as a threat.  What if, they worry, courts permit out-of-state wholesalers to make deliveries to in-state restaurant and retail accounts?  What if chain retailers can purchase from whichever wholesaler, in whatever state, will give them the best price, and then supply their in-state stores out of a central warehouse?  Or, scariest of all, what if retailers cut out the middleman wholesaler in one of the states that allows them to do so (like California) and then begin self-distributing to their locations around the country?  It's fairly clear to me that wholesalers view stores like Costco as their biggest threats, not small wineries like us.

Of course, all these steps that alcohol wholesalers fear have already happened in nearly every other consumer product.  Consumers have the option of buying direct from the manufacturer, or from stores in other states, or in person.  The result has been a dramatic lowering of prices and a proliferation of innovative producers, who can leverage the power of Internet long-tail marketing to reach customers whose concentration in any one area may be low, but whose cumulative buying power is significant.  Wholesalers have not disappeared in other consumer products, but their power has been limited as their customers have more options and demand better service and more competitive prices.  But understanding why alcohol wholesalers are worried doesn't mean that one should feel sympathetic to their efforts.  The casual disregard the bill's wholesale advocates show for the harm that this bill would cause their suppliers (wineries, breweries, distilleries and importers) their customers (restaurants and retailers) and consumers around the country can be breathtaking.

Despite the claims of proponents of the legislation that wineries wouldn't be harmed -- and the phrasing of the bill does include some safeguards for nondiscrimination in winery direct shipping that were absent from HR 5034 -- the proposed legislation would still be bad for both wineries and consumers, and terrible for retailers.  Although a clause states that states "may not intentionally or facially discriminate against out-of-State or out-of-territory producers" there are many non-facial discriminations that can be put into place that have similar effects.  Some states have put into place capacity caps, where only wineries under a certain size can ship to in-state consumers.  Of course, the cap is carefully set just above the size of the largest in-state producer.  Other states require that wine be purchased in-person, which of course is much easier at an in-state winery than an out-of-state one.  And retailers, who should by any logic I can understand also be subject to the same legal principals espoused in Granholm, would not be covered by the language protecting "producers".  This omission is particularly important because retailers were recently rebuffed without comment by the Supreme Court in their effort to apply the logic of Granholm to their businesses and are still unable to access most out-of-state markets.

The proponents of the legislation take pains to refer to the bill's supporters as "bipartisan", and I imagine it's no coincidence that the bill's eight co-sponsors include four Democrats and four Republicans.  I think it's more accurate to say that the bill is nonpartisan than that it is bipartisan; there is really no overriding constitutional principle here except for a very narrowly-defined emphasis on states' rights (if you consider it a state right to put into place discriminatory laws regulating commerce).  But what is at play, like last year, is money.  The Wine Spectator found last year that beer and liquor wholesalers had made over $11 million in campaign donations over four years to House and Senate campaigns, a total that rose dramatically after the Granholm decision.  In total, the organizations that supported HR 5034 outspent those that opposed it by a total of more than four to one.

The risks of this year's bill are real.  Last year, Nancy Pelosi (whose district contains dozens of wineries) was an important opponent of the legislation.  With the change in leadership in the House, Pelosi's influence is diminished while new Speaker John Boehner's position on the bill is unknown.  I urge wineries and wine lovers not to be complacent about the act's prospects.  With the money at stake, wholesalers' organizations are committed to protecting their interests over the long haul, and are willing to continue to pour money at legislators to ensure that their opinions are heard.

Freethegrapes
Join Free the Grapes to get involved

There are two important actions we can all encourage.  First, we in the wine industry need to continue to spread the word that this bill is a threat not just to the livelihoods of family wineries but also an anticompetitive piece of legislation that will raise prices and dramatically reduce availability of wines for consumers around the country.  And the second is to make sure that our congressional representatives know that we're watching.  As usual, the Web site Free the Grapes has great tools to make this easier, principal of which is a form with a customizable letter that will be sent automatically to your congressional representatives.  I have already reached out to Representative Kevin McCarthy (whose insight and behind-the-scenes work last year was welcome) and will let readers know what I hear back.