I haven’t yet addressed the issue of HR 5034, now going through the U.S. House of Representatives, because it seemed complicated, and I didn’t want to take a position until I understood the details.
I wanted to try and see this from the distributors’ point of view. There may be a case in favor of restrictions on alcohol sales of the kind they’re trying to push through in 5034. After all, alcohol isn’t your average consumer product, it’s a drug. If it gets into the wrong hands, it can cause lots of pain. So I didn’t want to have a kneejerk reaction and just say, “All distributors are jerks,” even though my initial instincts were strongly in favor of direct shipping. Sometimes, instinct needs to be tempered by informatio, and gathering information takes time. In the end, though, I’m coming out against 5034, because the arguments in favor of it are very weak, and they don’t stand up to intellectual scrutiny.
Most of what I knew about 5034 came via Tom Wark, who’s blogged extensively against it at Fermentation. As Tom explained it to me, 5034 was a sort of end run around the Supreme Court’s famous 2005 Granholm v. Heald decision, in which SCOTUS said (I’m paraphrasing) states cannot prohibit wineries from other states from sending in their wines to consumers, if those same states allow their own wineries to disseminate wines. It was a basic issue of fairness, but also seemed to comply with the Commerce Clause (Article I, Section 8, Clause 3) of the U.S. Constitution, which gives the Congress — not the separate states — the power to regulate interstate shipping.
That was a good development, especially for smaller wineries, who had found themselves locked out of the distribution system. The smaller wineries wanted to be able to ship their wines directly to customers anywhere in the country, especially in the age of the Internet; and Granholm v. Heald seemed to give them that right (although when I interviewed Ken Starr, who successfully argued the case, he told me it would be many years before there was unfettered wine shipping across U.S. states, and boy, was he right).
Tom also explained to me that 5034, if enacted, “would give states the ability to enact discriminatory bans on wine shipping,” reasons too complicated to get into. Bottom line, according to Tom: “The law encourages and will result in states… passing bans on direct shipping that cannot be challenged in court.” (Disclosure: Tom is the paid executive director of the Specialty Wine Retailers Association, which is very anti-5034, and so he’s not exactly unbiased. But I am.)
I always operate on the theory that you can figure out what’s up with an issue by seeing who’s for it and who’s against. So who’s in favor of 5034? Let’s start with the Wine & Spirits Wholesalers of America. In a press release last April, they “encouraged members of Congress to support state-based regulation of alcohol and look beyond the mischaracterizations and misinformation being circulated” by its opponents, like Wark and SWRA. They took a states-rights position — the kind that conservative red states always take when they want to be discriminatory — and said 5034 would “place the burden in litigation where it should be: on the plaintiff challenging a state alcohol law.” That’s pretty much the same flimsy argument that opponents of Brown v. Board of Education used in the 1950s: the Federal government doesn’t have the right to desegregate public schools, and if a black family doesn’t like a school’s admission policy, they can sue that school board in court. If not for Brown v. Board, we’d still have segregated schools today.
WSWA also argued that 5034 doesn’t violate the Commerce Clause because it “does not expand state legislative or regulatory authority into what is currently and appropriately federal jurisdiction.” This seems to me to be disingenuous, an Alice-through-the-looking-glass playing with words. WSWA says that the Federal government, through agencies like TTB, FTC and FDA, remains free to regulate alcohol “in such areas as labeling, advertising and food safety.” Okay, but if the Feds can regulate in those areas, why can’t they regulate interstate shipping? Totally bogus argument.
Finally, WSWA asserts 5034 “does not favor any segment or tier of the industry.” Puh-leeze! Everybody knows 5034 favors wholesalers. Who’s kidding whom?
Who else is in favor of 5034? Well, there’s the National Beer Wholesalers Association (NBWA), whose position is a carbon copy of WSWA’s (and for similar reasons). Then there are 5034’s backers in the Congress, about 100 of them. There’s ample evidence that WSWA and NBWA have contributed boatloads of money to their supporters, as for instance here and here and, especially, here, where you can draw direct lines between WSWA’s main contributors (all the big distributors) and individual congressmen who are beneficiaries of its largesse (and by the way, this isn’t a partisan issue: Democrats and Republicans alike take campaign donations from WSWA and NBWA).
So what we have is a collection of odd bedfellows lined up in favor of 5034: wholesalers, distributors, and the politicians who take their money to run for election or re-election.
Now, who’s against 5034? Like I said, there’s Tom Wark and his Specialty Wine Retailers Association. No surprise there, since their members are smaller wineries and merchants, and their slogan is “wine without borders.” Also against the bill is Free the Grapes!, which is a leading group in favor of direct interstate shipping of wine; various state legislatures (including the New Jersey Senate, where my cousin, Sen. Loretta Weinberg, voted to open up interstate wine shipping); the Wine Institute; Family Winemakers of California, and many congressmen from wine-producing districts, including Rep. Mike Thompson, who represents the North Coast.
For me, the good guys are against 5034 and are in favor of the free, unfettered shipment of alcohol, to and from adults, throughout the 50 states. Isn’t that as it should be in America — isn’t that as Thomas Jefferson intended? I don’t want to say those in favor of 5034 are bad guys, because I’m sure they’re good people who are simply trying to protect their economic interests, same as all of us do. But I’m siding with those trying to defeat 5034. It’s a bad bill. Please call your Congressional representative and urge him or her to oppose it.
Bulletin: Just in (8:05 a.m. California time, Oct. 8): “TTB ANNOUNCES ESTABLISHMENT OF HAPPY CANYON OF SANTA BARBARA VITICULTURAL AREA.” We knew that was coming. I blogged about it more than a year ago.
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I got an email the other day from a winery representative who complained about some of my scores. “The last 4 months of reviews have been in the low 80′s and we have been getting much higher scores from wine competitions and other publications for the same vintages of wines,” the person wrote, asking, “The reason for my email is concern that our wines are somehow getting cooked, or something, from here to there. Can I give you a call to see what we can do differently to insure the wines arrive fresh?”
I want to blog on this, because so many important issues are at stake. To begin with, I double-checked my scores for the wines since June 1 and discovered I’d given 87 points to a Cab, 86 points to a Chardonnay, a pair of 84s to a Zin and Syrah, and a couple of 83s. One or two of the wines did indeed score in the low 80s, but I emailed the P.R. person back that 87, 86, 84 and even 83 are not “low 80s” but mid- to high 80s. To this, the person responded, “Our distributors and many of the wine buyers look at anything below an 86 as a ‘low score.’”
What can I say. I can’t teach remedial arithmetic to distributors. All I can do is point out that 87 and 86 are not low scores and neither is 85 or even 84 points. All are “very good” and “good” scores by Wine Enthusiast’s definition. Of course, if a wine scores 85 points and retails for $50, then there is a problem, but it’s not my problem, it’s the problem of the people at the winery who establish the price.
Another issue that really gets my goat is when a winery rep tells me, “Parker (or ____, fill in the blank) really liked this wine, and it got a double bronze at the Cleveland International Wine Fair, so how come you only gave it 87 points?” Well, at the risk of being obvious, let me point out that my name is not Parker or Cleveland or anybody or anything else. It’s Heimoff. I don’t check in with other critics before I make a review. Just sayin’…
The final issue involved in this situation is shipping or, to be more precise, wines getting cooked in the back of a UPS or FedEx truck during a heat wave. For many years, I’ve urged wineries to check the 7-day forecast before sending samples out for review, and I’m glad to say they’re listening. This September, the quantity of incoming wines was at a near-record low, because September is our hottest month and we did in fact have several heat waves. I was happy to see my storage closet actually empty out at one point.
What am I supposed to do if a wine suffers from heat damage? Obviously, if I know for sure it’s cooked, I can call the winery and request a resend, and I’ve done that. But I can’t always tell. Many California wines, especially red ones, are so overripe and soft anyway that they might as well be heat-treated — are the raisins from shriveled clusters or a hot truck? I also reason to myself that, if I started asking wineries to resubmit wines that just might have suffered from one problem or another, I’d basically be increasing the number of wines I taste by a huge percentage, and even then, how could I justify leaving a score at “83” unless I’d tasted the wine at least half a dozen times, so I could swear that I’d done my best to be absolutely, positively sure that it was really the wine, and not something external to it? But obviously, I’m not going to do that. I think for the most part that wineries need to take the responsibility for getting me (and all reviewers) their wines in the best shape they can. That’s their job.
But back to those pesky distributors. It’s a cliche to say that anything below 90 is dead on arrival. I’m not sure where that came from, historically, but it’s a horrible development. I don’t think that’s why Parker invented the 100-point scale and I know for sure that at Wine Enthusiast, we don’t turn our noses up at an 86 point wine. Wines that score in the 90s tend to be bigger, riper and probably oakier than those in the 80s. That’s the way the system works. But that doesn’t mean that a 95 point Pinot Noir is better for drinking tonight with lamb than an 87 point Pinot Noir. That’s what the distributors don’t understand. And what I don’t understand is how to get the word out that the 90 point threshold is not some magical, absolute event horizon, the dividing line between Heaven and Hell. It’s just a number. If you have any ideas of how to de-criminalize scores in the 80s, let me know, but please, don’t suggest doing away with the 100-point system altogether. That’s a non-starter. I think it has to do with educating distributors and point-of-sale people, both on-premise and off-premise. It’s a simple message to deliver to the customer: “Dear Sir or Madame, this wine is better for drinking tonight. I assure you.” If the customer doesn’t trust the seller, then that’s where work is needed, not in the scoring system.
It’s France’s annual foire aux vins (wine fair), the late summer-early fall event when the nation’s supermarkets offer heavy discounts on wine, sending consumers on “a shopping spree…through crates of Bordeaux and Bourgognes in search of the best vintage at a good price,” says the article in Agence France-Presse.
It is, simply, “time to stock up,” even — or especially — in bad economic times. Sales from the foire aux vins amount to an astounding “25 percent of the total annual turnover for wines in big supermarkets.” It’s not only a great deal for wine consumers, but also for producers, providing them with “a major boost at a time when they are struggling with falling demand.”
I did a little research. Prices seem to be cut up to 30-40% on many bottles, with, for instance, Chateau Tour Simard 2004, the second wine of Chateau Pavie, selling for 11.49 Euros instead of the usual 35 Euros.
Imagine if we did something like that here in California. Vons, Ralph’s, Cost Plus, Albertson’s, Safeway, BevMo, Andronico’s, Wal-Mart, Whole Foods and everybody else slash prices by an average 25% for two weeks. I predict the result would be historic. At the end of the two weeks, shelves would be empty, forcing the supermarkets to reorder from wineries, who then would be able to deplete stocks that, in many cases, have been sitting idle in warehouses. Laid-off employees would be rehired.
Let’s not stop there. Who’s to say that this would not only stimulate an immediate rush on wine, but that thousands, even tens of thousands of consumers would then decide they wanted wine to stay in their lives?
Okay, I can hear the objections. “Sure it would be good for two weeks. But what then? When prices bounced back up, people would simply stop buying again, and we’d be back to Square One.” Well, yes…and no. Wineries would raise their prices back up, but not to the full amount they fetched before. Maybe 5-10%. Some consumers would hardly notice. Those who did would understand that the foire aux vins (which would have been announced in advance) was only for two weeks, so they wouldn’t be surprised or offended when the deals stopped. Producers and distributors then could carefully watch the market for signs of recovery, boosting prices modestly if things look good, holding them steady otherwise.
I do admit that small wine shops might be hurt. That’s a tough one, and I don’t know the answer, except that small wine shops will always have their admirers, who don’t like buying wine in supermarkets.
Of course, we couldn’t call it the foire aux vins. The Freedom Fries wingnuts would crawl out from under their Fox News rocks and accuse us of being (gasp) — socialists! We could call it California Wine Fair Days, or something like that. Do you think the media wouldn’t give it massive coverage? Of course they would. It would be on all the news shows like white on rice. Wineries would participate, opening their doors and offering the same 25% discounts. Other States would notice, too. It would be another case of California leading the nation. We might even have an American Wine Fair Days, especially with this President who, thankfully, likes a nice glass of wine.
Maybe food purveyors would hop onboard. The supermarkets could offer recipe cards for the major wines. Excited consumers would be tempted to try that short ribs dish to pair with the Petite Sirah, or those crab cakes to go with the Chardonnay. Probably the best time of the year to do this is during the warm months when tourism peaks in California wine country.
I think it’s a great idea and I hope the industry picks up on it.
Added later (i.e. earlier published additions of this post will not contain this addendum):
I asked my friend and colleague, Roger Voss, who covers France and much of Europe for Wine Enthusiast, about the foire aux vins, and he emailed: It’s held by French supermarkets every autumn. They buy in parcels of wine from merchants, from producers, from wherever and sell them at discounted prices. The wines can be classed growth Bordeaux or top Burgundy, Champagne etc. Often they are wines from less sought after vintages which the suppliers want to destock. It was created by supermarket group Leclerc several years ago (around 10 at a guess, but maybe longer). And now every supermarket does it. Because French supermarkets are mainly franchised, the quality of the range can vary from store to store and depends on the parcel size. And, of course, if you want to get Bordeaux bargains, go to a Bordeaux region store, for Burgundy go to Burgundy, etc.
Joshua T. Block and Sharon Silber, two New York residents, and Kahn’s Fine Wines & Spirits, an Indiana liquor store that wanted to send them wine, never thought they had anything in common with Al Capone, until the 2nd U.S. Circruit Court of Appeals, sitting in Manhattan, compared them to “organized crime” figures who, if allowed to get away with their scheme, might illegally “dominate the [wine] industry.”
Notorious wine merchant Capone, c. 1936
That was the language the Court used in striking down the three plaintiffs’ lawsuit against New York State’s Alcoholic Beverage Control Law (ABC Law), which prohibits suppliers from selling wine directly to consumers. The Circuit Court ruled instead in favor of the New York State Liquor Authority, the main defendant, and declared that New York’s law does not violate the Commerce Clause of the U.S. Constitution.
The case was closely watched by all parties in the wine industry, particularly because it was one of the most important test cases following the U.S. Supreme Court’s Granholm v. Heald 2005 decision, which held that States may not prohibit out-of-state suppliers from selling direct to consumers, if they allow in-state suppliers that freedom. The Circuit Court, however, held that the ABC Law does apply equally to both in-state and out-of-state suppliers and hence “these provisions are within the authority granted to New York by the Twenty-first Amendment [to the Constitution, which repealed Prohibition]. Having so ruled, the Court finds it unnecessary to undertake a dormant Commerce Clause analysis. There being no further basis for plaintiffs’ challenge to the constitutionality of the ABC Law, the Complaint is dismissed.”
I guess I can see why the three Circuit Court judges ruled the way they did. Writing for the majority, Judge Richard C. Wesley said New York’s law “treats in-state and out-of-state liquor evenhandedly,” and “thus complies with Granholm’s nondiscrimination principle.” It isn’t up to these non-elected judges to make new laws, but only to interpret existing laws, no matter how loathesome.
What I don’t understand is why Wesley couldn’t leave it at that. Instead, he went on a rant when he called the plaintiffs’ lawsuit “a frontal attack on the constitutionality of three-tier system itself,” which he said the Supreme Court in Granholm found “unquestionably legitimate.” That is true, but the High Court also cast considerable doubt on the underlying merits of the three-tier system, which was not itself at issue. Justice Anthony Kennedy, writing the majority opinion, conceded the three-tier system “substantially limits the direct sale of wine to consumers, an otherwise emerging and significant business.” Noting a decline in the number of wholesalers (and it’s even worse today), Kennedy added: “The increasing winery-to-wholesaler ratio means that many small wineries do not produce enough wine or have sufficient consumer demand for their wine to make it economical for wholesalers to carry their products.” He correctly noted that direct-shipping of wine to consumers (in States where it is permitted) represents a hope for these small family wineries. But, he pointed out, “In many parts of the country, however, state laws that prohibit or severely restrict direct shipments deprive consumers of access to the direct market,” and he quoted the Federal Trade Commission as saying, “[s]tate bans on interstate direct shipping represent the single largest regulatory barrier to expanded e-commerce in wine.”
So it seems to me that the Supreme Court, at least, is aware of the inadequacies and unfairness of the three-tier system. It’s going to take the wine industry years more to topple it, or at least by-pass it, but it’s incredible to me that Mr. Block and Ms. Silber, two New Yorkers who just wanted to buy some wine from a fine wine shop that happened to be located out of their State, are unable to do so, because of an antiquated law that was designed to prevent Al Capone and the Mafia from taking control of the liquor industry. I mean, come on!
I called the owner of Kahn’s Fine Wines & Spirits, Jim Arnold, and asked him what he’ll do next. “We’re re-evaluating that with our attorneys,” he replied. When I asked what specific wines he had tried to send to the New Yorkers, he said, “Collectibles. We’ve had lots of requests from New York residents to send to them, which is why we brought this suit.”
Well, I didn’t really invent the Internet. But I did write an article in the May, 1997 issue of Wine Enthusiast — twelve years ago — that was pretty prescient in its predictive power. (And that is a 98-point alliterative triumph.)
I came across an old copy of the ‘zine last week. Re-reading my article, Wine on the Web, I was reminded of the heady excitement of the mid- 1990s when the wine industry and the Internet collided. But what really struck me was how many of the issues back then are still with us, unresolved and perhaps unresolvable.
By the second paragraph, I’d identified the key: “…vintners sense an opportunity to market their wines…”. I quoted the then-PR manager of St. Clement to explain why her winery had rushed to set up a Web page. “We didn’t have a goal,” she explained. “We just knew we had to be a part of it.” From there, I quoted Peter Granoff, an original founder of Virtual Vineyards (which went belly up; it’s now morphed into wine.com). “[M]ost wineries are still caught up in the Web for its own sake and are struggling to find out what to do.”
Peter, or that PR manager, could say precisely the same things today! It’s amazing that, as far as we’ve come, most California wineries remain well behind the digital curve and don’t seem to know what to do with the Internet, including social media (which didn’t exist in 1997). True, most wineries have a website. But most of them are boring, unfriendly, and not even up-to-date with new vintages (which you’d think would be easy to do with a computer). Wineries should be leading other businesses in forging ahead on the Internet, not dawdling behind.
I also wrote: “There are only two things a winery or wine company can do on the Net….marketing and sales. Although intimately related, they’re really quite different.” I called marketing a “soft activity,” meaning it did not directly make money. Concerning sales, I wrote: “this is the hard part of the transaction. It’s where the customer actually forks over a credit card number.”
Couldn’t have said it better today.
I quoted an electronic marketing expert: “The question today is whether the Web’s primary value to business will be as a revenue builder, a cost-cutting device, or a brand builder. I believe that brand-building will win out.” That woman was right. We’re seeing that brand building and customer loyalty are the end products of web sites, blogs and twitter, not sales in and of themselves, much less cutting costs.
In my article I also quoted Granoff as saying it didn’t make sense for mass-produced wines, which are readily available in supermarkets, to sell direct over the Internet. “Why would you buy it on the Net and pay the extra cost of shipping, and then have to wait to get it?” The same is true today. Instead, he and others told me, it would be smaller wineries that would benefit from DTC sales. (Of course, this was well before the Granholm v. Heald 2005 Supreme Court decision.) Let’s hope that day is near when all 50 states allow shipping of wine. That will be the salvation of many small family wineries that otherwise may not make it.
I quoted de Toqueville: “Time has not shaped it into perfect form…and it is almost impossible to discern what will pass away…and what will survive.” He was speaking of America in the 1830s, but we could use those exact words about the Internet right now.
Dept. of Oops
The Associated Press is reporting that “A man suspected of breaking into a Maine restaurant will have to get used to jailhouse food after workers at the eatery discovered lobsters and wine missing – and the suspect asleep on a bench. Police said [name withheld] broke into the Portland Lobster Co. through a rear window and stuffed his pockets with cash before chowing down on the better part of 11 prepared lobsters worth about $300. He washed it all down with a white wine…”
Same thing happens to me when I eat 11 lobsters. I just wanna close my eyezzzzz and drifffftt… By the way, I went to the Portland Lobster Co.’s website to see what white wines they have. I hope the thief washed his crustaceans down with the J. Lohr Chardonnay because that’s what I would have picked.
And you thought “Sonoma Coast” was too big
The TTB in its wisdom announced its latest Frankenstein AVA yesterday. Quote from the PDF: “The Alcohol and Tobacco Tax and Trade Bureau (TTB) published a final rule in the Federal Register establishing the Upper Mississippi River Valley viticultural area. This viticultural area consists of 29,914-square miles…”
In other words, just your typical tiny little appellation.
Thirty-thousand square miles! That’s 175 miles on each side. Here’s the truly pathetic part of the press release: “We designate viticultural areas to allow vintners to better describe the origin of their wines and to allow consumers to better identify wines they may purchase.” Yes, it’s truly helpful to the consumer to know that the wine hails from somewhere in the upper Midwest.
Your wine comes from someplace in here
Silicon Valley Bank is out with their annual State of the Wine Industry Forecast and Recommendations, and it makes for sobering reading. It begins with an understatement:
“The attitudes and preferences of the U.S. taxpayer and wine consumer are in markedly different places today than they were a year ago.”
Then it cites a veritable witch’s brew of bad news:
- 4th quarter of 2008 was “the worst in memory for the fine wine business.”
- depressed restaurant sales, higher unemployment and foreclosures and lower consumer spending will continue through 2009 “as we seek a bottom.”
- wines between $40-$125 are in a “dead space.”
- winery sales “at bargain prices” are to be expected.
- Most scary of all, “Distribution has all but ended as a viable sales channel for small wineries.” (Which is exactly what I said last week.)
- Meanwhile, “credit markets are nearly frozen.”
- The secondary market for collectible wines has softened. (What?!? You mean you won’t pay me $10,000 for my bottle of 2001 Screaming Eagle?)
- And between the drought and sin taxes, whatever wineries are still standing will get hit with a double whammy.
Well, it could be worse. California hasn’t fallen into the sea following a 9.7 earthquake on the San Andreas Fault. Yet.
In this toxic atmosphere, it comes as no surprise when the report states that “Central Valley suppliers [are] the most optimistic and Napa and Sonoma suppliers [are] the most pessimistic.” That’s because all anyone can afford anymore are jug and box wines — fortunately, for the economies of San Joaquin and Madera counties.
But wait, there’s even more bad news. Small and mid-sized family wineries are facing “capitalistic Darwinism,” a dog-eat-dog fight to the death from which the weak will not emerge. The report’s recommendations are not surprising; they’ll be familiar to regular denizens of the wine blogosphere. Wineries must
- keep prices moderate
- get better at Internet direct-to-consumer selling and e-marketing. In other words, develop a “digital plan.”
- contain costs
Meanwhile, the Sonoma County Economic Development Board has a new 2009 Wine Industry Insider report that echoes the Silicon Valley Bank’s gloomy forecast. Among its findings:
“The spread of economic weakness around the world creates a
disadvantage for Sonoma County wine exports to top international
markets and will expand import competition here in the U.S.”
“Consumers are shifting away from high-priced wine purchases; high margin on-premise sales, such as those at restaurants, fell sharply… Wine drinkers and retailers are shifting to value, putting downward pressure on wholesale wine prices for local wineries. Some wineries are adapting to the shift by upping production of lower-priced wines.”
“The outlook for the Sonoma County wine industry in 2009 is for limited unit sales growth and the continuation of consumers’ shift toward value from high-priced wine purchases.”
Tough times, but good for wine consumers — if they have any money to spend.
P.S. I’m taking a few days off. I may be able to blog from the road — not sure. Check in, just in case. If not, I’ll be back on Monday.