Tag Archives: three-tier system

Winebits 625: The Happy Holidays edition

gerrit cole

Gerrit, dude, think $10 Bieler Provencal rose.

This week’s wine news: A $900 wine helped the New York Yankees sign Gerrit Cole, the best free agent pitcher on the market. Plus, a couple of decidedly Bah Humbug developments about the wine tariff and distributors.

I’ll take two, please: The New York Yankees may not have signed top free-agent pitcher Gerrit Cole because they threw a record-setting $324 million at him. Rather, a couple of bottles of $900 Italian wine may have been equally as important. The Yankees gave Cole the 2004 and 2005 Massetto — made with merlot, of all things — and he practically melted. If I had known Cole was a wine aficionado, I could have helped my beloved Chicago Cubs sign Cole. Frankly, he would get a better deal with 180 bottles of the $10 Bieler Provencal rose than two bottles of an Italian merlot, no matter how good it is (and my Italian wine expert says it’s good, but not that good).

More tariff threats: The U.S. government is considering boosting October’s 25 percent tariff to 100 percent and including almost all beer, wine, and spirits produced in any European Union country. That would include those exempted in October. You can read the sad details at the link; why anyone would want to destroy the European booze business is beyond me. That’s just spite. I’ve talked to a couple of importers and producers, and they’re urging wine drinkers who think this thing is foolish to leave a comment with the feds. Go to www.regulations.gov, enter docket number “USTR-2019-0003” and click search. Then, click “comment now” and leave your comments/concerns. Comments are open until Jan. 13.

Not enough distributors? The WC has written quite a bit about distributor consolidation, and how it benefits no one but the distributors and their biggest customers. Turns out someone agrees with me. Cyrus Azari, writing for a trade blog, says there may not be enough distributors for all of the wine in the market, and this is a “huge pain point for wineries who get cut off from markets.” In other words, no distributor means the wine can’t appear on store shelves, since the law requires every wine to have a distributor. That sounds like a fair system, yes?

Winebits 624: Scratch and sniff, Gallo-Constellation deal, Amazon wine

scratchand sniff

“Hmmm.. is that gardenias and lilacs?”

This week’s wine news: Scratch and sniff wine corks, plus Gallo and Constellation rework their wine deal and Amazon launches private label wine in Europe

It smells so good: How about scratch and sniff wine corks? Amorim, one of the largest closure producers in the world, has developed wine stoppers that contain a fragrance, as well as a complementary spray that can be sold with the wine. Call it perfume for wine. There’s no indication in the story in the link, which reads like a cut and paste news release, how the fragrance doesn’t get in the way of the wine’s aroma — which would seem to be a serious problem. In addition, the scratch and sniff product is part of a new line of closures that includes one with an LED and one that changes color when the wine is at the correct temperature.

Not so fast: E&J Gallo and Constellation Brands have revised their massive wine sale after a warning from U.S. government regulators. The original $1.7 billion deal has been reduced to $1.1 billion, and Constellation won’t include several brands that would have given Gallo too big a share of the U.S. market in several categories. That includes Cook’s California Champagne, a $7 sparkling wine, since Gallo already owns Andre, a similarly priced California bubbly. Expect Constellation, which is running away from wine as quickly as possible in favor of legal weed, to dump Cook’s on someone else.

Amazon wine: Amazon has launched its own-branded wine in Europe. The story in the link, which focuses on how this might affect California, misses the point – that it’s likely illegal for Amazon to do this in the U.S. It also misses the point about Amazon’s competition in Europe, which aren’t high-end wineries, but supermarkets selling €10 wine. So the on-line retailer is selling €20 wine in Europe, apparently because it doesn’t want to compete with Aldi, Lidl, and the rest.

Winebits 623: Baby Boomers and wine, three-tier, hard seltzer

baby boomers

“Maybe I should buy some White Claw instead?”

This week’s wine news: A warning for those depending on the Baby Boomers to rescue the wine business, plus Total Wine appeals to the Supreme Court, and hard seltzer outsells vodka

Pointed language: How is this for telling the wine business what’s what? “So if your wine clubs are full of people between the ages of 55 and 75, and you’re just trying to grind those guys to death in the last few years, be thinking about that transition.” That’s the blunt warning from a top wine analyst, speaking at a recent wine trade show. Robert Eyler told his audience that the wine business has not been able to convince Millennials to drink wine. Hence, given the aging of the Baby Boomers, who still support the market, the wine business could be in big trouble.

Bring on the Supremes: Retailer Total Wine, struck down in Connecticut for challenging the state’s minimum pricing law, will appeal to the Supreme Court. This case, if accepted by the court, has the potential to further upset three-tier following this summer’s Tennessee retailer decision. Total is arguing that Connecticut’s pricing laws are no different from an illegal price-fixing conspiracy, since everyone knows the prices ahead of time and no one can deviate them from them.

Still growing: Hard seltzer, those cheap, easy to drink, low alcohol products like Truly and White Claw, account for some 2.6 percent of the U.S. booze market – more than vodka, the best-selling spirit. That’s triple the share from a year ago, according to a recent report. That works out to about 82 million cases – almost 10 times the amount of Barefoot sold in 2018, which is the top selling U.S. wine brand.

Winebits 617: Blind tasting, campaign cash, grape glut

This week’s wine news: The perils of blind tasting – even for experts. Plus cash and the three-tier system and too many grapes to harvest

Whoops! What happens when a high-end sommelier does a blind tasting for an audience? Check it out in the video at the top of this post, part of an advertising campaign on the 750 Daily website. Let’s just say it was not pretty – identifying a 2018 Italian pinot grigio as a high end white Rhone blend. The Wine Curmudgeon, who is one of the worst blind tasters he knows, has much sympathy for the sommelier.

Follow the money: What happened after the Pennsylvania legislature voted to allow limited supermarket wine sales in 2016? Several legislators who played a key role in the bill’s passage went to Europe, courtesy of “campaign donations.” The story, reported by three Pennsylvania newspapers as part of a year-long investigation, shows just how prevalent cash is in oiling the three-tier system and why reforming it is so difficult. The donations paid for “overseas and cross-country travel, sports tickets, limos, dinners, cuff links and country club memberships. Among the hidden spending, however, the European trip stood out.” Best yet, the trips and money may not have been illegal.

Too many grapes: What should do California grape growers do when they can’t get a fair price for their grapes? Leave them on the vine to rot. That’s the advice from two University of California viticulture experts. In other words, the predicted California grape glut seems to be underway. Western Farm Press reports that the extension agents say “in this market, the prices offered are likely to be less than the cost of production. Allowing unsold fruit to remain on the vines may seem unthinkable, yet with no income from those blocks, it makes sense. This means not dropping clusters by hand and not running a harvester in the vineyard to get the berries off.”

Federal appeals court slaps down Texas Walmart liquor stores

Texas Walmart liquor storeDoes the appeal court’s Texas Walmart liquor store ruling diss the Supreme Court?

Remember the Supreme Court’s June Tennessee decision about out-of-state retailers?

That’s the one that was supposed to free us from the shackles of the antiquated, Prohibition-era three-tier system of liquor regulation. If so, the U.S. Fifth Circuit of Appeals wasn’t paying attention. It ruled last week that a Texas law that forbids public companies like Walmart from owning liquor stores may not be unconstitutional.

In other words, Tennessee can’t discriminate against out-of-state retailers, but Texas may be able to discriminate against publicly-owned retailers.

Arghhhhhhhhhhhhhhhh.

“We could be right back at the Supreme Court,” says Taylor Rex Robertson, an attorney with Haynes and Boone in Dallas. “The appeals court may have taken the easy way out.”

In this, Robertson says, the appeals court didn’t exactly rule that the Texas law is constitutional. Instead, it disagreed with the way the trial court judge analyzed the case and applied the law. Rather than make a decision, the appeals court sent the case back to the trial judge to do what needs to be done to analyze the case correctly. Call this a technicality, but one of the technicalities that oils the gears of the legal system.

And why not a technicality, since this is three-tier? If anything, the almost totally unexpected decision in the Texas Walmart liquor store case proves just how resilient three-tier is. Because it was a shock; the trial court had called the Texas law “irrational.”

Controversy, controversy, controversy

Still, it’s not like these kinds of contradictory decisions are unusual. In 2005, the Supreme Court ruling that allowed wineries to ship directly to consumers was supposed to end three-tier’s stranglehold. Until it didn’t.

Or, as a friend of mine put it: “Precedent? There’s no such thing as precedent when it comes to three-tier.”

Legally, the two decisions weren’t about exactly the same thing, even if an out-of-state retailer and a publicly-held retailer may seem to be pretty much alike to those of us who buy wine. But in the convoluted and tortured system that was set up to keep Al Capone out the liquor business after Prohibition, they’re vastly different. (Which, without boring you with legal-ese, is sort of why the appeals court did what it did.)

Hence, the Supreme Court ruled that barring out-of-state retailers wouldn’t necessarily promote the health and safety of Tennessee residents, which is the litmus test for a law’s constitutionality. The Supremes said an out-of-state retailer could just as effectively promote the health and safety as a local retailer. But in the Texas Walmart liquor store case, the appeals court said that there is no evidence that publicly-held retailers couldn’t promote the health and safety of Texas residents as effectively as privately-held companies could.

In other words, a Total Wine employee in Tennessee would card underage shoppers, fill out the state’s booze-related paperwork, and buy only from approved wholesalers more effectively than a Walmart employee in Texas would.

Arghhhhhhhhhhhhhhhh.

No, I don’t know what’s going to happen next. The only certainty, says Robertson, is that the Texas Walmart liquor store saga isn’t gon away anytime soon. What I do know is that whatever glimmer of hope we had that it would be easier to buy wine in the near future has glimmered away.

Drawing courtesy of Peter Hudspith via Flickr using a Creative Commons license

Winebits 604: Three-tier lawsuit, organic wine, printer ink

three-tier lawsuitThis week’s wine news: Three-tier lawsuit over pricing reminds us that booze regulation isn’t gong away quickly. Plus, is organic the future of wine, and why does printer ink cost more than vintage Champagne?

No discounting: Total Wine, the national liquor store chain, can’t discount wine lower than the state of Massachusetts says it can, ruled the state’s highest court. The decision overturned a lower court judgment in favor of Total, which said the chain could charge lower prices, and that they didn’t violate state law. There’s almost no way to summarize the judgment for anyone who doesn’t have a law degree and is familiar with alcohol wholesalers; it’s enough to know that the ruling (the pricing laws are “not arbitrary and capricious or otherwise unreasonable”) reminds us that three-tier isn’t going away quickly, despite what many people think.

Organic wine: An Italian high-end producer says the future of quality wine is organic. “I think it’s important to go organic, because today, we need to be careful about what we eat and drink,” says Salvatore Ferragamo, whose family owns Tuscany’s Il Borro. Since the vines absorb what is found in the soil, and since that is transferred in varying amounts to the fruit and into the wine, organic makes the most sense.

Very pricey: Those of us who have always wondered why printer ink was so expensive will not be surprised to learn that it’s 10 times more expensive than vintage Champagne, widely regarded as some of the best wine in the word. A British consumer advocacy group says printer ink costs around £1,890 per litre (about US$2,400), compared to £1,417.50 per liter (about US$1,756) for vintage Champagne from luxury producer Dom Perignon. The consumer group also reported that printer was more expensive than crude oil.

Photo: “Antinori Wines at Berkmann Grand Cafe Wine Tasting” by Dominic Lockyer is licensed under CC BY 2.0 

What’s next for three-tier after the Supreme Court’s Tennessee retailer decision?

Tennessee retailer decisionDon’t make too many bets three-tier will open up after the Tennessee retailer decision; we’ve been down that road before

The cyber-ether has been awash with confident pronouncements since the U.S. Supreme Court’s Tennessee retailer decision, which struck down a law that limited who could own a liquor store in that state. Many predicted the beginning of the end of the antiquated and restrictive three-tier system that regulates alcohol sales in the U.S.: “Consumers could benefit from Supreme Court ruling,” “Supreme Court hands retailers a big win,” and so on. One of the smartest people in the wine business even said we should see these pro-consumer changes quickly.

Don’t bet on it.

I’ve spent the three weeks since the Tennessee retailer decision interviewing attorneys who practice liquor law, analysts, and other knowledgeable people. And their consensus, almost to the syllable: The Tennessee retailer decision may be a big deal at the moment, but don’t expect much to change about three-tier — and it’s not going to get easier for us to buy wine.

“I don’t see this ruling going much farther,” says Tucker Herndon, an attorney in Nashville who is the office managing partner of Burr & Forman LLP. “I don’t think it’s going to open the floodgates, and I don’t think it’s going to give us a regulatory system without a lot of limitations.”

The Supreme Court ruling said Tennessee couldn’t impose a residency requirement on liquor store owners because such a requirement didn’t promote the public health and safety. All it did, said the ruling, was shield local retailers from competition from national and regional chains. In fact, residency laws are common in in the retail booze business for just that reason, and we’ve had one in Texas in one form or another for years.

The 21st Amendment, which repealed Prohibition, allows the states to regulate alcohol sales as long as the states are promoting the public health and safety. Hence, the Tennessee law ran afoul of the Constitution’s Commerce Clause, which says states can’t favor their residents ahead of people from other states unless there is a very good reason, like public health and safety.

Nothing new about this test

Hence, what seems to a litmus test for the three-tier system. But the attorneys I talked to said that public health and safety has always been a litmus test, and it’s a long way from the Tennessee retailer decision to Internet wine sales. That’s what many analysts are predicting in the wake of the decision: That we will be able to buy wine from any retailer anywhere in the country with the click of a computer mouse.

The attorneys and analysts cited three reasons for their pessimism:

First, the decision didn’t really do anything but overturn a bad law that even the state of Tennessee didn’t think much of. The state attorney general didn’t appeal the lower court ruling; the state’s liquor retailer trade group did because the attorney general didn’t think the law was defensible.

Second, says Herndon, the decision is about retailer residency – nothing more. That someone doesn’t need to be a Tennessee resident to get a retail liquor license to open a store in Tennessee doesn’t mean that someone who doesn’t live in Tennessee can get a license to open a store outside of Tennessee. It’s a subtle difference, perhaps, but an important one. He says the state can almost certainly show that it’s protecting the public health and safety by requiring anyone who has a Tennessee retail license to use that license for a store in Tennessee.

Third, says Lou Bright, the former generral counsel for the Texas Alcoholic Beverage Commission, it’s a long legal journey from this ruling to Internet wine sales. Three-tier mandates that consumers can only buy from retailers and restaurants, while retailers and restaurants must buy from wholesalers and they can’t buy from producers. And producers must, save for one small exception, sell only to wholesalers.

Bright says Tennessee was about who can get a retail license, and not about retailers selling wine directly to consumers. When the court carved out the small, direct shipping exception in 2005, it didn’t address the mechanics of the three-tier system and the role of wholesalers. And, he says, this ruling didn’t, either.

Photo: “Moot Courtroom” by College of William & Mary Law Library is licensed under CC BY-NC-ND 2.0