Pinot Law

A couple of interesting articles caught my eye this week — one humorous and one quite telling for the wine industry.

First the humor, from an article here. TTB has ordered a California brewery to stop using the phrase “Try Legal Weed” on its bottle caps. On the one hand, I can understand TTB’s position that it does not want to condone drug use in any way, shape or form. On the other hand, the brewer in question is located in Weed, California. The article is very good and well worth the read (hat tip to Snark Hunting and Above the Law for bringing this to my attention).

Second comes the business article. According to this article here, equity fund manager Vinum Capital Management LLC has formed a $250-million private equity fund that will focus solely on acquiring and operating mid-size premium and super-premium wine properties producing between 20,000 and 150,000 cases annually. Wineries in California, Oregon and Washington are on the list.

I found the article interesting because it appears that the prospect of more significant consolidation in the wine industry may be upon us. Is this a good thing or a bad thing? On the one hand, this kind of capital can bring significant resources to wineries that may be underfunded and not operating at full capacity. On the other hand, is consolidation a good thing in terms of quality and diversity in the industry.

Time will tell, and until then I may see about getting some beer from Weed, California.

Weed used under a Creative Commons License provided by TooFarNorth.

“I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.”

-Jack Valenti, Motion Picture Association of America (1982)

Jack Valenti had it all wrong when he said that to Congress back in 1982, but he was merely doing what he thought was right at the time. Hollywood was terrified that VCRs would destroy their industry through illicit copies and — God Forbid! — fast forwarding through commercials.

Fast forward to today, and of course it is a different story. Hollywood embraced the VCR years ago, and has now transitioned to the DVD. And of course by embracing the technology, it has reaped the rewards. According to this report, in 2002 just over 50% of households in the US had DVD players, but by 2006 that number skyrocketed to nearly 86%. And according to this report, the movie ‘Transformers‘ has generated over $302 million in DVD sales alone. Keep in mind, that number does not include rentals and box office.

Now I know what you are asking: I thought this was a wine law blog. It is. And here’s why the MPAA and VCRs in 1982 is relevant to wine today.

Because much in the same way that the movie industry in 1982 feared technology, ignored the desires of consumers and failed to see the business potential of the VCR, the wholesalers in this country today are doing the exact same thing, this time with the Internet. In case you missed it, the Wine & Spirit Wholesalers of America (WSWA) issued a press release a couple of days ago touting a recent study indicating that their industry contributes over $137 billion to the U.S. economy every year and adds 1.1 million jobs that pay almost $71 billion in wages.

The press release and related studies are nothing more than defense of — in many respects — an outdated system. The WSWA’s CEO Craig Wolf, says that the U.S. wholesale system is “explicitly designed to prevent a black or gray market” and it keeps “all transactions for beverage alcohol in the U.S. on the books.” He then says the wholesaler system is “one of the main reasons we need to guard against attempts to erode the regulations we have in place.” Of course, that’s wholesaler code for “don’t permit self distribution by wineries” and “don’t permit direct sales to consumers over the Internet.”

And in case you doubt me, go to their “Wholesaler Economic Impact Wizard” and you can see what I am talking about. It is essentially a menu of reports available on a state-by-state basis. I pulled up the report for Direct Shipping in Wine in Virginia and learned that my home state “further harms the industry by allowing the direct shipment of products to consumers.”

I do not wish to belabor the point, but the sooner the wholesalers realize that a major paradigm shift has occurred in the wine market, the better off they will be. The Internet is not going away any time soon, and it is already revolutionizing how wineries and consumers interact. Arguably, by permitting self distribution and direct shipments to consumers, small wineries can grow into big wineries — and big wineries will need a wholesaler to ship their goods. As the wine industry goes larger and more competitive throughout the country, that is great news for consumers, wineries and yes, even wholesalers.

I bet somewhere Jack Valenti is smiling.

Untitled photo used under a Creative Commons license, courtesy of Marcin Wichary.

As a follow-up to my post last week, the Washington Post today ran an article on the Maryland General Assembly hearing on the wine distribution law. The good news? There seems to be a lot of support for this common sense bill. The bad news? Steve Wise, a lobbyist for the Maryland State Licensed Beverage Association, compared out-of-state wineries to Tony Soprano.

Now I understand he was exercising some rhetorical flourish, but it really seems that some members of the liquor lobby will say anything to oppose self distribution measures. The most common bogeymen raised by these interests are the specter of underage drinking, and claims of unfair competition.

But let’s just quickly take these in turn shall we? Concerns about minors accessing alcohol through the internet is a tired, old argument that needs to be put to rest. First, minors are less ikely to consume wine, as opposed to beer, wine coolers, and hard liquor. Second, minors who decide to disobey the law have more direct means of doing so. Third, direct shipping is an imperfect avenue of obtaining alcohol for minors who, in the words of the past president of the National Conference of State Liquor Administraors, “ ‘want instant gratification.’ ”

But, those reasons are not my own: they are the (verbatim) words of Justice Kennedy in Granholm v. Heald.  That decision, in addition to paving the way for revamped distribution, also threw out the internet distribution concerns as pure bunk.  Indeed, the American Medical Association found that one third of teens obtained liquor from their own parents, and two out of five obtained liquor from their friends’ parents.  Sounds like the problem is parents, not the Internet.

On the second argument, I am of the belief that competition breeds fantastic results.  In the numerous states that have adopted direct shipment laws, the threatened ’sky is falling’ predictions have failed to occur.  To the contrary, consumers win; out-of-state wineries win, and in-state wineries win.  The only ones who don’t win, are the lobbyists for wholesalers and in-state retailers.

This could be interesting. According to TTB’s website, it will be hosting its “TTB Expo 2008” on June 17 - 18, 2008, at the Northern Kentucky Convention Center in Covington, Kentucky. The Expo is targeting “alcohol, tobacco, and firearms and ammunition industry members” as well as relevant trade associations, consultants and state government officials. I really like the idea of mixing alcohol, tobacco and firearms, all in one place — especially Kentucky!

All kidding aside, I think shows like these can be very useful for industry members. Most usually include educational seminars, and you can almost always meet many of the Federal and State regulators who have a tremendous impact on your business. Finally, it is a great way to network in the industry.

As I see more information on this, I will be sure to post it to the blog. In the meantime, try not to mix your alcohol and firearms!

The Los Angeles Times covered an issue the other day that many wineries throughout the country – including in Virginia — are beginning to deal with on a more regular basis. The article is identical to a similar story covered by the New York Times in July. discusses the problem of drunks — usually in limos or tour buses — coming to wineries and generally . . . well, one winery employee sums it up here:

It’s a pervasive problem,” said Craig Root, a tasting-room consultant based in the Napa Valley town of St. Helena. “The limo crowd appears to have great demographics on the surface, but some of them tend to — and there’s no polite way to put this — they tend to just get juiced.”

Both articles are worth the read, and what many people may not realize is that wineries can be summonsed for serving a drunk. That’s certainly the case in Virginia and most other states. As a result, a lot of wineries are just saying ‘no’ to limos and tour buses. But another interesting approach raised in the article is that some of these wineries have banded together and forced the tour operators to police their customers. This seems to me to be an interesting approach, but judging from the article, it has mixed results.

Dec. 07 200, used under a Creative Commons License provided by Lord Jim.

I stumbled across an interesting article yesterday, that hits on a topic near and dear to many a winemaker’s heart: appellation. At its most basic level, the appellation on the wine label tells the consumer where the grapes in that bottle of wine come from. Appellations can include counties, states, multi-states, and what are also known as viticultural areas. There are about 200 viticultural areas in the United States, and they are identified in the code of federal regulations, here.

The article does a good job of highlighting a few points. First and foremost, it notes that obtaining label approval from the TTB (which regulates all domestic wine labels) can “be a real headache sometimes.” But it also points out that often times wineries must obtain grapes from outside of their area — so, for example, a Virginia winery, may need to buy grapes from California or New York to process their wines. Moreover, the winery can only use the appellation if 75% or more of the grapes come from that region, and the wine is made in the area of appellation.

And of course, the appellation can have a major marketing impact for the wine seller. A Chardonnay from Napa valley, will almost certainly fetch more than a Chardonnay from the North Fork of Long Island (not that I have anything against Long Island). Ultimately, it is about where your wine is from — and that can be a good thing . . . even if it’s from Long Island.

Horse’s Ass, used under a Creative Commons license provided by eamills.