REthink Wine Blog

A quick reminder that Wisconsin drops reciprocity effective October 1, 2008.  In doing so, it joins the growing list of states allowing consumer direct shipment of wine with a direct shipper permit.  This opens direct shipments to permitted wineries in every state instead of just those in the shrinking number of reciprocal states, which is now down to just New Mexico and Iowa.  Details will be available in the State Shipping Laws section of REthink Compliance effective October 1st.  The permit application is available at the state website:  www.dor.state.wi.us/.  Below is an excerpt from the bill’s legislative analysis outlining the basics.

This bill repeals the reciprocal agreement system for authorizing interstate wine shipments directly to consumers and replaces it with a new permit system available for both interstate and intrastate shipments of wine directly to consumers.  The bill requires DOR (Department of Revenue) to issue a new permit called a direct wine shipper’s permit that authorizes the permittee to ship wine directly to an individual in this state who is of the legal drinking age, who acknowledges receipt of the wine shipped, and who is not intoxicated at the time of delivery.  A direct wine shipper’s permit may be issued to any person that manufactures and bottles wine on premises covered by a winery, manufacturer’s, or rectifier’s permit issued by DOR, a winery permit issued by another state, or a federal winery permit.  Containers of wine shipped to an individual in this state must be clearly labeled to indicate that the package may not be delivered to an underage person or to an intoxicated person.  No individual may resell, or use for a commercial purpose, wine that the individual receives by direct shipment under the permit.  No individual in this state may receive more than 108 liters of wine annually that is shipped under authority of the permit.  Holders of direct wine shippers’ permits must report quarterly to DOR specified information related to wine shipments made under authority of the permit and must include the amount of the occupational tax in the sales price of the wine and pay the sales or use tax on the sale of the wine shipped under authority of the permit.

I was speaking with an acquaintance not long ago and he was bemoaning the fact that as a holder of a type 17/20 license he was being discriminated against as a “virtual winery” by California Alcoholic Beverage Control (ABC) because he couldn’t allow consumers to taste samples of his product while the holder of a type 02 Winegrower license was allowed to do so.  He believed that since 02’s and 17/20’s were both wine producers they should both hold the same rights and privileges.  He chalked this “discrimination” up to a bias based on economics.  That it was merely money politics trying to maintain an uneven playing field.

As he spoke it sunk in to me how little he understood the licenses he held and the rights and responsibilities the licenses conveyed.  I realized at that point how unfortunate the monicker “virtual winery” was as a way to describe the activities permitted by holders of 17/20 licenses because it caused many misperceptions among both the public and the licensees.

The last decade has seen an explosion of what have become to be known as “virtual wineries”.  This jazzy, romantic name is generally applied to wine makers who hold a Type 17 Beer/Wine Wholesaler license and a Type 20 Off-Premise Beer/Wine retailer license.  It is a relatively inexpensive way to enter the industry because it does not require the holder to purchase equipment or have a bonded wine production facility, a huge capital outlay.  Many fine wines have been made by “virtual wineries” and it has been a tremendous boon to the growth of the industry. 

In many ways I like the name…it has cachet.  The problem is that it is not an accurate description of the rights granted to Type 17 and 20 licensees.  It is misleading because, simply put, neither the 17 or the 20 license grants the right to produce wine.  The license in California that grants wine production rights is the Type 02 Winegrower license.  Neither the 17 or 20 license types were created for the purpose of winemaking.  They have been co-opted by small wine makers who did not qualify for a type 02 Winegrower license.  The 02 requires the holder to have a federal Basic Permit, which in turn requires access to a bonded space (read “winery”).  It doesn’t have to be your own space.  You can lease space in a bonded wine production facility and obtain an alternating proprietorship.  This allows a winery to get an 02 license without actually owning their own facility.  But with that bond comes responsibility.  Excise taxes, monthly reporting, maintenance of a secure facility are just a few of the myriad responsibilities required of an 02 licensee.

Type 17/20 licensees do not have wine production rights.  They produce their wine at a licensed winery’s bonded wine facility, frequently referred to as custom crush facilities.  They pay a fee for use of the equipment, facility and to operate under the license so they can produce their wine.  Their 17 and 20 licenses then provide the rights necessary to market their wines to wholesalers, retailers and consumers.  Still, they do not have the same level of responsibility as licensed wineries operating under a federal permit.  They are only on the hook for maintaining the responsibilities of their licenses as wholesaler/retailers.  They do not take title to the wine until excise taxes are paid and the wine is removed from the bonded facility by the 02 licensee.  They are not the responsible party if the tax doesn’t get paid or the report doesn’t get filed.

Common Misperceptions about “Virtual Wineries”

MISPERCEPTION:  By combining the type 17 and type 20 licenses together a new hybrid type of license is created that grants rights beyond those of the individual licenses.  That combining these two licenses permits wine production in much the same manner as a type 02 Winegrower license permits wine production.  That it was created by the legislature for wine producers who don’t have their own equipment or facility.

REALITY:  A 17/20 is a combination of two license-types that, put together, allow the licensee to market wine they produce in the bonded facility of a licensed winery at the wholesale and retail level.  There is an unfortunate tendency to group the two license types together, as if there is such a thing as a “Type 17/20″, but they are two separate licenses.  A check of the ABC regulations will show that no such creature as a “17/20″ exists.  They are tied together because they are advantageous for small producers and that’s fine, but they are separate licenses. 

MISPERCEPTION:  17/20’s are discriminated against based upon economics.  That because they do not have the resources for equipment and a facility they are treated differently than licensed wineries.  That rather than being a “loophole” in laws created to govern wholesalers and retailers, the 17/20 license “type” was created by the Legislature as the result of wineries, trade associations, lobbyists working to protect their sales against lower overhead 17/20 producers.

One suggested form of discrimination is that type 17/20 licensees unfairly cannot taste wine to consumers.  That since both 17/20’s and 02’s produce a wine product designed for sale to the wine consumer, they should both be able to sell their product on a level playing field.  That such discrimination clearly consists of unfair business practices and restraint of trade by one market segment over another.

REALITY:  Actually, the wine consumer has equal access to buy a “virtual wineries’” wine, they just can’t taste it first because the license types 17 and 20 don’t permit it.  The reality is 17/20’s are not truly producers from a legal standpoint.  They do not bear the same responsibilities and also do not have the same rights.  One of those rights is direct wine sampling to consumers.  The Legislature deemed it inappropriate for retail licensees to hold such rights because they didn’t want the corner liquor store to be able to sample wines.

Changing the Reality for “Virtual Wineries”

Many argue some change should be made to the type 17 and type 20 licenses to accommodate the needs of wineries operating under the combined licenses to allow them to compete more fairly with the type 02’s.  I believe the law should change as society and commerce changes.  While I can support a change in the law to allow type 17/20 producer to taste their wares to their customers, I believe the change in the law should be to the type 02 license, not the type 17 or the type 20.  To make changes to the 17 or 20 would be to permit wholesalers and retailers to taste wine to consumers directly.  This is not a desirable situation.

The fact of the matter is neither a type 17 or 20 license was written for the purpose it is now being used.  Certainly consumer tasting is unavailable to a type 17 wholesale licensee.  And it is not permitted for type 20 retail licensees either.  When was the last time you went to a 7-11 and did a wine tasting?  The license was simply not created with the idea that making wine would be the result.  It is as it is because legislators didn’t envision it being used in such a fashion when written.  What needs to happen is the type 02 license either needs to be amended to accommodate “virtual wineries” or a new law needs to be written.  The better solution is to review, and possibly revise, the qualifications for acquisition of a type 02 license to include wineries operating under 17/20’s.

“Virtual wineries” are good for the industry, even if the name is somewhat misleading.  Changes in the law to accommodate the changes they have brought to the industry are probably warranted.

Anyone in the wine industry knows full well they did not get into the business because of an unabashed love of compliance work.  Without sounding ridulous, wine is an alcoholic beverage and the production and distribution thereof is one of the most heavily regulated industries in the United States.  Unfortunately, winery compliance isn’t nearly as much fun as producing (or consuming!) a fine bottle of Cabernet Sauvignon.  Nor is it as much fun as watching the income generated when that bottle sells to an appreciative audiance.  Let’s be honest, the income side of the business equation is always more exciting than the cost side. 

Bad Idea

The problem with this equation is it results in bad business practices.  Make no mistake, producing and distributing wine is a business.  At least if you want to do it for long!  There is a natural inclination to give short shrift to the less pleasant part of the business.  Compliance - the ugly stepchild of the wine industry.  People have such a distaste for compliance that they even give it a backseat to paying the bills! 

Now I’m not here to say that compliance can be fun and we should all love it.  However, I am here to say that relegating compliance to the last seat at the dinner table only furthers the notion that compliance is some horrible task with which to deal and that’s a bad idea.

Compliance is not that hard.  It just requires organization.  As with any business task, it needs to be scheduled and maintained.  Too many times it is treated as an afterthought and not taken on until the last minute.  Attempting to gather your numbers for the previous month just before the due date is a mistake.  It’s also stressful and it often leads to calculation errors and over- or under- payment of taxes. 

You certainly wouldn’t want to approach a sales opportunity unprepared at the last minute and you shouldn’t do so with winery compliance either. 

Planning Makes Perfect

Whether you are filing your monthly TTB 702 report or your state excise tax return for North Carolina, schedule the task with enough time so that you can review your work and accommodate any unforeseen problems without pulling your hair out.  Scheduling and planning will make all of the difference. 

• Schedule a time to do the work with enough time before the deadline.
• Maintain the appropriate sales or production data over the course of the month so you don’t have to throw it all together at midnight on the last day of the month. 
• Organize your data file in such a way so that much of the work is already done for you in the data input process.

Just Another Business Cost

One last thing about compliance and taxes.  Taxes are just another part of your cost structure like any other element of your production and sales systems.  When making price determinations for your product, remember to include the likely excise taxes you will incur in your intended markets.  Florida has very high excise taxes which should be accounted for while the reverse is true for a state like California.

In the end, compliance is just another part of the wine business we all love.  Don’t let it scare you and don’t let it overwhelm you.  Just plan appropriately and the burden of compliance won’t seem so bad.  Remember, REthink Compliance is there to help.  It is the place to find the rules of the road, so to speak, for state shipping laws, perform compliance checks before you ship, and create the reports needed to stay compliant.  Now, go do the fun part…make wine!

I’m not a tax specialist, but I have picked up a few things in 15 years of performing all types of winery compliance tasks.  And I always tell people that winery compliance work isn’t nearly as difficult or scary as they may think.  Labor intensive…possibly.  Fun…definitely not!  Difficult…not really. 

For direct shipment of wine, you are essentially looking at three different reports at the most for any one state:  excise tax, shipments, and sales & use tax.  For a well-organized office, excise tax returns are not that difficult.  Total up the volume of wine you shipped to the state during the period covered by the return, multiply the total volume by the rate of the excise tax for each category of wine, write a check for the amount of the tax due.  Shipment reports are even easier…just detail what and to whom you shipped, no check required. 

What usually throws people is sales & use tax (S&U).  Unlike the straightforward nature of excise tax and shipment reporting, S&U taxes have several other variables that can impact the degree of difficulty (Olympics jargon here) in completing the return.  Besides that, the form is usually longer with schedules and attachments for deductions, exemptions, adjustments, credits and prepayments.  And let’s not forget local taxes. 

Having said all that, even completing S&U tax forms for most states a winery ships to is not that complex; you simply need to separate the wheat from the chaff and understand a few basics about what information the state wants.

A comment I hear often is that the forms are so complicated and the instructions so difficult that I don’t know how to complete the form.  The reality is that for every state except the home state in which your winery is located most of these schedules and attachments aren’t going to apply.  These forms are generally designed for resident businesses in the state and as such cover many exceptions that are only applicable to resident businesses.  For a winery shipping wine direct to out-of-state residents, completing that state’s S&U tax return is pretty much limited to reporting the sales activity for wine and any other products you ship into the state, deduct any non-taxable items (such as shipping costs or non-prepared foods) and multiply the net sales by the state tax rate.  The only difficult S&U tax return is going to be for your home state…and you have to do that whether you ship or not because your home state S&U tax return includes all of your sales activity in the state, not just your shipping activity.

A couple of key things to be aware of when comleting S&U tax returns:

Gross Sales v. Net Sales:  almost invariably on line 1 of the return the state wants to know the amount of sales activity you had in the state for that period.  Read the instructions for line 1 carefully because the value to put there will determine your response to other questions on the return.  Specifically, determine whether the state wants to know your Gross Sales (taxable and non-taxable) or your Net Sales (taxable only).  Most states want to know your Gross Sales and then let you deduct your non-taxable sales further down in the form.  Non-taxable items could be certain types of products (non-prepared foods like that jar of gourmet mustard) or sales to certain types of customers (sales to the U.S. government, sales for resale).  They could also include shipping charges incurred.  The important thing is to be sure to understand what sales are to be included in line 1.

Frequency:  how often you are required to file is usually a function of the volume of sales activity in the state.  For most wineries that will be relatively low resulting in only annual filing.  For others, quarterly or even monthly filing may be required.

Local Taxes:  more and more states are moving to “destination-based” systems wherein the winery is required to collect and remit not just the state S&U tax but also the local S&U tax.  Local taxes usually range from a .25% up to 2.5%, depending on the region and are determined by city, zip or even street level address.

When all is said and done, most of your compliance work is not as cumbersome as it may seem once you look past the extraneous information on the forms.  And for the information that is required, new systems are available to assist you to complete these tasks effectively and efficiently.  That is why we created REthink Compliance.  To bypass the chaff and remove the anxiety of direct shipping compliance.  The reports generated there will tabulate the sales activity according to each state’s requirements…right down to local sales & use tax rates.  So don’t despair.  Taxes are still a nuisance, but they don’t have to be scary.

Looking through the Family Winemakers newsletter recently I found a very interesting article on the positive results that can accrue when wineries play by the direct shipping rules.  Here is the brief but important text:

Florida Direct Sales Solid
“Recent figures released by the Florida Department of Business and Professional Regulations show that direct-to-consumer sales remains strong.  Florida has been open to direct shipping without permit for 2.5 years. In that time the state has collected $704,561 in excise tax from 867 individual wineries.  As context it should be remembered that there is no permit required, no quantity limit and there have been no reportsof illegal access by minors. The monthly sales trend continues to nudge upward and it appears that roughly 450 Floridians order wine monthly.”
          Source:  Family Winemakers of California Friday Wine Chronicle, July 25, 2008

This is what I argue all the time – wineries play fair and play by the rules.  Wineries will follow the rules, pay taxes and file reports if states would just give them reasonable rules by which to live.  The court injunction in Florida has resulted in minimal rules and oversight, yet this article demonstrates that wineries will pay the excise tax due and not sell to minors even without onerous rules that some states put in place to prevent the feared abuse of an uncontrolled market.  The rules are really designed to restrict  access.  The wine industry as whole abiding by a reasonable set of rules will put the lie to such fears.  The result will be more open states and consumer access.  Wineries want to be responsible citizens and have access to responsible consumers.  The results in Florida are a perfect example of what can happen when given the chance to prove it.  Good things happen for everyone - the consumer, the winery, and the state, when you play by the rules.

About this time of year I like to raise my head up out of the detail of direct shipping compliance and survey the landscape.  At the beginning of the year I anticipated many developments would occur to further brighten the future of direct shipment of wine within the United States.  Some developments happened, others did not.  Overall its been a positive first half of 2008. 

Illinois, and soon Wisconsin, joined the ranks of permit states.  Georgia eased restrictions on permits and increased the customer aggregate volume to 12 cases per year.  Attempts to end reciprocity in both New Mexico and Iowa failed.  A restrictive bill in Florida failed as well.  Its easy to argue that lack of legislative action can be a good thing when you are looking at a bad law.  The net result is that Florida remains open to direct shipping until the legislature comes up with a solution.  Since it has one of the highest per capita wine consumption rates, keeping Florida open for direct shipping is definitely a plus. 

In the courts, the highly anticipated Costco decision was handed down by the 9th Circuit Court of Appeals, overturning the district court’s decision that Washington state’s regulatory powers were invalid under federal anti-trust laws.  In Texas, the Siesta Village Market decision set an interesting precedent when the federal district court opened direct shipment of wine to consumers by out-of-state retailers.  While the decision included an extremely limiting restriction that the retailer must purchase the wine from a Texas wholesaler, the important aspect is that the Granholm rationale applies to retailers.  This decision will no doubt be used as ammunition in attempts to open other states to retailer direct shipments to consumers.  Finally, an ongoing case is the Family Winemakers suit in Massachusetts to remove the 30,000 gallon production cap for wineries seeking a permit to ship to Massachusetts consumers.  A motion for summary judgment was recently filed by FWC so a decision could come soon. 

Here is a list of developments in key states since the beginning of the year:

Florida:  Open to direct shipping due to a 2005 court injunction on FL authorities from enforcing exisiting statutes.  The legislature has continued to fail to pass a new direct shipping statute in 2008 and the DPBR did not promulgate new regulations.  As a result, FL remains a legal state for winery shipments.

Illinois:  As of June 1, 2008 dropped reciprocity and joined the ranks of permit states.  Wineries can ship up to 12 cases of wine per year to Illinois consumers.  The cost of the permit is $150 for wineries producing less than 150,000 gallons annually.  It also permits direct distribution rights for wineries producing less than 25,000 gallons per year.

Washington:  Beginning July 1, 2008, requires “destination-based” payment of sales tax, meaning the local tax must be paid based on where the wine is shipped to rather than where the shipment originated.  While this will not impact non-Washington wineries who must already pay the tax on a destination basis, it will affect Washington wineries shipping to Washington consumers.

Ohio:  Effective July 1, 2008, raised the production cap for wineries eligible for a Direct Shipper License from 150,000 gallons to 250,000.

Oregon:  Reciprocity repealed effective 1/1/2008.  Permit required for wineries and retailers allowing shipment of up to 2 cases per month per consumer.  The permit costs $50 and a $1,000 bond is required.  A separate permit also creates a direct distribution right for wineries to Oregon retailers with endorsements from the OLCC.

Wisconsin:  Effective October 1, 2008, Wisconsin will drop reciprocity and join the list of permit states.  The permit fee is $100 and allows the permitted winery to ship up to 108 liters to a Wisconsin consumer per year.  Sales and excise tax reports and payments must be filed quarterly.

Iowa:  No significant regulatory changes in 2008.  Attempts to drop reciprocity in favor of a permit system failed in the legislature.

New Mexico:  No significant regulatory changes in 2008.  Attempts to drop reciprocity in favor of a permit system failed in the legislature.

Arizona:  No significant regulatory changes in 2008 however an administrative interpretation that a visitor to a winery may pre-order up to volume limit of 2 cases annually, including wine club membership.  Still, a new visit is required each year.

Georgia:  Effective July 1, 2008, Georgia has changed some key elements of the rules for direct shipments.  A direct shipper applicant may have a relationship with a Georgia distributor.  Also, the per person customer aggregate volume limit has been increased to 12 cases per year.  A permit holder must now collect and remit GA sales tax, excise tax and comply with reporting requirements.

While this is not an exhaustive list, it provides a look a changes in key states in a constantly changing landscape.  Part of my job is to monitor those changes to ensure that the REthink Compliance web tool is always up to date.  You can find all of the state shipping laws at www.rethinkcompliance.com.  When the rules change, REthink Compliance is your key resource to view those changes to help you stay compliant.

Changes to direct shipping law feels a little bit like following the Democratic presidential nomination process.  Every time you turn around it’s off to a new state, criss-crossing the U.S., trying to keep up with the shifting landscape.  If you follow this type of thing, as you most surely know by now, Illinois officially switched to a permit system on Sunday, June 1st.  I won’t hit you with all the details because they are available now at REthink Compliance.  Just be aware that as of yesterday a licensed winery needs a permit costing from $150 and up (based on production, of course) to ship into this former reciprocal state.  Perhaps of equal importance, the new law permits small (25,000 gallons) wineries to self-distribute to retailers in the state.  Inertia’s Direct-to-Trade program is now available to one of the highest per capita consumption states.

As with the primaries, once a state is in the rear view mirror, it’s time to move on.  So next stop is Georgia, which recently made changes to its existing permit law that removes restrictions and allows more wineries to ship direct to it’s residents.  There are two key changes that take effect July 1, 2008.  First, a winery with an existing distributor relationship in Georgia is now allowed to acquire a direct shipper permit.  This is good news for medium to larger wineries who previously were shut out of direct shipping to Georgia because of their distributor relationship in the state.  Second, the per customer volume cap has been increased from 5 to 12 cases per year.  Those Georgia residents who want to join a higher level wine club (6-bottle and 12-bottle) can do so without fear of exceeding the limit.

Moving down the road to the fall, we have Wisconsin, which switches from reciprocity to a new permit system on October 1, 2008.  Pretty basic stuff with this one:  $100 annual fee, 108 liter (12 cases) per customer limit, and no production capacity caps.  It should be noted the per customer limit is from ALL wineries shipping to the state but is the responsibility of the customer, not the winery as in Massachusetts.

The movement of states to well-considered permit systems is a positive for the wine industry.  I stress this nearly every time I blog but winery adherence to these systems encourages the spread of direct to consumer shipping into states previously closed to such shipments.  Permit systems have created access to approximately 80% of the U.S. market, much higher than the days of reciprocity, when most of the U.S. was closed.  Of course, as with all permit systems, these changes come with the usual reporting and payment of sales and excise taxes, delivery restrictions, and shipping label requirements.  REthink Compliance is available to help with these and all of the reporting requirements for state’s permitting direct to consumer shipping.  As the laws change, so will REthink Compliance, staying current as the source for direct shipping developments today and down the road.

Since our release of REthink Compliance as a free direct shipping compliance tool to all U.S. wineries in April, a question I am frequently asked is “how do you keep up with all of the changes in state shipping laws?”  Certainly maintaining the tool’s rule accuracy is of critical importance to the value it provides the winery user. 

The Changing Regulatory Landscape

It’s true that the regulatory landscape has changed dramatically in the last few years and continues to do so still.  Not just as a result of state law, but also alcoholic beverage agency regulation, state and federal judicial decisions, and even interpretations by state attorney generals.  Fortunately, most changes don’t occur overnight.  Generally, ample time to prepare for the change is given by setting an effective date that frequently is at least six months from the date the legislation was signed into law.  The recent changes in Wisconsin, effective October 1, 2008, are a perfect example of this.  Even changes to tax return and shipment reports are often announced some time in advance. 

REthink Compliance Council

But the question remains, how do you keep up with the changes?  There are many resources…from legislative alerts, agency websites, trade associations and the blogosphere.  I sign up for any and every legislative bill tracking service, association newsletter and industry compliance website available.  I attend seminars and symposiums.  I keep my ear to the ground and talk to other industry professionals.  But it’s not just me.  The REthink Compliance Council is a group of industry professionals, trade association members and lawyers with expertise in direct shipping law who oversee all of the legal content on which REThink Compliance is based.  The Council reviews changes to the law, court decisions and rule interpretations.  The primary goal is to ensure that the rules and law available to users is as current, accurate and complete as possible.

ILLINOIS REMINDER:  Speaking of changes to the law, keep in mind that Illinois drops reciprocity and will require a license to ship into the state beginning June 1, 2008 so it is a good idea to be prepared.  The Winery Shipper’s License application is now available at the ILCC website, http://www.state.il.us/lcc/WineShipApp.asp.  The license permits wineries producing less than 250,000 gallons annually to ship up to 12 cases per year to consumers and permits wineries producing less than 25,000 gallons annually to self-distribute up to 5,000 gallons per year to retailers.  The cost is $150.  You’ll need to file the usual excise and sales tax returns but Illinois is the 6th largest wine consumption state in the U.S. (Wine Handbook 2005, Adams Beverage Group) so it is a high value market to both consumers and trade.  Inertia’s Direct-to-Trade program is primed to assist wineries looking to take advantage of this new self-distribution opportunity so sign up now to be ready to roll on June 1st.

With the release of www.rethinkcompliance.com there has been a tremendous amount of interest by wineries across America in registering to use this revolutionary FREE direct shipping compliance web tool.  Many wineries have realized that this solution to their shipping compliance needs allows them to ship to more states by removing the barriers to direct shipment of wine to consumers, making their wines available to more people.

In conjunction with the release of REthink Compliance, a series of webinars has been scheduled to introduce users to site navigation, features and basic functions of the tool; including access to state shipping laws, compliance status checks, and compliance reporting.  The webinars will cover maintenance of the winery organization, importing data into the tool, and producing compliance reports.  Following is the schedule of webinars.  To participate, contact us at help@rethinkcompliance.com to request a registration invitation to the date of your choice.

Wednesday                         April 30, 2008                                   10 – 11:30 a.m.
Friday                                  May 2, 2008                                      10 – 11:30 a.m.
Wednesday                         May 7, 2008                                      10 – 11:30 a.m.
Friday                                  May 9, 2008                                      10 – 11:30 a.m.
Wednesday                         May 14, 2008                                    10 – 11:30 a.m.
Friday                                  May 16, 2008                                    10 – 11:30 a.m.
Wednesday                         May 21, 2008                                    10 – 11:30 a.m.

Before becoming the compliance specialist with Inertia I worked for a small Santa Barbara County winery producing 6,000 cases of Pinot Noir, Chardonnay, and Syrah a year.  When the winery first started in the early 90’s, we thought we could build our brand and reputation by selling to upscale bistros and cafes in southern California.  By focusing on wine-by-the-glass programs, we figured we could get our wine into glasses of sophisticated wine drinkers and develop a following willing to seek out our label at specialized wine merchants, eschewing the big supermarkets.  It wasn’t a bad stategy in the early 90’s, when the opportunities of the internet weren’t yet apparent and the number of competing wineries was smaller.  You could still stand out in the small crowd.

Such a strategy today might be considered foolhardy.  The explosion in the number of wineries in California and the rest of the U.S. in the last decade and the continuing growth of the internet have created a new reality for the small winery.  Throw in the impact of Granholm and the growth of the number of states accessible to direct shipments and the notion of selling your wine wholesale with skinny margins to restaurant wine-by-the-glass programs seems downright ridiculous.  Today, a much better strategy for small wineries is to sell direct to the consumer.  Unlike reciprocity of the 90’s when you could ship to about a dozen states, you can now legally ship to at least 35 states, nearly 80% of the wine market.  The benefits of consumer direct seem obvious:

• Larger potential market
• Higher profit margins (retail v. wholesale)
• Greater marketing reach and brand building
• Lower costs

One perceived constraint on shipping wine direct to consumers is the cost and complexity of compliance with state shipment laws.  However, when viewed against the costs of developing a wholesale distribution chain and the limited profit margins; or significant infrastructure and overhead costs of a building a brick & mortar retail tasting room; the reality is the costs and effort required to ship to customers in other states is minimal.  Even with the costs of compliance.

The growth in the wine industry is good for wineries and consumers alike.  By strategically selecting those states offering the highest ROI of time and money to ship direct to consumers, a small start-up winery can vastly broaden their reach into markets previously unavailable.  Compliance is merely another cost, not a barrier to entry.  Reducing this cost is why we developed REthinkCompliance.  Our FREE compliance service makes shipping direct to consumers easier and less expensive than ever.  If I were running a small winery today, with cost management and ROI a critical component of success, it would be among my first stops in reaching my longterm goals.