REthink Wine Blog

Much has been written about the benefits of direct shipments to consumers since Granholm opened up many states to legal interstate shipping.  There is much worthy conversation about the growth in consumer shipments, the growing dependence of smaller boutique wineries and specialty retailers on direct to consumer sales in markets otherwise unavailable to them, and the greater margins to be realized by selling directly to the ultimate consumer rather than through the wholesale tier.

Despite this conversation and the current debate over the possible impact of HR 5034 on the future of direct shipments, many wineries remain unsure as to which states they can ship.  Additionally, many other licensees, specifically retailers and importers, are unaware that they are also able to ship to consumers in a number of states.  All of this begs the question…to how many states can you ship?  And what are they?

Winery Direct
The actual number can be a topic of some debate because it can vary depending on your approach.  It also will depend on how you are licensed, as direct-to-consumer reach is greater for wineries than it is for retailers.  Another issue is whether to include only direct-to-consumer states or also states that can be reached through an established 3-tier network.  Some resources like to include any state that has a permit system in place, whether feasible or not, as well as states allowing onsite-only shipments or through consumer-obtained permits. 

Under the broadest approach, a licensed winery can ship to 45 states including all permit and open states, onsite-only states (DE,NJ,OK,RI,SD), consumer permit states (AL,MT), and 3-tier (MA,NJ).  This broad approach has its issues however.  Onsite restrictions and consumer permit systems aren’t workable for online sales.  Even some of the permit states have restrictions that may be problematic from a practical perspective.  

Indiana would be such a state.  The Hoosier state’s permit includes a “face-to-face” requirement, meaning the purchaser must make an initial visit to the winery (ostensibly so that identification can be confirmed) before any future shipments can be made to the consumer under the permit.

The only states completely off limits to direct shipments are AR,KY,MD,MA,MS,PA,UT, which are primarily control or partial control states with no practical permit system in place.  In fact, it’s a FELONY to ship to either KY or MD without a permit, which isn’t generally available in either state.

Practically speaking, consumer direct shipments by wineries are available to 36 states:  AK,AZ,CA,CO,CT,DC,FL,GA,HI,ID,IA,IL,KS,LA,ME,MI,MN,MO,NE,NV,NH,NY,NC,ND,NM, OH,OR,SC,TN,TX,VT,VA,WA,WV,WI,WY.

Retailer Direct
The options for retailers and imported brands are less broad but still available for some very desirable states.  There are as many as 15 states (AK,CA,DC,ID,LA,ND,NE,NH,NM,NV, MO,OR,VA,WV,WY) that permit retailers to ship directly to consumers, either with or without a permit, although with some restrictions.

The 3-Tier Alternative
There is a 3-tier alternative to shipping to consumers, even to some states that do not have direct shipment permit systems.  Through IBG’s Fulfillment Center, we offer a 3-tier network allowing wineries, retailers, and importers to reach up to 23 states, including MA and NJ, which are otherwise unavailable.  Through our network of licensed wholesalers and retailers, licensees can reach consumers in CO,DC,CT,FL,IL,MA,NJ,NY,NC,VA, and WI by shipping within the 3-tier system.   Combined with our partner’s direct shipment capabilities to most of the retailer direct states shown above, fully 23 states are available without the need for the licensee to acquire direct shipment permits.

We all know the wine industry has been hit as hard as any by the tough economic times.  Maximizing potential market access can be a key to growth and continued viability for many wineries and retailers.  The decision to ship to some states is easy because of the size of the market and ease of access.  Others may be more difficult.  Either way, be aware of your options and keep in mind alternative methods are available.  I’ll have more to say on accessing consumer direct markets in future posts.

It looks like the Texas retailer case of Siesta Village Market is headed back to court for a second look.  The plaintiff’s announced they are petitioning for a rehearing of the panel’s decision a few weeks back to refuse to rehear the case en banc before of the entire 5th Circuit Court of Appeals.  The plaintiffs understand it is necessary to exhaust their options before the full Court of Appeals before proceeding to the Supreme Court, should it come to that.  The plaintiffs cited the following in their petition:

“The panel opinion errs in two areas of exceptional importance.  First, the panel opinion contradicts substantive holdings of the Fifth Circuit and the Supreme Court by permitting the State of Texas to discriminate between in-state and out-of-state participants in interstate commerce.  Second, the panel opinion applies an analytical method contrary to the method mandated by both Fifth Circuit and Supreme Court precedent in Commerce Clause cases such as this one.”

This case is tremendously important to opening up Texas to DTC for retailers and imported brands as well as setting precedents for retailer direct in other states.  It is unclear at this point when the petition will be decided and I’ll continue to track.  My guess is, regardless of who wins, if the case is decided by the full 5th Circuit the losing side will appeal.  This one looks to be going the distance.

A few recent developments on the direct shipping front of which you should be aware:

Texas:  The U.S. 5th Circuit Court of Appeals has refused a rehearing en banc of last January’s Siesta Village Market decision by a panel of 5th Circuit judges.  The panel had ruled to uphold the Texas law prohibiting out-of-state retailers from shipping consumer direct to Texas residents.  This means such retailer shipments will remain illegal unless one of two things occurs:

• The case is appealed to the U.S. Supreme Court.  This is certainly a possibility but dependent on the financial wherewithal of the plaintiffs and with no guarantee of success; OR
• The Texas Legislature acts to change the law, which seems unlikely.

Massachusetts:  A bill to allow both instate and out-of-state wineries to ship direct to consumer to Massachusetts residents stalled in committee in the Massachusetts House and has until this week to pass before the current session ends.  HB 4497 is based on the Model Direct Shipping Bill and features the usual permit, age verification and volume limits requirements.  It does not appear to include retailer direct shipments.

Virginia:  The state ABC has resolved an issue that has prevented wineries & retailers from using 3rd party fulfillment services when shipping direct to Virginia residents.  The ABC created a direct to consumer permit specifically for such services.  The cost of the permit is $120.  This can be considered both good and bad news at the same time.

• It’s good that they resolved the issue in a manner that helps everyone:  consumers, wineries and fulfillment services because there was much confusion after the ABC issued a ruling last year preventing such shipments, so this clarifies the situation in a high wine consumption state.
• It’s bad because it sets an unfortunate precedent for other states to copy.  In most states, fulfillment services can ship direct to consumers as a service for their licensed winery customers without any permit requirements.  Now, other cash starved states could possibly look at this permit model and emulate it, adding an additional expense to consumer direct shipments.

Until next time.

If anyone doubts the opposition to direct consumer access to interstate wine shipments is largely about money, they need look no farther than the recent rejection of a direct consumer access bill by the Delaware House Economic Development and Commerce Committee.  In a 5-3 vote the committee decided not to allow the bill to be considered by the entire House.  You can read about it here in an article by the Associated Press on BusinessWeek.com.

The usual concerns of access to minors and collection of taxes were foisted up by opponents of the bill, but the real opposition was centered on concerns by wholesalers and retailers of revenue lost to out-of-state wineries from consumers seeking to purchase wines that the wholesalers and retailers likely don’t carry in their own inventories anyway.

Of particular interest were comments by the Teamsters union representative, who said direct shipments would hurt drivers and warehousemen who work in Delaware’s three-tier distribution system.  Not stopping there, he further suggested that instead of making consumer access to wine easier for Delaware residents, the state should follow the Maryland example and make such access to an otherwise legal product a felony.  It doesn’t appear his primary concern was minor’s gaining access to wine shipments.

It’s interesting that Maryland should be brought into the conversation, since a bill introduced in their own legislature recently failed to get out of committee as well, held back by the powerful committee chairperson, who also happened to be a political ally of the Maryland wholesale tier.

Finally, the director of the Division of Alcohol and Tobacco Enforcement commented on the difficulty of enforcement, despite acknowledging that the paper trail created by the bill would make it easier to investigate illegal shipments.

I’ll be the first to say I’ve never been to Delaware.  I don’t know first-hand the situation in that state.  But if I had to guess based on experience, the issues identified by opponents as making direct shipments to consumers a dangerous proposition are not substantially different than those in the 37 states that presently allow such shipments.  Why they can manage direct shipment programs and Delaware or Maryland cannot defy an answer, except money and politics.

Now that a bill, H.R. 5034, has been introduced in Congress to stop the continued “deregulation” of the wine industry, it’s interesting to look at the game of semantics that is being played by the bill’s supporters in Congress and the wine industry. See So-Called Alcohol Deregulation Bill Introduced in Congress from Wine Business.com.  Most interesting is the use of the word “deregulation” itself. 

The very definition of deregulation indicates “the reduction or elimination of government power in a particular industry,” (Source:  Dictionary.com).  The idea is that what once was governed, limited, and restrained by regulations is now without restriction, free to operate in any manner the industry deems appropriate and most profitable, regardless of consequences good or bad.  One could create a picture of a Wild West free-for-all, with bad guys and good guys fighting it out in the streets at the risk of the community.

This “deregulation” impetus in the wine industry is often associated with the 2005 Supreme Court decision in Granholm v. Heald.  As most in the industry now know, Granholm held that while the 21st Amendment granted considerable authority to states to regulate and control the manufacture, sale and distribution of alcohol within their borders, the states could only do so within the confines of the Commerce Clause and its opposite by implication, the dormant Commerce Clause.  Since Congress is granted the ultimate authority over interstate commerce by the Constitution states may not create laws, even under the great authority offered by the 21st Amendment, that burden or restrict such commerce between the states.

Granholm’s Result 

Granholm created an elegant interweaving of Commerce Clause jurisprudence and 21st Amendment prerogatives.  It conceded the states’ near complete authority granted by the 21st Amendment as sublimated only to the absolute authority granted to Congress by the Commerce Clause.  To do otherwise would have undermined the authority over interstate commerce held by Congress, creating an exception that would also implicate the Supremacy Clause, as state authority would be considered supreme to that of the federal government in the area of alcohol regulation.

In reaching its decision, the Granholm Court did not throw out the baby with the bathwater.  It did not simply say that all state alcoholic beverage laws and regulations are invalid or suspect.  It did not call for the “deregulation” of anything.  It did not wipe out state regulatory schemes but rather required them to be rewritten in such a way as to not discriminate against out-of-state interests.  It upheld the states’ general grant of authority under the 21st Amendment.  Drawing from years of previous Commerce Clause precedent, the Court crafted a test to determine if such discrimination existed and, if so, whether the discrimination served a legitimate local purpose and that no other non-discriminatory means were available that could achieve that purpose.  This is hardly the underpinnings of “deregulation”.

The real result of Granholm is not “deregulation”, but rather “reregulation”, and this is where the game of semantics is played.  The bill’s proponents and industry allies would like to paint that picture of a Wild West free-for-all to the public.  They seek to benefit from the idea that state control is thrown out the window; that anyone and everyone can buy alcohol on any street corner or through the internet; that states are losing tax revenue because of illegal wine shipments to their residents that are outside the 3-tier system.

State “Reregulation” 

The reality for most states is that their legislatures went back to the drawing board after Granholm and created new regulations that either permitted or denied access to direct shipments of wine to their residents in a way that did not discriminate between instate and out-of-state interests.  They passed meaningful and rather sophisticated laws and rules to regulate the direct shipments coming into their states.  They required permits, fees, and taxes and put in place defined requirements to ensure wine did not fall into the hands of minors.  Additionally, they created new regulations for common carriers as another layer of protection against deliveries to minors.  Quite simply, they “reregulated” the industry under their authority to do so granted by the 21st Amendment.

Regardless of where you stand on the issue of direct shipments of wine between the states…good, bad, or indifferent; make no mistake that alcoholic beverages continue to be a highly regulated industry and that the states hold considerable authority to determine the manner in which they are manufactured, sold and distributed within their borders.  The idea of a newly “deregulated” industry as a result of Granholm and its progeny is simply not so.  Instead, it is the product of a clever but inaccurate game of semantics.

Attorney General Martha Coakley of the Commonwealth of Massachusetts, which saw its wine shipping law declared unconstitutional in January, announced she will not appeal the ruling.  The deadline to file an appeal was April 14th.

Now, all eyes are watching the Commonwealth as a new direct wine shipping bill is moving its way through the Legislature.  As currently written, the bill would create a permit allowing out-of-state wineries to ship up to 4 cases of wine per year to an individual.  The permit cost is $100 per year.  The bill would also require permit holders to report monthly on shipments into the state and to pay sales and excise taxes.  The bill could take several months to pass and amendments could change its content, a common practice in the legislative process, so that what the final bill contains is yet to be determined.

The previous Massachusetts law only allowed wineries that produced 30,000 gallons or less and did not have a wholesaler in the state for the previous six months to ship direct to consumers and retailers.  It was found to be unconstitutional by the First Circuit Court of Appeals for its discriminatory practical effect, which prevented more than 90% of out-of-state wineries from shipping to state residents while allowing all Massachusetts wineries to ship in-state. 

IBG will be watching the bill closely as it proceeds through the Legislature and will alert clients as to the determination of its passage.

I typed the names of several wine brands in the Google search bar and came up with some very interesting results.

The first search I performed was for a very well known brand and resulted in the following:

Organic Search Results

1. A listing for a lower price point subsidiary brand
2. A listing with the winery’s URL, rather than their name, as the title and their navigational categories as the description (for example, “………popular categories, Napa Valley, wine tasting”).  These results are not at all useful in building the brand or enticing the user to click through.
3. Shopping results pointing to sites such as Amazon.com, Bed Bath & Beyond, and a discount wine retailer

Sponsored Links

1. A wine retailer with the following description “Thousands of wines including (Winery’s Name) and other greats”.
2. “Buy (Winery’s Name) books”

There were several other sponsored links for this brand including two people finder ads, several competing brands, and an ad for Fresh & Easy.  The image below is an actual Google Ad served for a search of this brand.

The second search I performed was for another major brand and yielded the following results:

Organic Search Results

“(Winery’s Name) website requires Macromedia Flash. Get Macromedia Flash.  If you have Flash installed, click to visit the website. …”

This was the fourth search result (following some Wikipedia entries).

Sponsored Links

There was just one sponsored link, for an online retailer advertising “a huge selection on sale now”.

The third search I performed had much better results (and I’m happy to report that this was an IBG client). 

Organic Search Results

The first three organic results pointed to the winery’s website:

1. Local business results complete with a Google map and reviews
2. A listing with the winery’s name as title and a compelling description
3. A listing which pointed to the winery’s product catalog page (again with a nice title and description).

Sponsored Links

The sponsored results were not so positive though:

The first was for a bargain retailer

Cheap (Winery’s Name)
Looking for (Winery’s Name) on sale?
Compare Wine & save up to 48% now!

The second result was for WineZap

Buy (Winery’s Name)
Compare prices at hundreds of
US wine shops online

What should you do?  First, make sure you’re appearing first in the organic listings when you search your winery’s name.  Most likely you will be.  If you’d like to tweak the title or description that appears, just login to the admin panel for your website, go to your site settings and make the necessary adjustments.

Should you consider paid search advertising for your brand name?  My feeling is yes.  Appearing at the top of both the organic results and sponsored links adds authority and leads to confidence on the customer’s part.  It also provides you with an opportunity to tie any offline promotional efforts directly to your website.  You’ll likely end up with the top spot at a much lower cost than anyone else bidding on your brand name because you’ll have a higher click through rate and thus a higher quality score.

In developing the headline and description for your ad, I would keep it very simple.  Let visitors know that yours is the official winery site and that your wines can be purchased directly.  You might try doing a search for other companies whose products are sold both direct-to-consumer and through retailers, i.e. Godiva Chocolates, Clinique, Sony, and Dell.

Wine is an experience…… in the same way that a gourmet meal or a luxury vacation is an experience.  And because it’s an experience, the challenges in selling wine online are much greater than they are for commodities, which can often be sold based on price alone.  That fact shouldn’t deter you, though, because it can be done.  And in fact, if you understand the differences, it can be a whole lot more fun.

How do you sell an experience?

First, you need to engage the senses.  Create a vivid image whereby your visitors can imagine themselves enjoying your wine.  This is something best accomplished through exceptional copy and photography, not only on your product detail pages, but throughout your website.

Copy

The difference between the right word and the almost right word is the difference between lightning and the lightning bug. –Mark Twain

Although it’s tempting to copy and paste wine notes or vineyard notes into your product descriptions, it’s important to remember that the product teaser and description are often your only opportunity to capture the attention and imagination of your visitors.  Web visitors have short attention spans so your words should be chosen carefully, with an eye toward attention to detail.  Your website may be the first and only opportunity you have to make an impression.  Spelling and grammar errors will cause a lack of confidence or trust in your brand.  And product descriptions which are too technical and lack personality will cause visitors to leave just as quickly as they arrived.

As an example, these are two very different product descriptions I found for sparkling wine.

1. Champagne is a sparkling wine produced by inducing the in-bottle secondary fermentation of wine to effect carbonation.
2. ………a shimmery coppery gold in the glass, with a gentle stream of tiny bubbles. Powerful and complex aromas of raspberry and fresh cut red apple are accentuated by appealing notes of cardamom and oak spice.

And here are two product descriptions for Chardonnay.  Assuming you have no previous experience with the brand, which one captures your interest?

1. The grapes for this wine are grown in an extremely difficult area – composed of rock and gravel. The yields are very low, as the vines must struggle greatly just to survive.
2. This gorgeous Chardonnay defines the concept of synergy, and it beautifully expresses the character of its distinctive vineyard and wonderfully ripe vintage. The aromas are a lovely mélange of lemon custard, fresh apple and toasted coconut, with just a hint of pineapple: a fruit and oak combination that is as exquisitely balanced as it is luxurious.

And just for fun, here’s something I found on the Dove Chocolate site - yum.

“As you unwrap your DOVE® Chocolate, note the aroma. Take the same care in experiencing the smell of your wine. Swirl the wine in your glass, then sniff it lightly to sample the bouquet. Break a piece of DOVE® Chocolate, then place the chocolate on your tongue and let it luxuriate and coat your entire mouth. As the chocolate taste envelopes your senses, take a sip of wine. Notice the subtle layers of flavors from the two tastes mingling together in a truly sensual experience.”

I just may need to stop on the way home and buy some DOVE® Chocolate to enjoy with my wine this evening.

Photography

The primary purpose of the imagery on your website is to complement your words as they gently guide visitors through the buying process. Each image, whether product photography or images used elsewhere on the site, should aid in creating the experience you are trying to convey through your copy.  Professional photography showing people enjoying your wines coupled with high quality product shots will go a long way toward guiding the purchase decision.  Conversely, sloppy or unattractive pictures may actually hurt in your efforts. 

I love this image I found on the Tamber Bey site.

Kudos to Mumm Napa for the lovely description of their 2004 DVX Rosé  and to Chasseur for their 2007 Chasseur Rued Chardonnay description.

“Everybody talks about the weather, but nobody does anything about it!”

                                                             — attributed to Mark Twain.

Wine shipping compliance is much the same way, with most wineries grumbling about whether it is worth taking on the hassles compliance can bring.  The question is whether they want to do anything about it.

Much noise is made about compliance issues in the wine business.  There is a tug-of-war in state legislatures debating direct shipment bills about what it means, how it should be accomplished, and in the minds of the opponents of such bills, whether wineries shipping into their state will stay compliant (see the recent battles in Maryland).  There is also a tug-of-war within individual wineries over the allocation of resources in tight economic times and whether attention should (or can) be given to compliance issues.  Compliance is rarely viewed as an opportunity opening doors to new markets and frequently viewed as a barrier to competing within those markets.  It’s considered confusing, time-consuming and boring (even I have to give a nod to that last one).  Until now.

In January we launched an updated version of our REthink Compliance web tool as a service to our IBG eCommerce clients at no addtional charge.  REthink Compliance provides complete consumer direct wine shipment compliance reporting and, as an integrated compliance solution with our REthink Engine technology, sales order compliance checks at the point of transaction.  All with quite literally a few clicks of your mouse.  The website is at www.rethinkcompliance.com and is newly redesigned with an attractive look and more topical information on wine compliance and shipping issues, including updates on changes to state law, agency contacts and resources for acquiring permits and licenses.

• Compliance Reports - Powered by eCompli, REthink Compliance will generate complete, accurate compliance reports using the sales data automatically passed from the REthink Engine directly to REthink Compliance.  No order file uploads required! Just login and view whichever reports you need.  Even reports for periods with zero activity are generated to make staying compliant in every state you ship easy.

• Compliance Checks - The new REthink Compliance also can check orders for compliance status at the point-of-transaction from the REthink Engine.  Check for permit status, volume limitations, dry areas, or prohibited states before you ship to ensure each shipment meets the requirements for each state.

For years I’ve said that compliance is important.  Many of the dramatic changes to direct shipping laws in the five years since Granholm are directly related to whether wineries are willing to follow the rules, report and pay state taxes, and stay compliant.  Doing so convinces non-shipping states to open their borders to direct shipments because it allays their fears of unauthorized shipments and unremitted taxes.  That opens new markets and creates new customer opportunities.  Now, IBG eCommerce clients have a new tool at no additional charge to solve their direct shipment compliance issues:  quickly, inexpensively and with minimal effort. 

Change the “whether” in handling compliance.  Contact your Account Manager to learn how easy it is to set up your account in REthink Compliance.

If you work in the wine industry, it’s likely you rely on a number of different technology and/or service providers to run your business efficiently;   ecommerce,  wine club, point of sale, CRM, email, compliance, fulfillment, accounting, sales and inventory management  to name a just a few.  It’s no secret that as an industry we’ve been slow to adopt certain new technologies, ecommerce in particular.  Aside from the obvious compliance challenges, when you look at that list it’s not difficult to understand why.   In some ways, eCommerce for wine can be viewed as what is referred to in the business world as a “discontinuous innovation”.  In other words, it requires you to modify some of the other technologies that you rely on.  Frankly, it’s not easy to make all of these products work well together.  Innovation is a good thing until it begins to impose new day-to-day challenges upon us. To compound the problem, the costs and risk associated with making different software solutions work together often fall to you.

Integrations of disparate technology solutions can be problematic for a number of reasons:

• They’re costly in terms of both monthly service fees and integration costs
• It’s often difficult for employees to learn all of the intricacies of each new technology
• Issues with data integrity and error handling frequently arise
• There is often confusion over who to call when things go wrong
• Due to the sheer number of solutions on the market today, it’s difficult for any vendor to integrate with each of them 

Benefits of an Integrated Package:

A full suite of direct sales tools can provide the answer to a number of these challenges by offering solutions which expedite your time to market and result in cost and administrative efficiencies which allow you to focus on your business.  What’s more, it results in a partner who’s in a better position to share responsibility for the success of your direct sales efforts.

This holistic approach to direct sales has a number of advantages:

• You  gain a service provider with the skills necessary to manage the full lifecycle of your technology, including roadmap development
• A stronger partnership leads to a better understanding of your needs, which allows your technology partner to drive innovation and value
• A single data repository will more accurately reflect your customer interactions and touch points
• You avoid the “Not our problem, talk to the other guys” phone call.  Instead, you have a single point of contact across product lines

These are just a few of the reasons I find what we’re doing at IBG so exciting.  For one, we’re providing a means for you to lower your cost of ownership just when competitive dynamics in the wine industry have necessitated it.  Even more exciting though, is this:  by owning the primary pieces of the puzzle, we’re in a position to build a better product.  Tighter integrations result in better visibility and better customer management.

At the same time, we recognize that customers often have existing systems or relationships in place which they would prefer not to disrupt, and that the “best of all worlds” implies choice.  This is why we believe in fostering strong industry partnerships and working with our clients to develop a solution that meets their needs.  The adoption of one technology should not necessarily mean that by default you are locked into another that might not suit your needs.  Our fulfillment and ecommerce products are compatible with numerous applications, from POS and ecommerce to fulfillment.

“The art of simplicity is a puzzle of complexity.” Douglas Horton