Tennessee wine sales caught in the Web

Distributors fight changes needed for for Internet shipping

By THEO EMERY, The Leaf Chronicle
February 5, 2008

When Bradley Bratten's friend turned 28, Bratten had the perfect birthday gift in mind: a bottle of Cabernet Sauvignon from a small Napa Valley vineyard that bore her name. But while the idea for the present came to him easily, the wine itself didn't.

Bratten, who works at a Nashville wine shop called Vinea, couldn't get the wine through a distributor, and Tennessee law stood in the way of ordering the bottle directly over the Internet — state regulations allow only distributors to ship wines in and out of the state.

Such laws are under scrutiny in Tennessee's statehouse and legislatures across the nation, in part because of a 2005 U.S. Supreme Court ruling that shook up a long-standing system of wine distribution and helped spur a boom of Internet wine sales.

The debate has pitted small vineyards, wine collectors and specialty retailers against large distributors who have dominated wine distribution since Prohibition. About a dozen states, including Tennessee, have pending legislation that could overturn a decades-old system of alcohol regulation and loosen rules on interstate wine shipping.

Clarksville's Beachaven Winery and Vineyards co-owner Ed Cooke is all for changing the law.

"I'd like to see all these laws loosened up, because wine is a food beverage and should be treated that way," Cooke said.

It's not a change he's counting on, but it sure would eliminate some hurdles for the Clarksville winery.

"We've done real well in our own niche, selling wine as a retailer at the winery," Cooke said. "But I'd love to be able to ship wine to my grandmother. We'd love to be able to ship our products to people in Tennessee."

The prospects for the Tennessee legislation are far from clear. Even supporters say it will be difficult to pass the legislation, given the clout of the alcohol industry, which strongly opposes changes to the law.

Bratten, 35, describes himself as a "freak for wine" who hunts online for small vineyards and hard-to-find vintages. He'll travel across the country to sample them, he said, but the average wine consumer can't.

"Right now, even if there is a wine out there that's really good, if the distributor hasn't gotten latched onto it and brought it in, legally there's no way for anyone to get those wines," he said. "That's wrong in my eyes."

Arguments for Web sales

To outsiders, the debate may seem like an arcane regulatory struggle. But wine enthusiasts have found common cause with free-marketeers who argue that systems such as Tennessee's, which relies on large wholesalers, stifles free enterprise and a booming Internet wine market, to the detriment of consumers.

George Mason University law professor Todd J. Zywicki, the former director of the Federal Trade Commission's Office of Policy Planning, said direct wine sales would benefit consumers, but there's also a broader principle at stake.

"The same fights are going on in other industries," he said. "Whether it's cars or real estate or whatever, the Internet allows greater convenience in shopping, greater selection, and lower prices."

Henry Hildebrand, a lobbyist for the Wine and Spirit Wholesalers of Tennessee, said in an e-mailed statement said the group opposes direct shipments of wine because it could put alcohol in the hands of minors, and would cut state revenues.

"We as a state should be seeking ways to bolster the safe, controlled method of distribution currently used in Tennessee, not loosen it," he wrote in the statement.

At the heart of the debate is a three-tiered system: manufacturers make the wine, distributors ship it, and retailers sell it.

Some states, like Tennessee, put wine distribution strictly in the hands of wholesalers, barring any sales that cut out the middlemen. Up to 2005, other states barred direct shipments in and out of their borders, while allowing direct sales to consumers within state borders.

It was the latter category of laws that the Supreme Court struck down in 2005, ruling that it's unconstitutional to favor in-state wine and liquor makers over those from out of state.

In the ruling's aftermath, more than two dozen states changed their laws to allow direct-to-consumer wine sales, according to the Specialty Wine Retailers Association, a California-based trade organization.

But Tennessee and about a dozen other states did not need to, because their laws treat in-state and out-of-state distribution equally.

Impact of Supreme Court

While the Supreme Court ruling didn't directly impact Tennessee, it has spurred activity to change the law. Proposed bills would allow wine enthusiasts to order up to two cases of wine each year from vineyards for personal use, and permit Tennessee vineyards to ship wines directly to customers.

"We're telling somebody who has an agricultural commodity — basically, grapes that are manufactured into wine — that they cannot ship out of state, and they can't even ship it in-state," said Sen. Paul R. Stanley, a Germantown Republican who is sponsoring one of the bills.

"I don't know when we would ever tell someone who grows corn or cotton or soybeans that they can't ship their product. "

The biggest barrier to changing Tennessee's laws, according to critics, is the lobbying clout of alcohol wholesalers. Wholesalers donated some $50 million to state political campaigns between 2000 and 2006; more than $800,000 was spent in Tennessee, said Tom Wark, the executive director of the Specialty Wine Retailers Association.

"If I was a wholesaler, I'd be concerned about maintaining a monopoly, too," Wark said.

Ed Frayer, whose wife owns The Wine Shoppe at Green Hills, said wine enthusiasts in Tennessee should have the same right to buy wine directly as those in other states. He'd like the law to change, he said, but he isn't optimistic.

"I think the chances of a meteor hitting Centennial Park are about as good," he said.