October 28, 2009, 12:00 AM

Amazon pulls the cork on plans to sell wine

It had wineries lined up to support its entry into wine sales, but Amazon is cancelling those plans. Observers say Amazon’s anticipated wine business likely fell victim to negotiating the patchwork of legislation among states.

In a communication to wineries lined up to support its planned entry into wine sales, Amazon Inc. this week announced it is cancelling those plans.

“I am very sorry to let you know we have recently decided not to resume shipping. As you know, we were excited to work with you to build the AmazonWine business. For that reason, this was a very tough choice for us,” read the letter, which regional managers for Amazon Services sent to wineries in their areas. Amazon Services provides third-party services, including fulfillment, to other online merchants.

Amazon, No. 1 in the Internet Retailer Top 500 Guide, is providing no details on its change of plans other than to confirm it will not be entering the wine business. But industry observers say that with states individually governing the sale of wine and alcohol, Amazon’s wine business, which had yet to launch, likely fell victim to the challenge of negotiating the complex patchwork of legislation among states, particularly as it relates to the shipment of wine from one state to another.

Most states have a three-tier distribution system in which wholesalers stand between wine producers on the one side and retail and restaurant outlets on the other. Only 35 states permit the direct-to-consumer shipment of wine from wine producers, while 12 have language specifically allowing the direct-to-consumer shipment of wine from retailers.

Retailers such as Wine.com address the issue by establishing warehouses in most states, which allows them to sidestep state regulations governing the direct shipment of wine to consumers from out of state. But if Amazon was planning to ship out of California, without putting wine warehouses across the country, “They had to work their way through a very complex regulatory structure,” according to Tom Wark, executive direct of the Specialty Wine Retailers Association, a group that supports interstate wine sales.

The three-tier system, which requires wine sellers to source the wines they will sell from what’s available from the state’s licensed wholesalers, also would have hindered Amazon’s ability to offer an extensive selection, Wark says, because wholesalers in any given state offer only a small percentage of wines that are actually produced.

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