With help from former Clinton prosecutor Kenneth W. Starr, groups representing small winemakers are pushing states to allow web sales of wine. The wineries contend that established distribution networks to retail liquor stores are largely closed to thousands of small wine sellers, forcing them to turn to the web as a direct-to-consumer channel. "For these winemakers, it’s Internet or die," Starr tells InternetRetailer.com.
Starr is representing two California wine industry groups, Family Winemakers of California and The Coalition for Free Trade, in a case currently before a federal appeals court in New York. The court started hearing arguments last week in New York State’s bid to overturn a lower court’s ruling last October that found the state’s ban on Internet sales of wine unconstitutional. New York, second only to California in wine sales, could set a precedent for Internet wine sales if the lower court’s ruling is upheld.
Starr contends that thousands of small wineries across the U.S. are being shut out of traditional wine distribution networks that favor only the largest and most popular wine labels. He estimates that there are about 6,000 wineries nationwide, including some in each of the 50 states, and that they lose hundreds of thousands of dollars per month in sales by being shut out of direct-to-consumer sales by state laws. "For many of these wineries, it’s the tasting room, their catalog and the Internet as their only options for selling," he says, adding that most see the web as the best way to reach the largest number of customers.
New York State officials contend that the battle is over states’ rights, and that they oppose the federal government’s taking action to usurp New York state law. Without the ban, the state will have no way of regulating direct-to-consumer wine sales for payment of sales tax and for preventing sales to minors, adds Randy Mastro, an attorney representing New York wine wholesalers. "There are wineries that will ship directly to minors and that won’t collect sales tax," he says.
Moreover, he adds that there are more than 200 wine wholesalers in New York State and that 90% of the wine sold in the state is from out-of-state winemakers. "This is not a free trade issue," he says. "My clients have invited out-of-state wineries to talk about distribution." Mastro, a partner with Gibson, Dunne & Crutcher in New York City, represents several wholesalers and the New York, NY-based Metropolitan Retail Association.
But Starr, who is a partner with Washington, D.C.-based law firm Kirkland & Ellis LLP, contends there are far too many wineries for existing wholesalers to handle. He also says that wholesalers use bogus arguments regarding Internet collection of sales tax and sales to minors. There are software systems already in use that are designed to handle multi-state sales tax collection for web sales, he says. And wine groups have worked with shipping companies, including FedEx Corp. and UPS, to establish procedures that require an adult to sign for deliveries of wine in direct-to-consumer orders.
Starr adds that Internet sales would be good for the overall wine industry by promoting new varieties. "The innovation in this industry is coming from these small, family-owned wineries," he says.
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