Tuesday, December 07, 2004

U.S. Supreme Court -- Inter-state Shipping

It seems the case will boil down to whether some states are discriminating against out-of-state wineries by allowing in-state wineries to ship directly to consumers, but not allowing out-of-state wineries to do the same. The wine distributors are fighting this case because it could undermine the foundation of the three tier system. If consumers are allowed to buy from out-of-state wineries, why can't wine stores buy directly in quantity at a discount with lower shipping charges. (I think the percentage of overall sales lost to consumer-direct purchases is small and would remain small due to the cost of shipping. Are they going to buy six $15 bottles of wine and pay $20 in shipping? The high-end buyers are and will continue to buy $50 bottles of hard-to-find and back-vintage wines.)

In Ohio, wine stores are allowed to buy directly from in-state wineries, but not out-of-state wineries. They must buy from distributors after mandatory mark-ups. They can arrange for special orders and special shipments, but the pricing usually puts some wines out of reach. If I wanted to support a new and upcoming winery, who wanted to break into the Ohio market, by purchasing 10 cases, he would have to sell his wine to me at $15 to have it retail for $30. He would rather keep the $30 by selling direct, but I could probably negotiate with him and pay him directly $20 to $24 and everyone wins. Except for the distributors!

And then, where will the distributors be? Big chains would cut deals with the big wine producers (Krogers with Gallo, Mondavi, Constellation, etc) bypassing the local distributors. Could the distributors survive selling the mid-sized wine producers to the little stores and restaurants? Could the little stores survive if they couldn't rely on the inventory of the distributors which allows for just-in-time delivery of single bottles? Where would the restaurants buy their wine from? Would we see the emergence of "big box" liquor stores that could buy in quantity with large selections?

It's a brave new world out there! I see the consumers winning on this one (unless the changes end in only 30 wines available at Costco/Sam's/Krogers). And I would be shorting the distributors' stock. And the little wine stores (as in every other industry) are under fire. Look at the plight of small local hardware stores, book stores, pet stores and drug stores. You do remember the small local hardware, book, pet and drug stores, don't you!


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