A few weeks ago the Supreme Court agreed to hear in early 2019 Tennessee v Byrd, a Sixth Circuit Court of Appeals decision that erupted into a small volcano of speculation among wine industry promoters and marketers. To find out if the explosion is warranted, I asked Tom Wark.
Based in Napa, Wark has been in wine marketing and public relations since 1990. For the past eleven years, he has been the executive director of the National Association of Wine Retailers, an organization of retailers that seeks to fix the regulated beverage alcohol market. He is also a blogger and the founder of the annual Wine Bloggers Conference.
According to Wark, Tennessee v Byrd “is about durational residency requirements for retailers,” and more. Under Tennessee law, to gain a wine retail permit a person must have been a resident of the state for a minimum of two years. The giant chain retailer, Total Wine & More filed suit against that regulation, arguing the law interferes with interstate commerce in a way that the 2005 Supreme Court decision known as “Granholm” prohibits when it recognized the right of wineries to ship direct to consumers across state lines. Since 2005 the assumption has been the decision applied to wineries only. But the circuit court’s Tennessee v Byrd decision challenges that view; in its decision the court noted the Granholm decision’s non-discrimination principles also apply to retailers.
Wark says, “The 2005 Granholm v. Heald Supreme Court decision ruled that despite the 21st Amendment granting states the power to regulate the sale and distribution of alcohol, states were prohibited by the Constitution’s dormant Commerce Clause from passing discriminatory laws that interfered with interstate commerce. The case concerned laws in New York and Michigan that allowed wineries in those states to ship to consumers within their states, while banning out of state wineries from doing the same…many states changed their laws to allow out-of-state wineries to ship wine to consumers…at the same time, some states banned out-of-state retailers from shipping while allowing in-state retailers to ship wine to consumers within the state.”
Since the 2005 decision never stated that the non-discrimination principle applied to wineries only, a number of lawsuits on behalf of retailers against state laws have been filed over the years, but the recent Tennessee case is the first time a circuit court has recognized a wine retailer’s Constitutional protection.
The issue of direct shipping by out-of-state retailers is both general and specific. Generally, it is a right to engage in unrestricted commerce; specifically, in all likelihood it would not apply to every type of wine produced.
According to Wark, “Retailers alone sell imported wines, and retailers are the primary source for rare and collectible wines as well as wine-of-the-month club memberships. If states bar out-of-state retailers from shipping wine into a state, consumers in those states have access only to a very small number of imported wines and rare/collectible wines available across the country.”
Shipments from out-of-state retailers almost always go directly to the consumer without an intermediary. This is the most efficient and least expensive way to ship. The process takes place currently among 13 states and the District of Columbia. The distributor of the product shipped to consumers doesn’t lose out—the retailer in each state had to buy it from a distributor in the first place.
Still, national wine distributors overall are against opening up interstate shipping for retailers. They argue that an individual state can’t regulate hundreds of thousands of retailers across the country. They also maintain an infinitely weaker argument that retailer shipping will lead to minors obtaining wines—it’s improbable that a minor seeks collectible or expensive wine, or that a minor will wait a week for a shipment of cheap wine.
Wark says, “I don’t believe wholesalers oppose retailer to consumer shipping for these reasons. I believe they oppose retailer to consumer shipping because they believe it threatens the state mandated three tier system that protects wholesalers from competition. ”
He has a point. The only truly logical reason for retailers to ship wine to a consumer in another state is lack of access to that particular product within the state where the consumer resides. Says Wark, “We know precisely which products are shipped from retailers to consumers in interstate shipments. They are largely small production, hard-to-find, collectible and rare wines…the cost of shipping almost always wipes out any savings one might achieve by shopping around.”
One other argument used against allowing retailers to ship out of state has to do with taxes, but Wark thinks this a weak argument. Tax money is probably being lost right now by retailers and consumers who circumvent restrictions. With legality comes a better paper trail.
Wark believes, “Those looking for states to protect them from free market competition are local wholesalers and most large retailers…an entitled attitude has developed over the years on the part of wholesalers and retailers which has significantly harmed consumers and has harmed the wine business, curtailing both sales and competition in order to protect a very small group.”