Will Amazon.com finally end the war over direct wine shipping?

Wine, beer, and other potent potables.
March 19 2008 3:21 PM

Shipping News

Will Amazon.com end the war over direct wine deliveries?

Illustration by Mark Alan Stamaty. Click image to expand.

Two weeks ago, the Financial Times reported that Amazon.com was gearing up to sell wine. The company had posted an ad for a senior wine buyer who would be responsible for putting together a "massive new product selection." For oenophiles, this was potentially huge, and not just because Amazon would likely be stocking lots of stellar wines at great prices; the entry of the Internet retailing colossus into the business seemed just the thing to finally break the logjam over interstate wine shipping. The topic of direct shipping is one I've avoided till now because, frankly, it gives me a worse headache than a hangover. But with word of Amazon's apparently imminent foray into the world of cabernets and Syrahs, I decided duty obliged me to try to figure out what this might portend for the direct-shipping battle. The experience has left me with a migraine, and now you get to share my pain.

You might vaguely recall that three years ago, the Supreme Court issued a landmark decision on interstate shipping, and you might vaguely recall all your oenophile friends exchanging high-fives and guzzling Haut-Brion in celebration. In Granholm vs. Heald, the court decreed that states could not bar out-of-state wineries from shipping directly to consumers if in-state wineries were allowed to do so. The ruling was hailed as a potentially lethal blow to the grossly inefficient three-tier system by which wine (and other liquor) is distributed in the United States. The three-tier distribution system is an outgrowth of the 21st Amendment, which ended Prohibition. To more effectively regulate alcohol sales in the wake of the repeal, most states decided to place an independent intermediary, the wholesaler, between producers and retailers.

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The result was an incoherent patchwork of liquor laws nationwide, laws that have become comically anachronistic with the advent of online shopping and ever cheaper, easier shipping. The Supreme Court seemed to agree: In the Granholm decision, it ruled that laws in Michigan and New York allowing direct shipping from in-state wineries but prohibiting it from out-of-state producers were unfairly disadvantaging the competition and therefore unconstitutional. The ruling did not, however, obliges states to make direct-to-consumer shipping legal or hassle-free.

Three years on, the court's decision has yielded varying degrees of liberalization in a handful of states, lots of legislative chicanery, and a distribution system that is possibly even more convoluted than before. "People broke out the Champagne a little early," says R. Corbin Houchins, an antitrust lawyer with a national practice in licensed beverage distribution. According to Free the Grapes!, a direct-shipping advocacy group, 35 states now permit some form of direct-to-consumer shipping from out-of-state wineries, up from 25 before Granholm. But the liquor wholesalers, a deeply entrenched and well-funded lobby, are waging a furious and fairly successful battle to maintain the status quo. Several states, notably Ohio, have placed strict caps on the amount of wine that can be shipped from wineries in other states, provisions that amount to backdoor discrimination; ditto the Kansas law, enacted in 2006, permitting direct shipping but only in cases where the consumer has physically purchased the wine at the winery. Then there is the retail front: In Granholm, the court addressed the concerns of wine producers but said nothing about wine merchants, who are battling even tougher restrictions. (Just 16 states permit direct-to-consumer shipping from out-of-state retailers.)

Still with me?

Amid all the legal wrangling, the news that Amazon would be jumping into the wines business was initially greeted with delight by oenophiles, who figured it would mean cheaper prices and lower shipping costs. (As the job ad suggested, the company would be buying in bulk; presumably, it would be negotiating discounted prices and passing along the savings to consumers.) There was an even more tantalizing prospect: It stood to reason that Amazon, confronting the same regulatory morass as every other wine merchant, would be wading into the fray over interstate shipping, a potentially game-breaking development given the company's heft and clout. Certainly, a giant like Amazon wouldn't be inclined to simply accommodate itself to such an illogical and antiquated distribution system.

Or maybe it would. After the FT story broke, British wine magazine Decanter reported that Amazon would be teaming up with the largest existing Internet wine retailer, Wine.com. The companies formed a short-lived partnership in 2005, and at least according to Decanter, the deal was back on, which came as a rude shock to wine buffs who had been toasting Amazon just hours earlier. That is because Wine.com is now the most hated name in booze. It was recently disclosed that the San Francisco-based firm executed a sting operation in which it posed as a consumer, had wine illegally shipped to it from wine retailers around the country, and reported the violations to state authorities. Wine.com has structured its business to diligently comply with existing state laws, but judging by the outraged reaction among wine fans, this was a case of committing hari-kari with a corkscrew—many people felt betrayed by the company and vowed to no longer buy from it.