According to Wine Institute lobbyist Steve Gross, Direct-to-Consumer (DtC) could in fact be a victim of its success. In an article dated June 30, 2020, Gross told winebusiness.com that in 2019, DtC wine sales reached $ 3.2 billion. He said that when state officials read a number among the billions they noticed, hoping to make sure they get their fair share.
Regulators across the country are stepping up compliance oversight, with more scrutiny of third-party delivery companies. As examples, Gross cited New York and Michigan, states particularly aggressive against shipments of wine from out-of-state retailers, as well as Texas and Virginia, states that increased their audit programs (the latter doubled the cost of a shipping permit to fund increased surveillance staff).
Yet the list of recalcitrant states that do not wish to accept some form of DtC regulation is reduced to four: Alabama, Delaware, Mississippi and Utah. The efforts of Gross, who has worked on the DtC since 1986, seemed promising recently; then the pandemic struck. Gross and his team had bills pending to open up interstate wine shipping to the remaining four closed states when the closures began and lawmakers addressed the pandemic and its many effects on the economy. .
Gross said Mississippi (MS) lawmakers have passed a law, which they claim is a first step towards DTC, but it hasn’t. The law allows out-of-state wineries to ship to consumers through an MS-approved tax-responsible packaging store; a process that adds possible service charges to the retail markup. In addition, the wine cannot go directly to the consumer, who must collect it at the point of sale, and each consumer is limited to 10 cases per year.
Utah (UT) also proposed a law to allow out-of-state wineries to ship, but like the MS Act, this is not DtC. UT consumers must sign up for a wine subscription service through one of the Utah Department of Alcoholic Beverage Control (DABC) stores. DABC arranges for wines ordered to be shipped to a state warehouse, where they can be marked up by up to 88%, plus handling charges, and delivered to a designated state store for the consumer to pick up.
Gross was on the verge of asking the Alabama legislature to reconsider a proposed DtC law, but the legislative session ended before the proposal was considered; a DtC bill is making its way into the Delaware legislature.
In states where DTC is permitted, however, lobbyists still have concerns. For example, a production of over 250,000 gallons per year prevents an out-of-state winery from shipping directly to residents of New Jersey and Ohio. Indiana prohibits DtC to its residents if the winery’s products are distributed through an Indiana-licensed wholesaler. Other states impose other restrictions.
Gross also pointed out that states are placing more emphasis on age verification for wine shipments, a claim supported by a June 26, 2020 report released by DtC compliance firm, SOVOS, which began, ” More flexible regulations on home alcohol delivery have helped consumers buy wine and other alcoholic beverages during the pandemic, but it appears that several of the consumers who received deliveries were underage. “
The report does not necessarily relate to DtC deliveries. These are mostly relaxed regulations that have allowed for an increase in third-party alcoholic beverage deliveries during the pandemic. But it clearly indicates a facet of the DTC discussion, in which America’s wine and spirits wholesalers have an interest: that direct shipments of alcohol to residences threaten the guarantees of the so-called 3-tier system, which hunts alcoholic beverages from producer to wholesaler to retailer, for both tax compliance and age.
Meanwhile, interstate shipping direct to consumers by alcoholic beverage retailers, particularly through online shopping, remains a controversial issue in many states. But as consumer buying trends evolve, it seems it’s only a matter of time before this issue is resolved on the consumer side. Of course, when it comes to alcohol law, time can be measured anywhere from a nanosecond to an eternity!