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Let the wine sales flow
Supreme Court okays direct, interstate wine sales; ruling gives small winemakers reason to cheer.
May 16, 2005: 2:13 PM EDT
By Katie Benner, CNN/Money staff writer

NEW YORK (CNN/Money) - Wineries and wine quaffers had reason to raise their glasses Monday after the Supreme Court ruled states cannot prohibit consumers from buying wine directly from out-of-state wineries.

The high court ruled 5-4 that bans against direct sales in Michigan and New York unconstitutionally discriminate against interstate commerce. Similar laws have been adopted in a total of 23 states

"This is terrific," said Norman Schapiro, president of New York-based Schapiro Wines, one of the nation's oldest kosher wineries. "I'd give it a week before we start getting direct orders."

In a decision that some analysts say could lead to lower prices and more choices for consumers, Justice Anthony Kennedy said the laws at issue in the two states were designed to give in-state wineries a competitive advantage over wineries located in other states.

"We hold that the laws in both states discriminate against interstate commerce in violation of the Commerce Clause (of the U.S. Constitution) and that the discrimination is neither authorized nor permitted by the 21st Amendment," Kennedy said.

The ruling dealt a symbolic blow to the interstate sales laws in Michigan and New York, but may not take effect for half a year or more. In addition, there are other issues to be dealt with before wine can start moving easily across state lines.

The shipping department at Grgich Hills, a small vineyard in California's Napa Valley, said a handful of compliance issues, including pricing, must be hammered out with each state before the company can begin shipping directly to consumers.

"That could take six to eight months," said Phil Bilodeau, marketing manager at Grgich Hills.

Legal lift for the little guy

The Michigan and New York cases have been closely watched by the wine industry, which Reuters reported has annual U.S. sales of more than $21.6 billion and includes more than 3,700 wineries nationwide.

Outside of the top 25 wine makers, most of these businesses are small, family-run enterprises, Reuters said.

The laws generally banned direct shipments from out-of-state wineries through Internet and phone sales, but allowed wineries to sell directly to customers within their state.

Moreover, out-of-state wineries were only allowed to sell to wholesalers, who distribute to retailers, who then sell to consumers.

"I often get calls from people looking for Bennett Family wine, and often there was nothing I could do because I couldn't ship them the product," said Robert Rentsch, marketing director of wines at William, Grant & Sons, a wine import company that represents the Bennett Family winery located in Napa, California.

"Now we can sell directly and this is very encouraging," Rentsch said.

A ruling for connoisseurs

Even though a Federal Trade Commission report has found the bans reduce consumer choice and increase wine prices, some industry insiders say the ruling will not greatly affect the current wine sales and distribution hierarchy.

"We're not totally getting rid of the three-tier pricing system," said Rentsch.

"Most wine is consumed as an impulse item. This won't create an alternative to everyday wine buying in stores," he said. "It's great for people who really want a wine that's only sold from an out-of-state winery."

Wine makers agreed that the ruling would most positively effect connoisseurs who had a specific jones for a wine they had experienced elsewhere that could not be found in their home market.

"This is not going to have a huge impact on us," said Grgich Hills' Bilodeau. "We currently ship through third-party shippers to New York and Michigan, so the biggest impact is symbolic in that it will hopefully allow us to ship to more states."

"It does make it easier and quicker and brings the price down," he added.

But wine is heavy and fragile, with shipping costs increasing as fuel prices rise. Some wineries said that prices won't fall much because customers buying direct may have to foot the more expensive shipping costs, whereas the three-tier system could absorb some of the rising costs.

"But for out-of-state customers buying direct, we could offer California prices to offset those costs, and offer products not available in all states," said Bilodeau.

Defenders of the laws argued that the 21st Amendment, which repealed Prohibition in 1933, gives states the power to regulate the sale and distribution of alcoholic beverages. They also said the laws helped protect minors from alcohol and allowed states to collect taxes on wine sales.

Joining Kennedy in the majority opinion were Justices Antonin Scalia, David Souter, Ruth Bader Ginsburg and Stephen Breyer.

Chief Justice William Rehnquist and Justices John Paul Stevens, Sandra Day O'Connor and Clarence Thomas dissented.

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-- from staff and wire reports  Top of page

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