Posted: Feb 01, 2017
Direct-to-consumer wine shipping continues to grow in popularity in the United States, even as the legal landscape surrounding it continues to change. According to a report from Sovos Ship Compliant, a firm that helps wineries navigate the rules of shipping, winery shipments surpassed the 5 million–case mark (5.02 million 9-liter cases, to be exact) for the first time since the company began tracking sales in 2010. That’s also a 17.1 percent increase over 2015 in sales volume.
Not only are wineries shipping more wines, they're shipping more expensive wines. The average price per bottle shipped went up 1.2 percent, rising from $38.23 in 2015 to $38.69 last year. The largest increase in volume of wines shipped was the over-$200 category, which saw a 36 percent increase over 2015. Not all the wines were pricey, though—the under-$15 category accounted for 22.7 percent of wines shipped.
Overall, the value of 2016 shipments rose to 18.5 percent over 2015, to $2.33 billion. That’s the first time sales have exceeded $2 billion.
According to Kent Nowlin, ShipCompliant general manager and key author of the report, one of the most interesting developments in 2016 was the considerable growth in sales from the large winery segment. "We found that even though the existing wineries in that segment grew [year over year], the dramatic growth came from mid-sized wineries with high-volume direct programs moving into the large segment," Nowlin told Wine Spectator via email. "This stands out to me because it shows there is space for direct-focused wineries in the large segment."
So what is behind the growth? One of the biggest factors is the increasing number of states that allow direct-to-consumer shipping. Pennsylvania, for example, joined the party midway through 2016, and received more than 59,000 cases of wine with a value of $21.7 million from wineries by the end of the year. Additionally, the number of wineries in the United States also increased by approximately 5 percent in 2016, after a 5.5 percent increase in 2015. Roughly 90 percent of the new U.S. wineries fell into the “limited production” and “very small production” categories, and small wineries often depend on direct shipping sales.
Looking forward, Nowlin expects the winery direct-to-consumer shipping channel to continue to grow at strong rates, but considering that most states have already opened their shipping laws, such dramatic increases are not as likely. "The channel will not get as much help from new states opening up as it has in the past," Nowlin said. "But wineries will continue to figure out how to be successful in the channel."
Lawsuit Challenges Michigan Direct Shipping Law
When Michigan Gov. Rick Snyder signed into law an act that modified direct-to-consumer wine shipping, national retailers denounced it as unconstitutional. It took them just 11 days to challenge it in court.
Lebamoff Enterprises, Inc. et al v. Snyder et al, filed Jan. 20, is the third nearly identical lawsuit over limits on retailer direct shipping to hit federal courts since Sept. 1; all three challenge laws that restrict or ban out-of-state retailer shipping. Proponents of retailer direct shipping hope the trio of lawsuits could eventually push the issue to the Supreme Court.
Michigan's new provision allows in-state retailer-to-consumer shipping but blocks out-of-state retailer shipping. When it was under deliberation in the Michigan legislature last year, attorneys Robert Epstein and James Alexander Tanford submitted testimony in opposition. Now both are representing the plaintiffs in all three cases. The pair were also involved in the 2005 Supreme Court landmark Granholm v. Heald decision, which struck down similar bans for direct shipping by wineries.
The complaint in Michigan argues that an out-of-state retailer prohibition violates the Constitution's dormant Commerce Clause and Privileges and Immunities Clause. "The laws of the state of Michigan treat interstate sales, shipment and delivery of wine by retailers differently and less favorably than intra-state sales, shipment and delivery of wine. This statutory scheme discriminates against out-of-state wine retailers and provides economic advantages and protection to wine retailers in Michigan," states the complaint. Lebamoff Enterprises operates specialty Indiana retail chain Cap n' Cork which, prior to the passage of SB 1088, sold wine in Michigan. The three consumer co-plaintiffs are Michigan residents Jack Stride, Jack Schulz and Richard Donovan.
In Illinois and Missouri, the states are mounting their defenses to the suits. On Jan. 27, the Missouri attorney general's office submitted a motion to dismiss Sarasota Wine Market, LLC et al v. Nixon et al, on the grounds that the plaintiffs lack standing to bring the suit, and, furthermore, that Missouri's shipping regulations are constitutional. "Far from enshrining a right to market and sell alcohol, the Twenty-first Amendment grants states the right to restrict and regulate the interstate transportation and importation of liquor into their territories," the state wrote in a memorandum.
The Office of the Illinois Attorney General filed a motion to dismiss the suit in that state on Jan. 20. State attorney Michael Dierkes wrote that the provisions of Granholm do not apply to out-of-state retailers as they do out-of-state wineries. A finding for the plaintiffs "would destroy, for all intents and purposes, the three-tier system of alcohol regulation that Illinois uses for the legitimate purposes of promoting temperance, generating tax revenue and ensuring the orderly distribution of alcohol.”
On Jan. 24, the Wine and Spirits Distributors of Illinois wholesaler association entered a motion to intervene as a codefendant. Epstein indicated that his firm did not plan to object to the motion. "The wholesalers, in my opinion, do have a function in the whole wine-distribution network, but there are so many wines wholesalers either don't or can't handle. And I believe that the wine consumer should be able to get whatever they want from wherever they can get it. But that's not the case in so many of the states."
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