Uncorked!: Tom Shelton reflects on

new court ruling for shipping wine direct

to consumers

By Tom Shelton, President & CEO

The Supreme Court decision striking down state-sanctioned policies of discrimination with respect to direct shipment of wine from producers to consumers will likely have ramifications far beyond the desire of artisan wine producers to efficiently satisfy demand for their wines in the national marketplace.

In a narrowly defined ruling, the high court decided that the state and local right to promote temperance is, indeed, protected by the Twenty-First Amendment, but that right does not protect a broad range of regulatory practices which discriminate between local and out-of-state interests. Clearly, the issue before the Court was direct-to-consumer shipments, but more significantly, the Court decision infers that out-of-state wine producers should be allowed to ship directly to both licensed trade and consumers in states where those privileges are provided to in-state producers.

Essentially, the Court struck a blow to the mandatory three- tier system and created an imperative for wine producers, distributors and sellers to redefine their relationships exclusively upon the value of service that each brings to the transaction.

California has enjoyed such an a la carte system of wine distribution for decades and wineries and consumers have been well served. Wholesalers' fear of being forced out of business has not been realized; rather they have prospered through innovative service induced by open competition. The model works in California and it will work elsewhere.

Left open for another day is that most egregious regulatory remnant of prohibition, namely, franchise protection for local distributors. In many states a winery is required to appoint a representative distributor, who once appointed, cannot be easily terminated regardless of cause. Socalled franchise protection laws come in a wide variety of fascinating provisions, each reflective of local notions of fair play for distributors, but they all share the same anti-competitive under-pinnings and they all, by definition, favor local distributor interests over out-of-state winery interests.

I have always been amazed by the franchise protection law in Georgia which allows a distributor to trade or sell a brand to another distributor, while the only remedy a winery has to address a distributor's lack of performance is to leave the state.

How are the interests of Georgia's citizens being served by such intimate state involvement in a commercial relationship that is customarily governed by contractual agreement?

To be sure, many distributors would welcome the demise of franchise protection laws because they inherently block the growth of successful businesses. Regardless, these artifacts are preserved and not a year goes by without new attempts to expand franchise protection, some successful and some not.

The Supreme Court decision will encourage enlightened attitudes toward the role of wine in society and its path to market, and should create, for the first time, competitive balance within the three tier system. Creativity and innovation is sure to follow, and isn't it about time?