A TALK WITH TOM WARK AND RETAILER SHIPPING RIGHTS
WSD sat down with Tom Wark, director of the Specialty Wine Retailers Association (SWRA) earlier this week to get his take on the Granholm litigation swarming the country. The SWRA generally fights for states to pass legislation that will allow out-of-state retailers to ship directly to consumers. On their website, the SWRA says they are “the only group of retailers seeking a ‘borderless’ wine market so that consumers can purchase and receive wine directly from any retailer in the United States.” Let’s take a look at Part One of the interview as you, dear reader, are a fly on the wall.
WSD: How did you get involved with the SWRA and the wine business in general?
Tom Wark: Well, I got involved with the SWRA when they were looking for an executive director back in December of last year.
I’ve been involved on the periphery of the direct shipping industry for many years, first being involved with it when I was the public relations consultant for Matanzas Creek Winery where Bill MacIver, who was one of the owners, was very involved in the early direct shipping issues. And so I worked with him pretty closely.
I got into the wine business in 1990 when I took a position at a public relations firm that specialized in wine and then three years later I opened my own firm.
WSD: Okay, great. I want to go ahead and talk about Illinois because it’s fresh in everyone’s mind. Is the SWRA planning on contesting the outcome of HB 429 if the governor signs it?
TW: Yes, at this point Specialty Wine Retailers is looking for the best way to contest the bill, and that could be filing suit in advance of it taking effect, which would be I believe July first of next year, or after it takes effect.
WSD: In the Illinois case, the Specialty Retailers argued that blocking out-of-state retailers from shipping directly to residents reduces consumers’ wine selection. Illinois retailers and wholesalers, however, argued that consumers will have just as much choice through in-state retailers and direct shipments from wineries. How do you rebut that?
TW: Well, first there’s no possible way that the wholesalers in Illinois can provide Illinoisans with the universe of wine. Thousands and thousands of wines not available to Illinoisans, particularly imported wines and the rare and fine wines, including wines that show up at auctions, will not be available to Illinoisans. Under HB 429, an Illinoisan can go straight to an American winery and purchase wines from them. That doesn’t mean, of course, that they’d be able to get their hands on all the wines that that winery would produce. If it doesn’t exist in Illinois at any retailer they’re out of luck. However, if they were allowed to buy that wine from out of state retailers, they could very easily go online and purchase from any number of places that have it.
In addition, there’s the problem of imported wines. You simply can’t buy wine directly from an Italian or German or a French winery and have it shipped here. It’s illegal and the cost would be prohibitive.
WSD: What about California crush facilities that have wholesaler licenses?
TW: Yeah, there’s a category of winemakers in California that don’t have “winery” licenses. They’re essentially virtual wineries and they have a combination type 17 and type 20 licenses. Those are essentially wholesaler and retailer licenses. What that allows them to do is make their wine at a crush facility or somebody else’s winery. And then they can go ahead and sell that wine directly to a wholesaler or directly to an individual in California. The problem is that since they’re not licensed as wineries they would not be able to get a permit in Illinois, because the Illinois permit system that was just passed says that only a winery can get a permit and these people are not wineries. They have retailer and wholesaler licenses. And there are hundreds of those in California.
WSD: What about those individuals that claim out-of-state retailers never actually had the right to ship directly to Illinois residents in the past?
TW: Let me just, in fact, I believe I actually addressed that on your Web site. But let me read to you the language concerning reciprocity in Illinois. This is directly from their law:
“Not withstanding any other provision of law, an adult resident or holder of an alcoholic beverage license in a state which affords Illinois license either adult residents an equal reciprocal shipping privilege may ship.”
So in other words, you simply have to have an alcoholic beverage license. An alcoholic beverage license is a retailer, wholesaler or a winery. I don’t believe that any member of the Illinois Liquor Control Commission would confirm for you that out-of-state retailers could not ship into Illinois under reciprocity because in fact they could.
WSD: Your opponents also say it would be difficult to collect taxes and regulate sales if out-of-state retailers were allowed to ship directly because there are so many. What is your response?
TW: Yeah. Well, everyone that makes that argument should actually do the research before they start suggesting things like that. There are a variety of states around the country that actually do issue shipping permits to those out-of-state wineries and out-of-state retailers. And in every single one of those states, the vast majority of folks who get the permit to ship are wineries. The winery majority is in the neighborhood of 80% to 85% and 15% to 20% retailers. So if anyone needs to worry about a system like the Illinois Liquor Control Commission being overwhelmed, they need to worry about wineries because it will be the wineries that get the vast majority of these permits. And there’s a good reason for that. Wineries rely much more heavily on direct to consumer sales than retailers do. The vast majority of retailers simply rely on local sales.
WSD: Do you think the three-tier system and wholesalers are necessary?
TW: Yeah. You know, almost every industry in America works under a three-tier system whereby a producer sells to a distributor who then sells to a retail outlet. And it works beautifully. But you’ll find very few industries in which the state actually mandates that that’s the way it works. I think the three tier system is great. I just don’t think it should be mandated by the state. The idea of mandating that producers must sell directly to wholesalers, who then must sell directly to retailers or restaurants, is an idea that was put in place in the 1930s, over seventy years ago, when there were far, far more wholesalers than there are now and far fewer producers than there are now.
If a state mandates it, wholesalers are put into a position of enormous power, which means they get a cut of nearly every sale that happens in their state. That results in enormous profits. Those enormous profits result in enormous political power. That enormous political power is put to use to protect the system that gives them enormous profits. It’s really interesting, Megan. Before Prohibition producers literally controlled retailers and taverns and it was called the “tied house” and that sort of control the producers had over retailers and taverns was such that they were forcing these folks at the retail level and the taverns to really engage in terrible marketing practices. So they put this wholesaler in between the producer and the retailer to sort of make sure that that system wasn’t duplicated after Prohibition. But now we’ve got a position where in almost every state the wholesaler literally controls what alcohol can be sold in that state and literally controls the retailer by dictating what will be sold to them. State mandated three-tier systems simply don’t work for consumers and they don’t work for producers. I have no problem with the three-tiered system as long as it’s not state mandated.
WSD: Right. And what about the control system which is specifically state mandated.
TW: Yeah, there are a number of states like that. And as a free trader I’m going to argue that the state has no business doing that. I’d argue that the state has a number of different tools by which they can promote temperance, where they can easily collect taxes, and where they can easily promote an orderly market without stifling free trade.
I don’t think there’s any question that a state has the right to dictate the way the wine is sold inside of its borders. But whether or not it’s a good idea to mandate a three-tier system is another question altogether.
But Granholm, I guess maybe to move on to another subject, in the Granholm Supreme Court decision, there’s no question that it applied not just to wineries but it applied to retailers also. There was a very big principle that was enunciated in Granholm and that is that a state may regulate alcohol, the sale of alcohol, any way it wants. However, it has to do it on an even-handed basis. If they want to allow in-state entities to engage in retail transactions and shipping, then it must allow out-of-state entities the same thing.
Stay tuned for Part Two of the interview on Monday...
WSD: How did you get involved with the SWRA and the wine business in general?
Tom Wark: Well, I got involved with the SWRA when they were looking for an executive director back in December of last year.
I’ve been involved on the periphery of the direct shipping industry for many years, first being involved with it when I was the public relations consultant for Matanzas Creek Winery where Bill MacIver, who was one of the owners, was very involved in the early direct shipping issues. And so I worked with him pretty closely.
I got into the wine business in 1990 when I took a position at a public relations firm that specialized in wine and then three years later I opened my own firm.
WSD: Okay, great. I want to go ahead and talk about Illinois because it’s fresh in everyone’s mind. Is the SWRA planning on contesting the outcome of HB 429 if the governor signs it?
TW: Yes, at this point Specialty Wine Retailers is looking for the best way to contest the bill, and that could be filing suit in advance of it taking effect, which would be I believe July first of next year, or after it takes effect.
WSD: In the Illinois case, the Specialty Retailers argued that blocking out-of-state retailers from shipping directly to residents reduces consumers’ wine selection. Illinois retailers and wholesalers, however, argued that consumers will have just as much choice through in-state retailers and direct shipments from wineries. How do you rebut that?
TW: Well, first there’s no possible way that the wholesalers in Illinois can provide Illinoisans with the universe of wine. Thousands and thousands of wines not available to Illinoisans, particularly imported wines and the rare and fine wines, including wines that show up at auctions, will not be available to Illinoisans. Under HB 429, an Illinoisan can go straight to an American winery and purchase wines from them. That doesn’t mean, of course, that they’d be able to get their hands on all the wines that that winery would produce. If it doesn’t exist in Illinois at any retailer they’re out of luck. However, if they were allowed to buy that wine from out of state retailers, they could very easily go online and purchase from any number of places that have it.
In addition, there’s the problem of imported wines. You simply can’t buy wine directly from an Italian or German or a French winery and have it shipped here. It’s illegal and the cost would be prohibitive.
WSD: What about California crush facilities that have wholesaler licenses?
TW: Yeah, there’s a category of winemakers in California that don’t have “winery” licenses. They’re essentially virtual wineries and they have a combination type 17 and type 20 licenses. Those are essentially wholesaler and retailer licenses. What that allows them to do is make their wine at a crush facility or somebody else’s winery. And then they can go ahead and sell that wine directly to a wholesaler or directly to an individual in California. The problem is that since they’re not licensed as wineries they would not be able to get a permit in Illinois, because the Illinois permit system that was just passed says that only a winery can get a permit and these people are not wineries. They have retailer and wholesaler licenses. And there are hundreds of those in California.
WSD: What about those individuals that claim out-of-state retailers never actually had the right to ship directly to Illinois residents in the past?
TW: Let me just, in fact, I believe I actually addressed that on your Web site. But let me read to you the language concerning reciprocity in Illinois. This is directly from their law:
“Not withstanding any other provision of law, an adult resident or holder of an alcoholic beverage license in a state which affords Illinois license either adult residents an equal reciprocal shipping privilege may ship.”
So in other words, you simply have to have an alcoholic beverage license. An alcoholic beverage license is a retailer, wholesaler or a winery. I don’t believe that any member of the Illinois Liquor Control Commission would confirm for you that out-of-state retailers could not ship into Illinois under reciprocity because in fact they could.
WSD: Your opponents also say it would be difficult to collect taxes and regulate sales if out-of-state retailers were allowed to ship directly because there are so many. What is your response?
TW: Yeah. Well, everyone that makes that argument should actually do the research before they start suggesting things like that. There are a variety of states around the country that actually do issue shipping permits to those out-of-state wineries and out-of-state retailers. And in every single one of those states, the vast majority of folks who get the permit to ship are wineries. The winery majority is in the neighborhood of 80% to 85% and 15% to 20% retailers. So if anyone needs to worry about a system like the Illinois Liquor Control Commission being overwhelmed, they need to worry about wineries because it will be the wineries that get the vast majority of these permits. And there’s a good reason for that. Wineries rely much more heavily on direct to consumer sales than retailers do. The vast majority of retailers simply rely on local sales.
WSD: Do you think the three-tier system and wholesalers are necessary?
TW: Yeah. You know, almost every industry in America works under a three-tier system whereby a producer sells to a distributor who then sells to a retail outlet. And it works beautifully. But you’ll find very few industries in which the state actually mandates that that’s the way it works. I think the three tier system is great. I just don’t think it should be mandated by the state. The idea of mandating that producers must sell directly to wholesalers, who then must sell directly to retailers or restaurants, is an idea that was put in place in the 1930s, over seventy years ago, when there were far, far more wholesalers than there are now and far fewer producers than there are now.
If a state mandates it, wholesalers are put into a position of enormous power, which means they get a cut of nearly every sale that happens in their state. That results in enormous profits. Those enormous profits result in enormous political power. That enormous political power is put to use to protect the system that gives them enormous profits. It’s really interesting, Megan. Before Prohibition producers literally controlled retailers and taverns and it was called the “tied house” and that sort of control the producers had over retailers and taverns was such that they were forcing these folks at the retail level and the taverns to really engage in terrible marketing practices. So they put this wholesaler in between the producer and the retailer to sort of make sure that that system wasn’t duplicated after Prohibition. But now we’ve got a position where in almost every state the wholesaler literally controls what alcohol can be sold in that state and literally controls the retailer by dictating what will be sold to them. State mandated three-tier systems simply don’t work for consumers and they don’t work for producers. I have no problem with the three-tiered system as long as it’s not state mandated.
WSD: Right. And what about the control system which is specifically state mandated.
TW: Yeah, there are a number of states like that. And as a free trader I’m going to argue that the state has no business doing that. I’d argue that the state has a number of different tools by which they can promote temperance, where they can easily collect taxes, and where they can easily promote an orderly market without stifling free trade.
I don’t think there’s any question that a state has the right to dictate the way the wine is sold inside of its borders. But whether or not it’s a good idea to mandate a three-tier system is another question altogether.
But Granholm, I guess maybe to move on to another subject, in the Granholm Supreme Court decision, there’s no question that it applied not just to wineries but it applied to retailers also. There was a very big principle that was enunciated in Granholm and that is that a state may regulate alcohol, the sale of alcohol, any way it wants. However, it has to do it on an even-handed basis. If they want to allow in-state entities to engage in retail transactions and shipping, then it must allow out-of-state entities the same thing.
Stay tuned for Part Two of the interview on Monday...
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