Trade Groups Square Off in NY Retailer Suit

FILED OCTOBER 14, 2014

Earlier this spring, WSD reported that the New York State Liquor Authority (NYSLA) had begun ramping up enforcement tactics in order to crack down on alleged illegal activity by alcohol industry members [see WSD 04-07-2014]. However, the issue didn't really come to a head until last month when Albany-based retailer Empire Wine filed a lawsuit against the agency after being notified it was in violation of the state's alcohol regulation laws for shipping wine to states that prohibit direct-to-consumer sales [see WSD 09-23-2014 ]. As a result, trade organizations representing both sides of the issue have commenced mudslinging in what could potentially be a big case for the industry.

BACKGROUND: In August, Empire Wine was hit with a notice from the NYSLA for allegedly violating a regulation that allows the agency to revoke, cancel or suspend a liquor license in the event of "improper conduct." In this case, the improper conduct was 16 counts of shipping wine to consumers in states where direct shipping from out-of-state retailers is illegal.

Empire Wine subsequently filed a lawsuit, claiming the NYSLA had no jurisdiction over out of state wine sales, which it feels are governed by the Commerce Clause. You'll recall, the Commerce Clause gives the federal government the power to regulate interstate trade and prohibits states from restricting it. It was used in the Granholm decision that determined it is illegal for states to discriminate between in-state and out-of-state wineries with their direct-to-consumer laws. A ruling that many states feel does not apply to retailers, mind you.

NATIONAL ASSOCIATION OF WINE RETAILERS: The issue at hand gained scope last week when the National Association of Wine Retailers (NAWR) called for "progressive" retailers to unite against the NYSLA's "discrimination and regulatory overreach."

"The issue of the state of New York taking on its own retailers over direct shipping...should put fear into the hearts of retailers everywhere. Alcohol regulators have never had much interest in protecting or even considering the interests of progressive wine retailers who recognize the existence of a new, national marketplace in wine,' wrote the association's executive director Tom Wark.

Moreover, Tom attacks wineries and wholesalers, claiming "none of these industry participants have ever shown any interest in supporting the interests of wine retailers' shipping rights." He claims if the retailers are going to see their interests defended, they'll have to do it themselves. "[NAWR] possesses the ability to push back against this kind of discrimination and regulatory overreach without having to worry about the threat of retribution by the NYSLA or any other regulatory body."

WSWA GETS INVOLVED: In response to the NAWR piece, Wine and Spirits Wholesalers of America chief Craig Wolf has released his own thoughts on the matter. He claims the NYSLA is just a "conscientious regulator doing his job to enforce a state's beverage alcohol laws."

Furthermore, WSWA believes retailers should not be permitted to sell into other states without regard for the laws of those states. "This premise is anathema to the principles of the three-tier system and contrary to the sustainment of state-based beverage regulation around the country," he writes.

Craig also states that NAWR's position on the matter is essentially saying: "So long as other states don't catch my members selling illegally to their citizens, New York shouldn't care. Or, if other states are for some reason unable to act to prosecute those violations, regulators should just shut their eyes to the illegal conduct of licensees," he writes. "What strange and perverse logic!"

HOW CONSTELLATION STAYS AHEAD OF THE MARKETING CURVE

With the onset of the digital age and the ability to have infinite amounts of information at your fingertips, both the alcohol beverage consumer and the way the alcohol beverage industry reaches those consumers has changed in recent years. Constellation Brands, the No. 1 wine company in the world, was quick to pick up on the digital marketing strategy, and as a result, has managed to consistently grow its focus and innovation brands.

WSD recently sat down with Chris Fehrnstrom, Constellation's cmo for the wine and spirits division, to discuss the evolution of wine marketing and how the company has adapted its approach to engage the 80 million digitally inclined wine drinkers.

Wine & Spirits Daily: When you look back ten years ago, what was the best way for wineries to reach consumers?

Chris Fehrnstrom: Looking back, whether it's ten years ago or 15 years ago, I think most wineries attempted to reach consumers first and foremost through in-store activation. Very heavy emphasis on public relations and traditional media with a very strong focus on... print. I think that was probably the primary way for companies that were involved in trying to reach consumers.

There's just been so much change in consumer media consumption. Particularly, related to mobile and social media. It's amazing to think ten years ago was when Mark Zuckerberg was launching Facebook from his dorm room. There's just been such a change in not only the technology, but the way consumers use the technology to gather information. We know that on the wine side, there's 80 million wine drinkers who use digital today and those digital wine drinkers are much more likely, in fact 45% more likely, to use mobile devices compared to the average consumer. That whole change has led to a shift in our approach to how we communicate and reach these consumers.

WSD: Is it fair to assume that ten or 15 years ago marketing for wine companies was much more expensive if you went the traditional route of buying magazine placement or billboards etc.?

Chris: It's an interesting question about expense. What I would say is that I don't know if it [was] more expensive. It is much more efficient and effective today. There used to be the old adage... "I know 50% of my advertising is wasted, I just don't know what half." Well today, with the advancement in targeting through digital, we have the ability to know where our dollars are going, how effective they are, are they moving the needle, are they not moving the needle. That's a radical change in marketing.

WSD: How much is Constellation spending on digital marketing this fiscal year?

Chris:We've made a big investment in digital. Four years ago we decided we really wanted to get into this and create a best in class digital capability. We established a team and that first year we spent about 6% of our overall marketing budget in digital. That was, at the time, tiptoeing into the water to better understand it. We've seen great success with our digital initiatives. We now have 25% of our wine and spirits marketing spend on digital programs.

WSD: What's Constellation's general strategy for digital marketing? Is there certain social media websites that you prefer?

Chris: Technology overall, whether it's a social media site, whether it's mobile, whether it's display advertising, continues to evolve quickly. It has allowed us to reach these wine consumers with greater accuracy. I'll give you an example. in the past, we used to buy media on demographic information. We knew certain media properties had a demographic profile of X that seemed to link with the wine consumer segment and so we would buy against that demographic profile.

Today, through data analytics, and per rent media buys, we're able to deliver our advertising to known wine consumers based on purchase behavior, not based on demographics. We have tremendous efficiency in our investment, and that's across social media, that's across video display advertising, that's across banner advertising, so we're able to track all of this.

We've made an investment I'd say across all the different levels of digital, and as we look to the future, perhaps not surprisingly, we're looking to invest more in mobile, because we know that the consumer is using their mobile device to not only gather information, but to make purchase-based decisions in-store on which wine brands to buy.

WSD: Is there a specific demographic that you find is more susceptible to digital marketing or do you think it spans multiple?

Chris: I think it spans multiple [demographics]. We focus our marketing on audiences that we know.... are buying wine. It spans not only different consumer segments, but different age categories. But there's no question there's one demographic that's a front target for digital marketing and that's the millennial population. The millennial population represents 62 million people between the ages of 21 and 36 in the US. We know millennials are adopting wine faster than any generation before them and they're driving a lot of the wine growth. While we're targeting a qualified audience across age categories, the millennial population is a prime target.

Stay tuned for Part II of our conversation with Chris.

WSD BRIEFS:

BOWMORE RELEASING ADDS SMALL BATCH TO PORTFOLIO. Beam Suntory's Bowmore Scotch whisky has added a new expression to its core range: Bowmore Small Batch Single Malt Scotch Whisky. Small Batch is aged in first and second-fill ex-bourbon casks that are then married together. The new product is available nationwide for a suggested retail price of $40 a 750 ml.

7 DEADLY ZINS' LABEL REVAMP. Michael David Winery's flagship 7 Deadly Zins brand will get a label revamp with its 2012 vintage release. The new label has a "fresher, cleaner and updated look," according to the company. The 2012 vintage will be shipped in November and available nationwide by February. It retails for approximately $16 a bottle.

Until tomorrow,
Emily

"A slander is like a hornet; if you can't kill it dead the first time, better not strike at it."
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