E-Commerce: New Wineries vs. The System

Wholesale liquor distributors and online merchants debate interstate wine shipment before lawmakers.

WASHINGTON—E-commerce is a boon to many veteran Main Street retailers, but in the policy debates over online sales, the veterans increasingly pit themselves against startup online merchants. In the fight for every last sale, particularly in the tight economy, traditional and online merchants are turning to the courts and to legislators for help.

In the wine business, mom-and-pop shops found a profitable niche in Internet sales, and they are challenging the well-entrenched system of wholesale liquor distributors, who are rallying to stop them.

The debate is draped in arguments about underage drinking, consumer protection and states rights in the post-Prohibition era. But online wine sellers say it is fundamentally about sales.

"Its all about the money, honey," said WineAmerica President David Sloane, paraphrasing British poet Andrew Motion. Wholesalers historically have served as a funnel through which all liquor sales must pass, he said, but in the wine business the system is profitable only for huge wineries with known brands.

"Volume brands are where the big money is to be made," Sloane told lawmakers Thursday at a hearing before the House Subcommittee on Commerce, Trade and Consumer Protection. WineAmerica, in Washington, is the national association of wineries.

Some states allow interstate wine shipment, and most states allow intrastate wine shipment. The legal questions revolve around states rights under the 21st Amendment (which repealed Prohibition) and the interstate commerce clause. Circuit courts have not ruled entirely consistently on the matter, and many observers expect the matter will be settled by the Supreme Court.

Wholesalers point to the problem of teenage drinking as a primary reason to end the interstate shipment practice.

"We should not create a virtual vending machine for alcohol on the Internet," said Juanita Duggan, president of the Wine and Spirits Wholesalers of America Inc., in Washington. "Its about kids, communities and common sense."

To illustrate her point, Duggan described the case of a minor who was living in a rehabilitation facility and ordered a case of bourbon over the Internet. The bourbon was delivered to the facility, where the minor drank it, she said.

"He drank the whole thing," Duggan told lawmakers, adding that he then ordered a second case.

Dismissing online sales proponents who say that wine shipments to minors can be curtailed by verification controls, Duggan said that shippers use euphemistic return addresses and that liquor boxes conceal their contents.

"We have enough problem with face-to-face transactions," she said, arguing that online wine sales constitute a small but growing part of the underage-drinking problem. "From our perspective, there is absolutely no way to control that."

Next page: FTC: Online wine sales increase choice, lower prices.