The Shipping Crackdown

[Published February 22nd, 2018]

Retailers react to new interstate shipping enforcement measures.

Retailers like Chicago-based Pantheon Wine Shoppe (wine display above) are seeing hawkish enforcement of interstate shipping laws, which has resulted in loss of revenue for some operators. (Photo by Anthony Tahlier)

For years, retailers have quietly shipped wines to consumers in non-reciprocal states that were lax in enforcement, but lately there have been some tough crackdowns on interstate shipping. In January 2017, Illinois lawmakers made it a felony for out-of-state retailers to deliver wine into their state. Other states began threatening to confiscate wine in transit and levy major fines on shippers. In October, Federal Express and UPS announced they were ending wine deliveries from retailers to all states except the 14 where shipping is explicitly legal. Shortly thereafter, Amazon announced it would drop its online wine sales.

The shift has reduced the revenues of key retailers around the country. Daniel Posner, the owner of Grapes the Wine Co. in White Plains, New York, derived 50 percent of his revenue from interstate shipping. “I have a staff of 12, and I’m facing layoffs and changes in the amount of space I lease,” says Posner, who’s also the president of the National Association of Wine Retailers (NAWR).

In suburban Chicago, Johnson Ho, owner of high-end retailer Pantheon Wine Shoppe, recently got a letter from liquor control authorities in Maine threatening to confiscate any wines he ships there in future. Ho once did big business sending holiday gift bottles out of state. Now he has closed down virtually all shipping, cutting off nearly a third of his revenue. “If you lived in Maine and wanted Romanée-Conti or Pétrus, you came to somebody like me,” Ho says. “There wasn’t much sold there by in-state retailers. But I can no longer serve those clients.”

Meanwhile, the 38-store chain Binny’s Beverage Depot in Illinois has shut down all out-of-state shipping. “I believe in free markets and the free flow of goods and services across state lines,” says Binny’s owner Michael Binstein. “Everybody loses, including Binny’s and its customers, when we get away from the gospel of free enterprise.”

“Increasingly, Americans are on-demand consumers—they want their wine in an hour from the store, not in two days or four days from out-of-state. Long distance shipping is out of step with the times.”

CRAIG WOLF, WINE & SPIRITS WHOLESALERS OF AMERICA

Auction houses sell wine through retail licenses, and Devin Warner, president of Chicago Wine Co., says he’ll now focus on Illinois and legal state bidders. Jeff Zacharia, the president of Zachys in Scarsdale, New York, thinks non-U.S. bidders might now gain the upper hand, and he’s hoping to persuade New York lawmakers to legalize reciprocal shipping next year. Zachys recently acquired a retail license in Washington, D.C. Zacharia and other retailers may try to buy up licenses in other states to expand their reach again. “We’re exploring all options,” he says.

Meanwhile, merchants face continued resistance from wholesalers. Craig Wolf, president and CEO of the Wine & Spirits Wholesalers of America (WSWA), argues that states have been lax in their enforcement for too long. “This should never have become a gray market,” Wolf says. “The law either allows shipping or it doesn’t, so you’re either licensed or you’re not. Retailers talking about a gray market are trying to justify illegal acts. The law in most states doesn’t allow retailers to ship, and states are now taking their responsibilities seriously. If retailers want to ship direct, they have the right to go to state legislatures to have the laws changed.”

The NAWR is attempting to do just that. It has helped introduce a bill in Massachusetts to overturn the state’s ban on shipping both in and out of state, and it expects more open-shipping bills in New York, Connecticut, Rhode Island and Alabama soon. A court case challenging no-shipping laws in Texas was defeated, but retailers are pursuing cases in Illinois and Michigan, hoping ultimately to get a new U.S. Supreme Court decision similar in scope to Granholm v. Heald, which loosened restrictions on wine shipped directly from wineries in 2005.

For his part, Wolf believes that the rise in local delivery services will ultimately render the issue moot. “In time, I think you’ll see the need for out-of-state delivery disappear on its own,” he says. “Increasingly, Americans are on-demand consumers—they want their wine in an hour from the store, not in two days or four days from out-of-state. Long distance shipping is out of step with the times.”