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The Future of Small Wineries in America...?

Forbes.com ran an interesting (and sobering) article this week about the future of small to medium wineries in the U.S. (primarily CA, WA, & OR).

What this article says is that, due to the proliferation of wineries, wine brands, and distributors (5000+, 7000+, and 450+ respectively - in the U.S. alone), consolidation is inevitable. Throw in the escalating fight for retail shelf space (usually won by the largest players with the most retail muscle) and skyrocketing land value prices in those aforementioned states, and you have an industry almost ripe for the picking. According to the Forbes.com article, a recent study by Silicon Valley Bank estimates that over 1000 of wineries in those states may change ownership in the next 10 years.

This is not just a situation impacting the U.S. Global competition is creating large wine brand conglomerates with global reach. And rising land prices are certainly not unique to U.S. wine properties - just check out Noble Rot to see what land value and inheritance taxes are doing to the Bordeaux wine area prices, which eventually are driving smaller players out of the market (and ins some cases, out of their family properties) entirely.

With all of this going on, you'd think that Internet wine sales might help to level the playing field for these smaller players.

And you'd be wrong. Way wrong...

Why? Because antiquated wine shipping and alcohol sales laws, as well as unfair state licensing fees effectively prevent many smaller wineries from selling their products online.

Those wineries that do brave the insanity of interstate sales have a heady task in front of them - according to the Forbes.com article:

"A winery shipping a single case to each state that allows direct sales (there are now 37) would have to submit 725 forms to conform with sales, excise and state income taxes."
That's not a joke.

This totally sucks, on two counts.
  1. Wineries with amazing products can't get those products to people who want to buy them - resulting in lost sales, and, as mentioned in the Forbes.com article "family-owned microbrands have seen their pricing power and ability to demand shelf space trickle away." This is Bad for the U.S.'s ailing economy.
  2. The average wine consumer also gets screwed in the process - fewer players controlling the wine brands available to you, and fewer ways for you to get those wine brands. So you can't spend your money even if you wanted to - also Bad for the ailing economy.
I've contacted the campaign centers for the presumptive 2008 U.S. Presidential nominees, Senators Obama and McCain, to find out where they stand on the issue of interstate commerce and wine sales.

So far, I've received nothing but canned responses... but I'll keep trying in the hopes that they answer, because for a geek like me this issue is part of the larger problem of archaic bureaucracy negatively impacting the economics of U.S. citizens. Watch this space...


(images: autocrisis.com, ecu.edu)


Anonymous said...

Great move. I can't wait to hear the response.

Inertia - Powering the Wine Revolution

tannic said...

The Dude abides!

Us small wineries love the Dude :)

Anonymous said...

I'm always amazed at the number of people who start a winery without a clue on how they are going to sell their product...then when they can't, they blame the legal structure or the three tier system that has been in place for over seven decades. There are a number of states where you can ship legally, yet internet sales are laughable in those states. More than many products, people simply will not risk the expense of buying by internet, wines about which they know nothing. If you start a winery, you should know and plan for this.

And if you know anything about the way it actually works, most small wineries break the law and ship illegally anyway. When Free the Grapes asked at a meeting attended by dozens of small Napa Valley wineries for a volunteer for a test case...the one requirement being that the winery had never shipped illegally...there was not a single winery that could do it.

Joe Roberts said...

Thanks for the comments, everyone.

Morton - I'd counter that many winery owners start their wineries out of a passion for it, and they do it *despite* the craziness of the arcane 7-decade running interstate wine commerce laws, many of which are unconstitutional.

Certainly they need to take the situation into account, but it's also sort of like saying that people living in war-torn countries should just give up & leave instead of trying to rebuild...

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