Shipping Laws Cork Wineries’ Growth

A UPS supervisor recently drove up to Hunt Country Vineyards, perched on a hillside high above Keuka Lake, to return wine addressed to a licensed distributor in Texas.

“Look,” he yelled, “we won’t ship wine out of state for any reason to anybody!”

Clearly, this wasn’t the first time the world’s largest freight hauler had sent back Art Hunt’s wine. On occasion, Hunt or his wife, Joyce, had to visit the depot to retrieve undelivered packages. Other times, they were told, their cargo was destroyed.

Shipping wine across state lines entails navigating a Byzantine maze of alcoholic beverage laws liable to make sober heads spin. Each state has its own regulations dating to the repeal of Prohibition 69 years ago. Some even prohibit trucking wine through “dry” counties.

In west-central New York’s Finger Lakes region, scores of small wineries said they found the restrictions more onerous than ever in 2002.

For years, winemakers maintain, United Parcel Service and FedEx Corp. tolerated shipments to competitions, wholesalers, exporters and others licensed to accept wine. Now, carriers are steering a wide path around all out-of-state deliveries, fearful of getting tripped up by the confusing or ambiguous hodgepodge of shipping laws.

“Anything with alcohol in it needs to be regulated and kept out of the hands of minors, but it doesn’t have to be put in the same status as an illegal drug,” said Hunt, who wanted to ship free samples to the Texas distributor in hopes of launching sales there. The brouhaha comes as pressure builds to blow the lid off a hotly disputed distribution system that bars wineries in 23 states from shipping directly to out-of-state customers.

“It does seem to me that if other states can do it, why should we be disadvantaged competitively?” asked Sen. Hillary Rodham Clinton (D-N.Y.).

Fueling the conflict are a swelling number of U.S. wineries -- 3,182 compared with 919 in 1980; the rise of Internet and mail-order sales, and a flurry of legal challenges that could land on the U.S. Supreme Court’s doorstep before long.

Under a three-tier system laid down by the 21st Amendment, which repealed Prohibition in 1933, wineries export their best brands at a deep discount through licensed wholesalers and distributors. Wine is then sold to package stores, restaurants, bars and other retailers.

Serving as a buffer between producers and the public, the politically powerful wholesalers collect billions of dollars in excise taxes each year. Looser controls on wine, they argue, could lighten state tax coffers and pump up underage drinking.

Vintners counter that the 21st Amendment allowing each state to regulate the importation and sale of alcohol created unconstitutional barriers against interstate commerce.

In October 2000, wholesalers pushed through a 21st Amendment Enforcement Act that had “a real chilling effect” on wine shipments by private haulers, said David Sloane, president of the American Vintners Assn.

Atlanta-based UPS “would rather be entirely correct about what we’re doing than run the risk of doing something illegal,” said spokesman Robert Godlewski. “There are so many hoops to jump through.”

But Jim Trezise, president of the New York Wine & Grape Foundation, said other regions have no trouble sending samples out of state to wine writers, competitions or licensed operators.

“It’s totally legal what Art was doing -- his wine was going from a licensee to a licensee,” Trezise said. “The problem is one of consistency. I’ve talked to UPS and they just say they can’t train all their drivers about what’s legal and what’s not.”

California produces 93% of the nation’s wine, but second-ranked New York’s 2.8% share is still substantial in a market with an estimated $15 billion in gross sales.

In the Finger Lakes, a largely unspoiled setting of lakes, hills and valleys that has sprouted 65 new wineries since 1976, most sales are made in tasting rooms. Just a few wineries have become big enough to easily hook up with distributors in other states.

In fact, only a few hundred wineries in the nation produce more than 10,000 cases a year. At least 85% of New York’s wine is made by one conglomerate, and most of that crosses state lines.

Of the other 166 wineries, less than 10% of their wine is shipped out of New York. Drop the direct-shipment ban to customers, boosters say, and sales at boutique wineries would jump at least 25% overnight. A few vintners are already getting around the barriers by forwarding orders to wine retailers willing to do the shipping for them.

“If we grow to a certain point where we do show up on a wholesaler’s radar screen, that’s so much better,” said John Martini of Anthony Road winery next to Seneca Lake. “That’s what frustrates me about the distributors. I can’t believe they think everybody will ship their wine by UPS. It’s not an efficient system.”

Karen Gravois of the Wine & Spirits Wholesalers of America suspects some wineries have been shipping illegally. Haulers are simply “enforcing the law and taking responsibility where the wineries should be taking responsibility,” she said.

Thirteen states, mostly in the West and Midwest, have reciprocal pacts allowing them to ship wine to each other’s consumers. Another 14 allow shipments that are either tightly restricted or require special permits.

New York, evidently swayed by lobbying from wholesalers, spurned an effort last year to join the reciprocal-state ranks. But it is one of 30 states that allow direct shipments to customers within its borders.

Judges recently declared wine-shipping restrictions in North Carolina, Texas, Virginia and New York unconstitutional.

In New York, a judge ruled in December that out-of-state wineries should be allowed to ship to customers in the state if local wineries already do so. It remains to be seen what effect the order, put on hold pending an appeal, would have on outward-bound shipments.

What is clear, however, is the nation’s small wineries view direct shipments as increasingly vital to their well-being.

“Our guys are literally facing a market-access crisis,” Sloane said. “There’s going to be a showdown over the next year or so between wholesalers and wineries.”