Monday, October 23, 2006
New rules shouldn’t produce sour grapes
From the RoundTable blog
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Archer is president of Blue Ridge Beverage Co. Inc. in Salem.
Imagine: Virginia’s young people need some special help if they are going to compete in a track meet. All the Virginia runners get a three-minute head start, but runners from elsewhere have to compete by different rules.
Is that fair? Virginia wineries enjoyed comparable advantages over their out-of-state and foreign competitors for almost 25 years. The General Assembly wanted to help a new, fledgling industry. Virginia wines were exempt from some of the rules that applied to wine produced in California, France, Chile and elsewhere.
Virginia wines were sold in state ABC stores. Other wines were kept off the ABC store shelves. That’s still the case.
Virginia wineries had — and still have — five “floating” retail licenses that allow them to travel across the state selling wine with no food sales requirements. Out-of-state wineries have none of these advantages.
Virginia wineries could bypass distributors and sell their products directly to stores and restaurants. Other alcohol producers had to work through licensed Virginia wholesalers.
Last year, the federal courts blew the whistle on some of the special privileges enjoyed by Virginia wineries but denied to their out-of-state and foreign competitors. The courts said there must be one set of rules for everybody selling wine to Virginians, no matter where the wine is made.
The courts did not interfere with the ability of Virginia’s wineries to sell wine to consumers from their own tasting rooms, at festivals — through the five floating licenses mentioned above — or through catalogs, at ABC stores and over the Internet. But the ability to distribute their own product was abolished.
Virginia’s wine wholesalers did not oppose the system in place before the federal court rulings. Distributors didn’t bring the lawsuit and help three attorneys general defend Virginia’s alcohol policy. But the Supreme Court said: one set of rules for everyone.
Forced to live with the same set of rules as their out-of-state and foreign competitors, the wineries changed tactics and tried to weaken the rules. Earlier this year they sought legislation that would have allowed the vast majority of wineries worldwide (themselves included) to bypass distributors and sell their products directly to Virginia stores and restaurants. Obviously, this bill would have had devastating consequences for wine distributors and their nearly 3,500 employees.
Distributors are the key to preserving the state’s alcohol control system. This system efficiently collects almost $30 million a year in wine excise taxes and gives small wineries all over the world a decent chance of reaching retail shelves in Virginia. Right now, Virginia consumers enjoy the products of more than 1,600 wineries from around the world. Seventy-five percent of wineries selling in Virginia sell less than 1,000 cases per year. All these choices reach Virginia grocery stores and restaurants because distributors put them there.
By comparison, how many manufacturers of ketchup, milk or soft drinks do you think manufacture or package the products on most grocery shelves? Two or three?
With that record of success, the General Assembly this year decided to keep the rules that maintain Virginia’s alcohol business on an even keel: lots of consumer choice, dynamic price competition and the efficient, transparent collection of taxes.
At the same time, legislators in February endorsed workable alternatives available under current law for Virginia wineries anxious to continue self-distribution to retail outlets.
One alternative: These companies can get low-cost ($185 a year) wholesale licenses. They do not have to hire any new people. They can lease personnel and vehicles from Virginia wineries and engage in distribution virtually as if nothing had changed.
There is no question there are rules in the wine, beer and distilled spirits markets that do not apply to other products. There should be. The strict requirement that distributors stand between producers and retailers, the so-called three-tier system, for example, goes back to the end of Prohibition. It was designed to cure some of the problems that led to Prohibition in the first place. Among other things, the Virginia system prevents the alcohol business from evolving into anti-consumer, multinational giants that make it hard for small producers to get to market.
And as long as these rules are in place, Virginia wineries have the same opportunity to reach the market as their competitors in California or France. If the rules disappear, Virginia wineries won’t stand a chance against the giant manufacturers who will use their leverage to limit the choices on your shelves.
Virginia’s wineries don’t need a head start anymore. And they have a better chance to succeed if everybody plays by rules.
We are proud of our Virginia wine industry and continue to support it. Wineries, vineyards, distributors and state government should continue to work together for all of our employees and citizens.
