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Opening New York to Internet Wine Sales
By BOB TEDESCHI
Published New York Times: July 25, 2005
TWO months after the United States Supreme Court handed them a long-awaited victory, winemakers and drinkers in New York, California and many other states can finally celebrate. www.nytimes.com/2005/07/25/technology/25ecom.html?ex=1122955200&en;=241800062ef89ac8&ei;=5070&emc;=eta1
On July 14, Gov. George E. Pataki of New York signed into law a bill that allows out-of-state wineries to ship directly to the state's consumers, while also permitting the state's more than 150 wineries to ship to consumers in 28 other states where such shipments are legal.
Since New York is the nation's third-largest wine consuming state, and a rising star in wine production, industry executives and analysts said the new law could send millions more consumers online to buy obscure wines from small vineyards, which they could never before purchase from a distance.
"New York is a giant fish," said Rich Cartiere, publisher of the Wine Market Report, an industry newsletter based in California's Napa Valley region. "New Yorkers are very sophisticated shoppers who'll set the standard on buying wine directly from out-of-state wineries. This is a market, though, that'll have to be developed over time."
Mr. Cartiere said that of the roughly $7 billion in total wine sales this year, about $75 million worth will be shipped by mail directly from wineries to consumers. That figure has been growing at between 10 and 20 percent annually.
The Internet is ideally suited to selling wine, analysts said, because it can help consumers find many more of the 35,000 or so wines on the market in the United States than they could otherwise. The biggest wine superstores carry, at most, 12,000 wines, Mr. Cartiere said, while the average corner wine store has a fraction of that number.
"And if you visit a winery in California and go back to New York, now you can order that wine and re-create the experience, which is something a lot of people do," Mr. Cartiere said.
Smaller wineries, in particular, have a difficult time reaching far-flung markets because they do not produce enough wine to attract wholesalers, who promote wines to retailers and restaurants. Many such wineries have, as a result, supported themselves by selling cases of wine to their tasting room visitors, while trying to gain the ear of wholesalers.
But 22 states bar wineries from shipping to consumers, typically on the grounds that such shipments could reach teenagers and, because merchants often avoid sales tax collection, diminish state tax receipts.
The Supreme Court's recent decision did not necessarily reject such arguments, but it said that states must be consistent in how they apply the logic. If states allow in-state wineries to ship to their consumers, they must allow out-of-state wineries to do the same. Likewise, states may bar all direct shipments if they so choose.
New York and Michigan both had inconsistent state statutes, which were ruled unconstitutional in the 5-to-4 decision in May. While New York reacted by allowing all direct shipments, effective Aug. 12, Michigan is considering legislation that would bar all direct sales. (New Jersey has a similar law.)
Peter Saltonstall, who, with his wife, Tacie, produces Treleaven Wines at their King Ferry Winery in New York's Finger Lakes region, said he expected the new law to help him sell between 10 and 20 percent more wine.
Mr. Saltonstall, who helped lead the effort to overturn New York's ban on interstate wine shipments, said that about one-third of the 25,000 visitors to his winery's tasting room each year are from out of state. "I've got a database of 20,000 names of people from out of state who want to buy from us," he said.
To cater to those customers, Mr. Saltonstall said he would invest "at least $5,000" to revamp his Web site, TreleavenWines.com, and register with the tax authorities in states where the winery will sell. If the wines gain a following in those states, Mr. Saltonstall hopes wholesalers will begin carrying the label.
Wholesalers have been the most vocal opponents of direct shipping, because such a system bypasses them and puts a crack in the foundation of the "three tier" alcohol distribution system that has mandated the wholesaler's role in the industry. Under that system, which many states adopted after the repeal of Prohibition, alcohol producers must sell to wholesalers, who must sell to retailers, who then sell to the public.
But some wholesalers say direct shipment of wine to consumers is not so worrisome. Ray Guidi, general manager of Ray's Beverage Company in Stockton, Calif., which distributes wine on behalf of 25 vintners, said that his business was not jeopardized by wineries he represents selling directly to consumers.
"Those sales are such a small percent of their overall business, it doesn't change anything for us," Mr. Guidi said.
Aside from wineries and wine drinkers, the biggest beneficiaries of the New York legislation will likely be Internet companies, with one notable exception. Executives of Wine.com, which analysts said sold more wine than any other Internet retailer, said the site would not experience sales increases, because the Supreme Court decision and the resulting state laws did not change the business equation for retailers.
But online companies who help wineries sell directly to consumers, like the Inertia Beverage Group in New York, and 1-800-Flowers.com's Winetasting Network division, are braced for greater sales.
Inertia Beverage Group, which sells e-commerce technology to wineries in exchange for 5 percent of each sale made through its system, expects 20 percent more revenue as a result of the New York law change alone, said Paul Mabray, the company's chief executive.
The Winetasting Network, which among other things operates Winetasting.com, an online mall of wineries, has been fielding many more inquiries from New York customers since the new law was passed.
"We love the fact that there's been such great enthusiasm from customers," said Lesley Berglund, the company's chief executive, in anticipation of the law taking effect next month. "So even though we can't take their orders yet, it's all good."