Here are five arguments made against DTC that just don’t hold up under scrutiny.
By Alex Koral
Americans spent more than $4 billion on DTC wine shipments in 2021, and polls show broad support among consumers for liberalizing DTC shipping laws. Despite this, opposition to DTC shipping of alcohol remains a constant challenge for the market.
Some of the loudest voices standing against expanding DTC shipping permissions come from within the beverage alcohol industry itself, predominantly from the wholesaler tier, which almost universally stands against DTC shipping and spends vast amounts of lobbying money to impose legal constraints on current and would-be shippers. Other industry members, such as package stores and producers’ guilds, have expressed their own reservations.
Arguments made against expanding DTC shipping revolve around theoretical harms that states and the public could experience if consumers were able to have alcohol shipped directly to them from across state lines. However, many of these claims collapse under any real scrutiny. Instead, it appears that much of the opposition may be less concerned with public safety and more with maintaining a competitive advantage.
This rabid opposition to DTC shipping shows the special susceptibility of the beverage alcohol industry to this kind of parochial behavior.
Here are five arguments made against DTC that just don’t hold up under scrutiny.
Myth: Minors will buy DtC
Within the beverage alcohol industry, there’s perhaps no more basic directive than preventing sales to minors. Every state prohibits even accidental sales to people less than 21 years of age, and regulators make enforcing such rules a perennial priority.
Of course, as long as they’re barred from buying alcohol, minors will look for ways to subvert those barriers, and so DtC shippers have needed to find systems and practices to block access to minors. Opponents would have you believe the DtC shipping market presents a wholly unique situation, with rampant disregard for state laws and minors freely purchasing anything they want from all shippers.
While DtC shipping does present some challenges for preventing sales to minors, there are many services available that work to restrict the ability of minors to receive DtC shipments. When executed properly, point-of-sale age checks and point-of-delivery ID checks ably minimize access for minors.
In many ways, DtC shipping isn’t an attractive market for minors, as most licensed DtC shippers are smaller wineries that sell only a select list of sought-after wines (with an average bottle price hovering around $40 and often requiring additional fees for shipping and handling). Even if they can afford it, this isn’t exactly what most college freshmen or high schoolers are looking for.
There are also access issues, with online purchases requiring the use of a credit card. And then shipments must be delivered to an adult who will sign for the package. While these aren’t insurmountable challenges for a motivated minor, using a fake ID at a local package store or finding a friend or sibling who is of age would be much easier.
An FTC report on DtC wine shipping bears out the conclusion that the market isn’t conducive to sales to minors. And while that report is from before the explosion in DtC shipping, there’s been little clear evidence of purchases from minors through the DtC channel. Indeed, rates of underage drinking have been falling dramatically, even as the DtC wine shipping market has expanded.
Again, no one is saying that minors’ access to alcohol is not a problem, but it is hypocritical to prohibit interstate DtC shipping or single out the DtC market as problematic — especially as states expand local deliveries, which often face the same challenges when it comes to preventing sales to minors.
Myth: DtC shippers don’t pay taxes
If there’s anything that scares a regulator more than minors buying alcohol, it’s missing taxes. States bring in substantial amounts of revenue from taxes on alcohol sales, and they’re right to want everything they’re owed. However, many opponents allege that DtC shippers are tax dodgers and states are losing out from this market.
The truth is, DtC shipments are a huge source of additional taxes, bringing in lots of money that would otherwise not be available to the states. At Sovos ShipCompliant, we have facilitated the remittance of hundreds of millions of dollars in tax revenue to various states in just the last few years alone. And since DtC shipments are often of rare and not-widely distributed wine brands, that’s not tax revenue the state would have otherwise recouped from sales made in package stores.
DtC shipping is a whole market beyond sales in stores and restaurants, and states that prohibit or heavily restrict DtC shipping are losing out on taxing those additional sales. In my experience with this industry, it’s shocking how often DtC shippers are anxious to pay taxes to states in exchange for permission to ship into it; if those states block those shippers by denying them DtC licenses, the states are only hurting themselves.
Myth: States can’t regulate out-of-state shippers
State regulators often claim that DtC shipping should be prohibited because it’s hard for them to enforce, noting that jurisdictional concerns block them from prosecuting remote sellers that violate their laws. This flies in the face of the last 15 years of DtC shipping regulation.
The model DtC law that most states have adopted for domestic wineries explicitly requires them to accept the jurisdictional authority of the states in which they get licensed. States from Texas to Massachusetts have relied on those agreements to enforce their laws, whether that be collecting taxes or shipping volume limits.
States may struggle to go after unlicensed shippers, who are in clear violation of state laws (though Michigan is making a good go of it), but the solution to that would be to extend the ranks of businesses that can get licenses — and therefore accept the state’s authority over them — rather than restricting DtC shipping permissions. One of the key lessons from Prohibition that regulators should keep in mind is that illegality thrives in the shadows; creating an open field for DtC businesses lets the state monitor the market and enforce its laws.
Myth: DtC shipping is full of counterfeits
Opponents of DtC shipping also claim the channel is full of counterfeit products — that bypassing wholesalers means there’s no check on what the consumer is buying. This is one of the most ridiculous claims that opponents make.
Counterfeiting may be a concern for certain sectors of the beverage alcohol industry, but it’s largely limited to private dealer sales between wealthy collectors. Conversely, most DtC shipping involves buying directly from the producer of the product, which would seem to be the best way to avoid counterfeits. After all, what winery would fill their bottles with fake product?
And when DtC shipping involves buying from a retailer, that retailer would have had to purchase their products through their local three-tier system, which also would seemingly vouchsafe those products.
While consumers should be wary of too-good-to-be-true auctions and private sales, blocking established producers and retailers from shipping DtC is not the way to combat counterfeiting.
Myth: DtC shipping is a jobs killer
It’s also often argued that enabling remote businesses to sell into a state’s market will damage local retailers and lead to job loss. This is one of the most blatant examples of protectionism that DtC opponents trot out, and it only serves to hurt local consumers and discounts the ability of local businesses to compete in an open market.
Any real advantage that DtC shippers might have is limited to their access to products and brands that aren’t widely distributed. Otherwise, DtC shippers must pay the same taxes as local businesses, manage complex regulatory schema, and handle the expensive and labor-intensive shipping process.
The claim that DtC shipping creates unfair competition in the industry is also unsupported by evidence. Data from the Bureau of Labor Statistics for the New York market shows that there was net job growth for both retailers and wholesalers since 2005 (when the state opened for national DtC wine shipping).
Retailers are resilient and capable of responding to consumer demand. If states genuinely wanted to support their local retailers, they might instead look to liberalize their distribution laws rather than trying to shut down DtC shipments.
Why not DtC shipping?
Ultimately, DtC shipping of alcohol happens because it is popular. Today’s consumers are used to buying everything online and expect the same for their beverage alcohol choices. As long as demand continues, businesses will work to fill that need. States are better off establishing clear, effective and manageable laws on how alcohol can be shipped within their borders.
The adverse claims that opponents bring up — that DtC shipping is unmanageable, states lose tax revenue, minors abuse it with impunity — wither under any real scrutiny. Beyond those who oppose any amount of alcohol consumption, protectionism is the only real driver of opposition to DtC shipping. States should not let fear of outside competition win out. Instead, they should create effective pathways for consumers to safely get what they want.
Alex Koral is Regulatory General Counsel for Sovos ShipCompliant. He actively researches beverage alcohol regulations and market developments to inform development of Sovos’ ShipCompliant product and help educate the industry on compliance issues. Alex has worked with the company since 2015, after receiving his J.D. from the University of Colorado Law School.