Home Wine Business Editorial DTC DTC: Lifeblood of the Wine Industry (WineAmerica)

DTC: Lifeblood of the Wine Industry (WineAmerica)

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While comprising a relatively small percentage of total wine sales,
DtC fuels the vast majority of wineries.

By Jim Trezise

In 1976, New York State passed a Farm Winery Act which allowed direct sales to consumers, restaurants and retailers by wineries that used 100% New York grapes and produced up to 50,000 gallons of wine annually (subsequently increased to 150,000, then 250,000).

At that time, there were 19 wineries in 9 counties. Today there are 470 wineries in 59 of the state’s 62 counties, including Manhattan, Queens and Brooklyn, where there’s actually a rooftop vineyard. Wine is now a statewide industry — with statewide legislative support.

Why? DtC.

Direct sales to consumers are the lifeblood of the American wine industry. While comprising a relatively small percentage of total wine sales (from large wineries through wholesalers), DtC fuels the vast majority of wineries, which are predominantly small, family-owned businesses. 

According to Wines Vines Analytics, there are 11,546 wineries in the United States, of which 49.4% produce fewer than 1,000 gallons, and a total of 97.2% fewer than 50,000. For most of those small wineries the 50% discount involved with wholesaling is not economically sustainable. And yet, those small wineries account for a major portion of wine’s economic impact in terms of investment, jobs, tourism and taxes.

DtC magic began at the winery tasting room, complemented by self-distribution to the trade and, now, to consumers in the 47 states that allow interstate wine shipping.

The Granholm Decision: Wine’s Emancipation Proclamation

After years of wine industry efforts to expand Direct-to-Consumer wine sales between states, the Supreme Court’s historic 5-4 Granholm v. Heald decision on May 16, 2005, liberated wine producers and consumers from the shackles of Prohibition-era policies. It was the tipping point after a very long struggle, and a “tale of twos.”

Two states: Michigan and New York, which allowed in-state wineries (but not wineries from other states) to ship directly to in-state consumers; 

Two women: Eleanor Heald, a Michigan wine collector who wanted to receive out-of-state wineries directly, and Juanita Swedenburg, owner of Swedenburg Estate Vineyards, a small Virginia winery which wanted to ship to eager New York consumers. Swedenburg sued New York State due to its prohibition against that sales channel;

Two laws: the “Dormant Commerce Clause” of Article I of the U.S. Constitution, which lets states regulate commerce within their borders (but with an assumption of fairness to other states), versus the XXI Amendment to the Constitution, which repealed Prohibition but let all 50 states regulate alcohol however they wanted — and also granted a de facto monopoly to wholesalers;

Two concepts: consumer choice versus monopoly control;

Two events: the December 7, 2004, oral arguments (which I attended) and the May 16, 2005, decision to emancipate wine producers and consumers. (Of the nine justices, only one remains on today’s court: Clarence Thomas, who voted no.)

Two eras: Before and after COVID-19. DtC shipping had been growing for years but truly boomed due to COVID restrictions against personal contact. DtC is now 12% of total wine sold in the U.S.

In just five years, wine’s economic impact on the U.S. economy grew by 25%, from $220 billion in 2017  to  $276 billion in 2022, reflecting increases in wineries, employees, wages and other variables — despite the COVID crisis. DtC shipping was a significant part of that growth, particularly during the pandemic, and especially for the smallest wineries.

Wine Institute Legacy, WineAmerica Advocacy, Winery Responsibility

The reason 47 states and the District of Columbia now allow DtC shipping is that, for decades, our colleagues at Wine Institute have worked with many in-state winery associations to “Free the Grapes [FTG],” which is the name of an organization that has rallied consumer support over the years. Wine Institute has also generously shared comprehensive information about DtC on its website.

WineAmerica’s Executive Vice President and Director of Government Affairs Michael Kaiser has long served on the FTG Board. He is also advocating on the federal level for the current USPS Shipping Equity Act that would let the postal service join FedEx and UPS in shipping wine (plus beer and spirits) directly to consumers. Not only would this increase competition, but it would also expand the potential consumer base, since USPS services many rural communities ignored by the other two carriers.

Despite all this progress, remember: DtC shipping is a privilege, not a right. It took decades to achieve, but could be canceled overnight.

DtC is governed by laws that must be followed, including for each winery to have its own permit for each state where it ships. Due to some confusion about that, WineAmerica hosted a special Zoom listening session for its members, featuring Alex Koral of Sovos ShipCompliant, who gave detailed information on everything related to DtC. The session was recorded, and is available to all WineAmerica members, along with other information on current developments. In addition, WineAmerica associate members Sovos ShipCompliant and Avalara can both assist wineries with obtaining the proper permits for legally shipping wine.

One state regulatory agency recently sent letters to about 1,900 wineries cautioning them that they may be shipping illegally and providing details on how to correctly come into compliance. Other states may soon follow suit, potentially jeopardizing this privilege and the lifeblood of our industry.

Be smart. Stay legal.

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Jim Trezise

Jim Trezise

Jim Trezise is president of WineAmerica (WA), the only national wine industry association in the United States. WA is a 500-member strong organization that encourages the growth and development of American wineries and winegrowing through the advancement and advocacy of sound public policy. Membership is encouraged to support the important work of WA, which benefits all U.S. wineries. Go to https://wineamerica.org/ for more information.

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