DTC Wine Sales and Wine Law: An Interview with Steve Gross, Vice President, State Relations at Wine Institute
11.03.2017  |  by Dave Dobrow

For the second installment of our expert series, our own Dave Dobrow spoke with Steve Gross, Vice President, State Relations at Wine Institute and an expert in the DTC wine business. Wine Institute is the voice for California wine, representing more than 1,000 wineries and affiliated businesses. Dave and Steve sat down to discuss compliance, wine law, and the future of DTC wine sales.

Dave: So glad you could speak with me today, Steve. Before we get into stuff like compliance and industry trends, can you say, for our readers, a little about Wine Institute and what it does?

Steve: Of course. Wine Institute is the largest advocacy and public policy association for California wine. We represent the industry at the state, federal, and even international levels, finding ways to help the industry flourish and contribute in a positive way. So, for example, we might oppose bills that lead to franchise monopoly, or that limit the quantities of wine that wineries can ship directly to consumers. Or we might encourage wineries to adopt sustainable business practices, use responsible advertising, and stay in compliance.

At the heart of it all, though, we want to reframe the entire social debate about wine in this country. So a lot of what we do is just educating people, both consumers, and decision-makers, about wine’s legitimate place in a healthy lifestyle.

 

Dave: Amen to that! So where does Wine Institute sit when it comes to selling wine Direct to Consumer [DTC]?

Steve: Well, the goal is to get all 50 states to be DTC friendly, so to speak. And we’re close: Almost all 50 states allow for DTC wine sales, with a few exceptions. Mostly, we’re looking at minor tweaks to state laws at this point.

That said, the hard work begins after a law is on the books. There’s always the maintenance and improvement aspect. There are other interests who would love to weaken DTC laws, and they work hard, too, to get that done. So Wine Institute is often working on existing bills and legislation, making sure they remain friendly to the California wine industry.

 

Dave: Can you give me an example?

Steve: So, a state might have laws that allow DTC shipping. That would allow consumers to buy wine online, or be part of a subscription service. When subscription services start becoming popular, you begin to see amendments to the law popping up—you might see, for example, someone wanted to specify that DTC is OK only if the winery doing the shipping produces less than a certain cap. In 2017 we employed local contract lobbyists in 46 different states, and a part of their role was to try to keep their state’s laws DTC friendly, among other things. [We have written extensively on these subscription models before; for background, see here. —Dave]

There’s a lot more we work on, too. We might tackle taxation of wine, extreme DUI laws, or trade practice rules…anything that touches the wine industry.

 

Dave: Well, the DTC stuff is what I find interesting, obviously! So let me ask this: In all your work on DTC laws and compliance, what are you seeing? Where is the industry going? Is it an uphill battle for DTC, or is it time to jump on the bandwagon, for example?

Steve: Great questions. Overall, I’m seeing the industry as a whole growing. Business is beginning to ramp up. That’s due both to growth in existing segments and in new segments.

But you asked about DTC specifically. It is growing, but wineries need to be careful here. It’s not like the tasting rooms and retail locations and restaurants are going to go away. People still like that shopping experience. So people will continue to shop the brick-and-mortar stores in addition to taking advantage of the convenience of online shopping.

Indeed, the way pricing goes, it is sometimes cheaper to purchase from a local retailer than it is to buy online and pay shipping costs. So someone looking into DTC needs to find some smart ways to control those costs and still give the consumer the convenience and experience they want. But I guess that’s where you guys come in!

 

Dave: Yes, we might know a thing or two about shipping wine! And we do a lot of subscription services, wine clubs, that kind of thing. But back to your work: You’re saying that DTC is still going to compete with brick-and-mortar sales?

Steve: That’s part of it. But remember, retailers are allies here, not enemies. It’s very hard, if you are an established winery, to just switch over to DTC. You are probably selling to retailers through the 3-Tier system, and will need to continue to do so. So when a winery is setting its prices, it needs to do so in such a way that the retailers are kept happy as well, so they can continue to do a vibrant business. Wineries can’t undercut those merchants.

 

Dave: That’s very wise, Steve. But it also sounds as if DTC is something of a slow burn. Are you suggesting that wineries stay with what they are doing, and just do DTC “on the side,” so to speak?

Steve: I wouldn’t say that. Every winery is different. A newer, smaller winery might be able to start from scratch selling mostly DTC. It would take a lot of promotion, and maybe contact through social media, but it could be done. [Our last installment of the expert series talked about social media and winery promotion in an interview with Paul Mabry; you can catch it here. —Dave]

On the other hand, a more established winery might have a 3-Tier distribution agreement in place. So, if they want to bring on DTC—which they should, given the profit to be had—they need to think hard about their pricing and their shipping rates. They need to keep everyone happy.

 

Dave: And a 3PL, like Copper Peak, can help with that, obviously.

Steve: Of course.

 

Dave: What else do wineries need to think about with DTC?

Steve: Again, compliance. I see enormous room for growth in the wine club and subscription model space—that’s a good thing. But the more visible growth and success there is, the more scrutiny there is going to be. As DTC begins to take off, regulators are going to be taking a closer look. So are competitors.

This means wineries will need to make extra sure they are doing everything in compliance with local and state laws. States appear to be looking more at illegal shipments from retailers at this time, but that is slowly changing.  Wineries who aren’t following the rules are getting caught up in compliance stings more often these days as well.

 

Dave: When you say “a closer look,” what exactly do you mean?

Steve: States are trying harder to make sure folks are in compliance when it comes to the DTC laws that are on the books. This has trickled down to the carriers too; they are taking extra steps to make sure that all wine is being shipped in compliance with state laws. That means that sellers, 3PLs and 3rd Party Shippers will have to make sure they are following their Alcohol Shipping Agreements with the carriers.

 

Dave: Can you give an example?

Steve: Sure. So, private individuals often come to California for a wine tour. And they might buy some bottles here in the state for home consumption. The winery might not be able to ship those if it does not have the proper license.

Anecdotally, we hear of a number of 3rd party shippers that offer those consumers the opportunity to ship their bottles to themselves at home. That practice is getting closer scrutiny – at the state and carrier level too.  Most state laws allow ONLY for shipments from a licensed winery or retailer; there is no provision for a consumer to ship wine to themselves. And there are strict rules on this practice. The carriers and states are both focusing in to make sure that only licensed shippers are sending wine into those states where they can legally do so.

The details can get a little boring here, but they are quite clear! So I encourage your readers to follow up on their own. Suffice it to say, it pays to just get the license and do everything the legally correct way and on the up-and-up.

 

Dave: That’s important advice. Any final observations or thoughts?

Steve: Yes! We have a grassroots initiative called “Free the Grapes” that addresses these issues, and more. We want wine lovers to be a part of it. All it takes is two minutes to let your state legislators know how you feel about bans on winery and retailer direct wine shipments. Wine lovers can do this through an easy form on the Free the Grapes website, then sign up for updates.

For their part, wineries can encourage folks to do this. All it takes is a sign-up sheet or kiosk in their tasting room. In fact, that’s a great place to do it: Your customers will just have enjoyed your wine, and will be thinking about how to get more at home. When they learn that there might be some legal obstacles to doing so, they’ll be happy to send a note.

 

Dave: Plus, it’s another way to get them to linger in the tasting room!

Steve: <chuckles> Yeah, there’s that! But really, it’s all related, isn’t it? It’s all about the experience, right? I think that’s what this all comes down to. Wineries want to extend the experience customers have in the tasting room. DTC allows them to do that. Wineries will have to approach DTC responsibly, and Wine Institute will work on its end to make it easier for everyone.

Dave’s Follow-Up

Based on Steve’s discussion, here are 10 things to look at if you are a winery considering, or wanting to improve, DTC sales:

  1. Get your licensing in order.
  2. Get educated (if you haven’t already) on the different kinds of subscription services.
  3. Know the state laws when it comes to shipping wine.
  4. Get a process in place to make sure you are in compliance at all times.
  5. Figure out your pricing strategy and vet it with your retailers.
  6. Figure out your shipping strategy and how it fits with your promotions and marketing.
  7. Think about how your tasting room, if you have one, fits into the picture.
  8. Think about how you are going to promote your brand to consumers so they know to buy directly.
  9. Find trustworthy partners who can help you implement your compliance, marketing,  shipping and fulfillment strategies.
  10. Get those customers to join the fight at http://freethegrapes.org/.

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Interested in some of those pricing and shipping strategies for your DTC sales? Call Dave at 707.265.0100.

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