Jeff Carroll is the Vice President of Product and Marketing at Compli, which specializes in compliance for the alcoholic beverage industry; Jeff himself has been an expert in the DTC compliance space for over a decade. For our fourth Expert Series interview, our own Dave Dobrow sat down to talk with Jeff about DTC compliance, the wine industry’s growth, and consumer behavior.
Dave: Jeff, for our newer readers, could you say a little bit about Compli and what your role is there?
Jeff: I think Compli is one of the best-kept secrets in the industry, even though we’ve been around for over 20 years. Our main focus is on providing reporting, licensing, and product registration services at both the federal and state levels for beverage alcohol suppliers.
We also have an automated compliance software product called eCompli that generates all of the compliance filings, stores all compliance information to become the compliance system-of-record, and gives our clients full visibility into the status of their tasks, payments, deadlines and such. That hybrid approach of having an automated software solution backed by a team of experts is unique in the industry.
My role here is to tell the Compli story throughout the industry and to enhance our software capabilities to provide a better experience for our clients.
Dave: And you’re no stranger to “the industry” or enhancing software capabilities for it, right?
Jeff: *Chuckles* Yes, I’ve been doing software development for some time. As far as the wine industry goes, I got my start in 2005 when I joined up with Jason Eckenroth at what was then Six88 Solutions to bring ShipCompliant to life. That was an exciting time, because the Granholm v Heald Supreme Court Decision had just come down, and so DTC wine shipping was just about to take off.
Over my 11 years at ShipCompliant, I developed a real love for the industry and also gained some knowledge along the way about the complex rules and regulations that beverage alcohol suppliers have to deal with. So, when I parted ways with Sovos Compliance (who bought ShipCompliant about three years ago), it was a pretty easy decision for me to come back into this great industry.
Dave: So let’s get to one of the hottest topics on everyone’s mind: Where do you see the DTC space heading in regards to regulatory practices/environment?
Jeff: There’s a lot going on! But I can break down three important points I think your readers should know:
First of all, I think you can expect wineries will have access to every state eventually. The positive side of that is that you have more access to consumers around the country. The challenge is that, with new states coming on board, you’ll have that much more complexity to deal with from a compliance perspective.
Second, that complexity will come with new issues surrounding sales tax. I wrote a blog post about the Supreme Court case that was heard recently regarding sales tax for eCommerce sellers. We just got that decision, and it’s a big one. The Court ruled that states have the ability to require out of state sellers to pay sales tax, even if they don’t have a physical presence in the state. Over the next 9 months, you’ll now see virtually every state go back to their legislature to take advantage of this ruling. Fortunately, wineries are already used to paying sales tax in the majority of states that they ship to, so this will only complicate things incrementally. However, sales tax is really a huge pain for wineries and retailers and these changes will cause some additional confusion. For example, if you look at a state like my home state of Colorado, it’s mind-numbing how difficult it is. I’m hopeful that Congress now decides to step in here and simplify things for small and medium-sized businesses.
Third and finally, we’re seeing a real increase in regulatory enforcement across the country, and I think this trend will continue. States have figured out how to use information from the common carriers to do a better job of enforcing tax payments and compliance rules. On the whole, the industry is really good at compliance, so the net effect will be that some of the bad actors in the industry might get some exposure.
Dave: Really good stuff, Jeff. We’ve heard a bit about these things too. Let me ask you about something that doesn’t have to do with law, but it’s been in the news: Amazon’s acquisition of Whole Foods. This will begin a whole new chapter in eCommerce for wine, no? What do you think it means for the interplay of retail, DTC, etc.?
Jeff: There are a lot of new options for finding wine online from in-state retailers now, and I’m assuming Amazon’s plan will be to leverage Whole Foods’ licenses to do the same. This will almost certainly mean competition with winery DTC!
Currently, the average price for wines shipped to consumers runs just under $40, so I think the buyer profiles for wine club shipments [for example] and for those ordering booze last minute using an online service are pretty different. But this may well shift over time. As boomers buy less and millennials buy more, things might change. It’s worth watching closely.
Really, the thing to think about here is the customer experience. Final-mile delivery from retailers sure seems like it’s going to continue to grow. Wineries need to think about how they are engaging their customers every step of the way.
Dave: What about retailers themselves? What’s the regulatory environment like for them, and what can they do to be competitive in the current landscape?
Jeff: I’ll tell you, it’s tough for retailers right now. Their map has gone backwards since Granholm. Recently, Missouri came off the list. New Hampshire also tried to pass a law to ban retailers and began refusing to renew permits for all retailers that are currently licensed there! It’s pretty unbelievable. [You catch up on some of these past developments via this press release from National Association of Wine Retailers. –Dave]
Another challenge: About two years ago, FedEx and UPS really started cracking down on non-compliant shipments. That forced a lot of businesses to stop shipping to states where they didn’t hold a proper permit. So, I think retailers are struggling a bit right now and are looking for the right strategy to move forward. There are several court cases in different states right now that are looking at the question of whether Granholm applies to retailers. If the retailers were to get a favorable ruling in one or more of those cases, it would help their cause.
Dave: There sure does seem to be a lot to keep up with…
Jeff: Yes! But your readers should know that we [Compli] recently partnered with the Wine Institute on a really cool project that should help wineries and industry folks keep up: The Wine Compliance Rules Portal.
This is a free resource for wineries that lists laws by state and keeps track of wine compliance news items. We’re also planning a launch of a rules portal for sales through the three-tier system soon as well—something to watch for.
Dave: Really exciting stuff, Jeff. The site looks awesome. Now, you work on more than just reporting—you’re also working to help change the laws, through Free the Grapes!, correct? Can you tell us about that?
Jeff: Yes. First of all, let me just thank Copper Peak for its tremendous support of FTG over the years. Every year, Free the Grapes! puts on the DTC Wine Symposium and Copper Peak has been a long-time sponsor of that event. So thank you!
A little background for your readers: Free the Grapes! was founded in 1998, and it is a national movement of consumers, wineries, and retailers seeking to expand consumer choice in wine with legal, regulated direct shipments. At a very high level, we’re looking to help open new states to direct shipping, and fix existing laws that are problematic.
For example, we’ve worked on several different things recently:
- In New Jersey, we’re hoping to remove the 250,000-gallon capacity cap on winery production that prevents lots of wineries from getting licensed there. (NJ is one of three states that still has a capacity cap.)
- Delaware is one of the few remaining states that does not allow for off-site shipments. We supported a carryover bill there to open up shipping fully and will continue to try to open up Delaware.
- We are also active in other states, such as Mississippi, Alabama, and Utah, that still prohibit DTC shipping, and we’ve had great response from consumers in those states this year.
I was really honored to get the call about joining the board for Free the Grapes!
Dave: To wrap up, you mentioned the “last mile” and consumer behavior. That seems to be the hidden thread through a lot of what you’ve said. Is there a takeaway here?
Jeff: Yes, you hit it. DTC has seen double-digit growth, which is awesome. But we have to stop and ask: Is this growth really coming from better market engagement, or is it just because these new states are coming “online” and allowing DTC? It might well be more of the latter; and if so, it means that double-digit growth may be difficult to maintain.
If that’s the case, then wineries will really need to up their marketing game, especially now that, online, they will all be competing with each other and these new options. This means not just finding new markets but finding new customers in existing markets.
Wineries should also think more about anticipating consumer behavior in the future. The economy is doing well now, but remember, buyer behavior will change if (or when?) we hit a recession. We should all at least plan for the possibility.
So consumer behavior is important. It changes with the generations, and with how the economy is doing, and even with changes in technology. Get a grasp on that, and you’ll be competitive in any market.
Dave: Great, thank you, Jeff! Awesome insights here. Good luck with all your projects and I’ll catch you at the next DTC event!
Based on Jeff’s insights and discussion, here are 10 trends to look out for when it comes to wine regulation, compliance, and market changes:
- Wineries will eventually have access to almost all states when it comes to DTC shipping. This is a positive development, but it also comes with challenges.
- State regulations are always in flux, and it pays to stay on top of them. Use The Wine Compliance Rules Portal to help.
- Interpretation of sales tax laws is also in flux, so wineries and retailers should watch this as it develops as well.
- When it comes to enforcement, states are using the carriers themselves more and more to ensure compliance. Make sure your house is in order!
- Growth in the DTC space is fueled in part by new states adopting more favorable laws. This is nice, but not sustainable. Work on finding new customers in existing markets, before you hit a wall!
- Some customers are willing to pay $40 to ship wine, but not all of them, and not for very long. Time to start thinking about shipping deals and “the final mile”! It’s worth taking a closer look.
- The demographic shift in our country means that millennials will be buying more wine and will be more willing to do so through an online store. Be prepared. Start farming for the future now by reading our whitepaper, “Socially, Mobile, Millennials: Farming for the Future User Group Report.” (You can also get the highlights from our article “We Were Right: Millennials are Changing the Wine Market!”.)
- Customer behavior can also shift with changes in the economy. So plan for what the future might hold (entry-level wines, new sales models, etc.).
- Customer experience is important. Don’t just sell—create that experience!
- New opportunities to gain customers might seem like the Wild West, where there are fortunes to be made and it’s anybody’s game. But unlike the Wild West, law enforcement is organized, established competitors carry a lot of weight, and prospecting means a lot of planning ahead. You can’t just shoot from the hip…you will need to plan for the future!
For other posts in our Expert Series, visit https://copperpeaklogistics.com/?s=expert.
Interested in discussing DTC and “the final mile” for your winery, wine club, subscription service or eCommerce store? Call Dave at 707.265.0100, or use our contact form.