Retailers fear Amazon effect with direct wine shipments

Ed Mulvihill, whose family has owned Peco’s Liquor Store since 1936, opposes direct wine shipments.
Ed Mulvihill, whose family has owned Peco’s Liquor Store since 1936, opposes direct wine shipments.

By PAM GEORGE
Special to Delaware Business Times

Wineries are major tourist attractions across the country. But vacationing Delawareans are in for a rude awakening if they decide to ship a case back home. The state currently prohibits direct shipments of wine to Delaware residents.

House Bill 165, a carryover from 2017, would change that under certain conditions. However, this is a bill that won’t encounter smooth sailing.

On the one hand are the proponents of the current three-tier system: importer or producers to distributors to retailers.

On the other hand are the consumers who want direct shipments. Despite the state law, many residents already receiveregular wine shipments. As the bill now stands, the state’s wineries are caught in between.

A decade of attempts

Peggy Raley-Ward, the founder of Nassau Valley Vineyards in Lewes, is an unabashed supporter of wine shipments in Delaware.

The Sussex County native knows a thing or two about navigating Legislative Hall. After starting the vineyard, she successfully lobbied for a change in the Delaware law that prevented farm wineries. She even drafted the legislation, which passed in 1991.

“People told me it could never be done, and that it would destroy the three-tier system,” she said. “We created a piece of legislation that allowed us to do what we wanted to do and opened the door for craft breweries a few years later.”

It’s proved more difficult to change the laws surrounding direct shipments. “I’ve been trying for 11 years now to get a shipping bill through,” she said. “We can’t come into the 21st century.”

Delaware is one of six states that prohibit direct shipments. The others are Utah, Oklahoma, Mississippi, Kentucky and Alabama, according to Free the Grapes, which was founded in 1998 by five wine industry associations, including the Wine Institute.

“The wholesalers categorically shut it down at every turn,” Raley-Ward said. “There’s a lot of fearmongering that has affected the retailers.”

Some Delaware wholesalers worry direct shipments would make alcohol taxes harder to collect.

“Delaware law requires alcohol to land in a wholesaler’s warehouse for a period of 18 hours,” said Bob McGurk, owner of Craft Beverage Services, a Wilmington-based distributor. “The reason for that is the state has to ensure the taxes are paid. How would a common carrier such as UPS or even the Postal Service satisfy that requirement? That’s not something they normally do.”

In 2017, the state collected over $20 million in alcohol taxes.

“Those taxes pay for drunk driving enforcement and underage consumption enforcement and a lot of the oversight of retailers, wholesalers and manufacturers in Delaware,” McGurk said.

The Amazon effect

Many retailers are worried that direct shipments will threaten their livelihood. Compare it to the way Amazon and other internet shopping sites have hit bricks-and-mortar stores.

“You don’t want to see your business being jeopardized by an out-of-state company,” said Ed Mulvihill, president of the Small Beverage License Council, whose family has owned Peco’s Liquor Store since 1936.

When customers ask him if he supports direct wine shipments, he tells them no and asks: “Is it a problem for you that there’s so much empty retail store space in North Wilmington?”

Most say yes. He then tells them that many are closed due to internet shopping habits.

In addition, alcohol sales in the U.S. are slowing in retail establishments due to increased competition from restaurants, movie theaters, convenience stores, farmers markets, distilleries, wineries and breweries, according to the results of a Neilsen Co. analysis.

The number of places (on- and off-premise) that sell alcoholic beverages in the U.S. grew by more than 100,000 between 2007 and 2017.

To date, the only government study of the effect of direct wine shipping on wholesale/retail sales was conducted in Maryland, which passed direct shipping for wineries in 2011, said Jeremy Benson, executive director of Free the Grapes.

“Comparing wine sales before and one year after the new law, they found ‘minimal to no impact on Maryland wholesalers,’” he said.

Unhappy compromises

Mulvihill and his colleagues lobbied for a compromise that would allow the state’s wineries to ship within state boundaries. “We want to support the local wineries,” he said.

Why would a local winery want to ship to a Delawarean when the winery is within driving distance? It’s a matter of convenience, said Raley-Ward. She noted the customer who ships wine all the way to his Naples, Florida, home because he can’t have it delivered in Greenville.

In a similar show of support, winery operators like Raley-Ward are in favor of letting local retailers ship wine.

“If you guys have a bottle of my 2012 Cab on your shelves, and I no longer have it on my shelves, but the customer wants it — why shouldn’t you be allowed to ship it?” she told them. “You have all of your proper licenses.”

As it stands, however, retailers are not part of the bill and, in many respects, neither are the local wineries. The bill permits only wineries whose products are currently unavailable for sale in a retail store to ship wine. Free the Grapes is against the stipulation mainly because a wine might be listed, but consumers can’t find it.

“Consumers won’t know what’s specifically in distribution,” Raley-Ward said. Some of her wines are in distribution and some are not. “It’s senseless to confuse the consumer that way.”

Is the customer always right?

Expanding consumer choice is the goal of Free the Grapes, said Benson, who wants to be “happily out of a job” because all states allow direct wine shipments.

Rep. Ruth Briggs King (R) — whose district is in Sussex County, where there are two state wineries — said many of her constituents have expressed support for the bill.

“We want the ability to travel out of state and get wine shipped to us from a winery,” she said.

More than a few Delaware consumers are already making a choice, although they might not realize that the law prohibits it. Some internet sites are also overlooking that fact.

“It’s curated for you for a price that’s a lot easier to swallow than taking a guess at a wine shop,” said Gaby Indellini, a Wilmington resident, of her choice to order online. “It also opens up a whole other world of wine to you that isn’t necessarily available in a store.”

Mulvihill said he is trying to be open-minded. “Make no mistake, we will all do our best to adapt if the bill does pass,” he said.

That means offering the personal touch that might be missing online.

“We want to provide customers with everything our customers desire,” he said. “That is the goal of any good retailer.”

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