WASHINGTON — The head of the major trade association representing alcohol wholesalers told a Congressional subcommittee Thursday that a Federal Trade Commission (FTC) staff report supporting online wine sales was flawed and a “triumph of rhetoric over reason.”
The July report concluded that wine is a “good example of how the Internet can permit fundamentally different business models to flourish.” According to the FTC, state bans on interstate shipping represent the single largest regulatory barrier to expanded e-commerce in wine sales.
“The final FTC report is a study in preordained conclusions,” Juanita D. Duggan, president and CEO of the Wine and Spirit Wholesalers of America (WSWA), told the House Energy and Commerce Subcommittee on Commerce, Trade and Consumer Protection. “It is intellectually dishonest and scientifically specious. The report ignores evidence contrary to its suppositions, manufactures evidence out of whole cloth and misapplies the findings of a geographically limited, inconclusive economic study.”
Duggan urged the subcommittee to not only ignore the FTC report, but to also “wholly discredit” its findings. She further said liberalizing laws to permit direct shipments of wine would directly lead to online beer and liquor sales and turn the Internet into a “virtual vending machine” of alcohol for minors.
The wholesalers Duggan represents control approximately 99 percent of the beer, wine and hard liquor distributed in the United States. The NetChoice Coalition, a group that promotes e-commerce, calls WSWA liquor middlemen seeking to “protect their state-sanctioned monopolies.”
David Sloane, president of the trade association representing American wineries, told the lawmakers, “This debate is all about what a wise poet once said: ‘It’s all about the money, honey.'”
Following the repeal of Prohibition, states developed the so-called “three-tier system of distribution” for alcohol sales, which mandates breweries, vintners and distillers to sell their products to licensed in-state wholesalers, who in turn sell to licensed in-state retailers who then sell to consumers.
The 21st Amendment, which repealed Prohibition, specifically empowers states to regulate the distribution and sale of alcohol products within and across their borders.
“Herein lies the conundrum for small wineries: the three-tier system is simply not a viable method for distributing their products,” Sloane, who represents some 700 small wineries, said. “Like other small companies that specialize in marketing limited quantities of unique products with limited but than adequate demand, small wineries must rely on remote sales to be profitable — either through catalogues, newsletters or, increasingly, by the Internet.”
With the emergence of the Internet as a viable retail business model, wineries have embraced the Web as a marketing tool. They have also filed lawsuits contesting the three-tier regulatory regime and mounted aggressive lobbying campaigns to change state laws.
Their efforts have paid off with 26 states now allowing interstate sales of wine.
The subcommittee hearing was a follow-up to hearings held last year focusing on state impediments to e-commerce, where lawmakers heard testimony about state legal and regulatory barriers undermining consumer choice and e-commerce. The subcommittee focused on three areas: auctions, contact lens sales and wine.
