Wine on the Web: Lower Prices, More Choices

E-commerce offers consumers lower prices and more choices in the wine market according to a Federal Trade Commission study released Wednesday. The report concludes that states could expand e-commerce by permitting direct shipping of wine to consumers.

The FTC study finds that state bans on direct shipping prevent consumers from saving as much as 21 percent on some wines and from conveniently purchasing many popular wines from suppliers around the country.

“E-commerce can offer consumers lower prices, greater choices, and increased convenience. In wine and other markets, however, anti-competitive barriers to e-commerce are depriving consumers of those benefits,” FTC Chairman Timothy J. Muris said.

In addition to its findings regarding competition, the report concludes that states can limit sales to minors through less-restrictive means than an outright ban on direct shipping.

According to officials from a dozen states that allow direct shipping, these states typically require that a supplier verify the recipient’s age and obtain an adult signature before delivering the wine.

Many states also require that a supplier obtain a permit to ship wine to consumers within the state. Of the states that have adopted such less-restrictive safeguards, most report few or no problems with direct shipments to minors.

“This report continues a long FTC tradition of using empirical evidence to analyze policy,” said Todd Zywicki, the director of the FTC’s Office of Policy Planning. “Before reaching any conclusions, we conducted an economic study and talked to officials in many states that deal with the issue on a daily basis. As a result, we think that policymakers can have great confidence in our findings.”

The report continues the FTC’s efforts to promote competition over the Internet. In August 2001, Muris convened the Internet Task Force to evaluate government regulations and business practices that could impede online competition.

The Task Force found that many state regulations favor local suppliers over out-of-state competitors, and that others ban online competition for particular goods and services altogether.

In October 2002, the Task Force organized a workshop to study possible anti-competitive barriers to e-commerce in ten industries, including wine. At the workshop, FTC staff heard testimony from all sides of the issue, including online suppliers, bricks-and-mortar companies, consumer groups, state officials, and academics.

Key findings of the online wine study include:

  • Consumers can purchase many wines online that are not available in nearby bricks-and-mortar stores. An empirical study of the wine market in McLean, Va., found that 15 percent of a sample of popular wines available online were not available from retail wine stores within 10 miles of McLean. By banning interstate direct shipments, states limit consumers’ access to thousands of labels from smaller wineries.
  • State bans on interstate direct shipping represent the single largest regulatory barrier to expanded e-commerce in wine. More than half the states prohibit or severely restrict out-of-state suppliers from shipping wine directly to consumers. Many of these same states, however, allow intrastate direct shipping, such as from in-state wineries and retailers.
  • Many other regulations impede e-commerce in wine. These include prohibitions on online orders, very low ceilings on annual purchases, bans on advertising from out-of-state suppliers, requirements that individual consumers purchase “connoisseurs’ permits,” and requirements that delivery companies obtain a special individual license for every vehicle used to deliver wine.

  • The report also found that concerns over wine shipments to minors are unfounded.

    Some states have chosen to address this concern in part by banning direct shipment of wine to all consumers, or banning direct shipment from out-of-state sellers. Others have opted for alternatives that are less restrictive than an outright ban.

    The states that permit interstate direct shipping generally report few or no problems with shipments to minors. Some states have applied safeguards to online sales similar to those applied to bricks-and-mortar retailers, such as requirements that package delivery companies obtain an adult signature at the time of delivery.

    Some states also have developed penalty and enforcement systems to provide incentives for both out-of-state suppliers and package delivery companies to comply with the law.

    “It’s very hard to gather data about direct shipping and underage drinking. You obviously can’t rely on minors to self-report if they’re buying wine illegally. As a result, we gathered evidence from the next best source — the state officials that actually deal with direct shipping on a daily basis,” Zywicki said.

    According to the report, of the states that allow direct shipping and have procedural safeguards against shipments to minors, most report few or no problems with direct shipments.

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