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Ruling a Boon to Small Wineries and Wine Tourism

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WASHINGTON ( -- New York and Michigan laws limiting state residents from buying directly from out-of-state wineries were overturned by a sharply divided U.S. Supreme Court today, in a case that will likely lead to stepped up national marketing of smaller wines and beers.
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The Supreme Court ruling allows small wineries to ship their product across state lines.

“It will have a huge impact for really small wineries but a very minor impact on the large producers,” said Eileen Fredrikson, a principal in Gomberg Fredrikson Associates, which consults in the wine industry. “The biggest benefit is for wine tourism. It’s a very big deal for people who don’t want to carry around a case or two [and can now ship wine home].”

Could spur online sales efforts
Ms. Fredrikson said the decision will prompt smaller vintners to expand their efforts through the Web and to reach out to “wine club” members with additional promotions “and ways to tie [consumers] closer to their brands.”

Although both small and large vintners sell wines directly in the 27 states that had allowed sales, she said the Internet and direct mail would likely be the biggest focus because the relatively small volume would never support a large advertising budget. She suggested an ad or two in the Wine Spectator would cost more than the profit for a year of some of the wineries.

A spokeswoman for the Wine Institute said any impact would be felt most on wines that sell at more than $20 a bottle because shipping of less expensive products isn’t cost efficient.

2% ship direct
Currently about 2% of wines are directly shipped to consumers, and Ms. Fredrickson said that percentage could ultimately increase to 5%.

The wine industry is a $20 billion-a-year business, and the popularity of wine and spirits has transformed the cultural landscape and marketplace. Hard liquor is surpassing beer as the drink of choice among young adults, and the Oscar-nominated movie Sideways had a direct impact on the surge in sales of pinot noir and a growing disinterest in merlots.

Wholesale system
Wine is currently sold in most states through a traditional three-tier system --

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Wine tourism, already gaining in popularity, was given a huge boost by the movie 'Sideways.'
from a wholesaler to a retailer to a consumer. (Liquor wholesalers can be affected by the ruling if retailers decide to order wine directly from the wineries.)

Still unclear is exactly when the court decision takes practical effect. The court left it to states to work out the procedures for licensing, taxing and regulating out-of-state wineries and any setting of high licensing fees could yet deter interstate shipments.

The high court’s 5 to 4 decision said laws that allow state wineries to ship directly to consumers but limit shipping by out-of-state wineries “discriminate against interstate commerce” and are unconstitutional.

'Emerging and significant business'
“This discrimination substantially limits the direct sale of wine to consumers, an otherwise emerging and significant business,” wrote Justice Anthony M. Kennedy, delivering the opinion on behalf of the court’s four-justice majority. Joining the majority were Justices Antonin Scalia, David Souter, Ruth Bader Ginsburg and Stephen G. Breyer

He also said the states provide “little concrete evidence for the sweeping assertion that they cannot police direct shipments by out–of-state wineries.”

The court minority was vocal, issuing two strong dissents.

“The Court does this nation no service by ignoring the textual commands of the Constitution and acts of Congress,” wrote Justice Clarence Thomas in dissent that was endorsed by Justices John Paul Stevens, Sandra Day O’Connor, and Chief Justice William Rehnquist.

Justice Stevens in a second dissent that was joined by Justice O’Connor argued the decision ignored the special position that sales of alcohol retained after their sale was prohibited with the 18th Amendment and then restored with the 21st Amendment.

Conflicting statutes
The court’s case was brought by several consumers and some small wineries that have seen conflicting decisions from appellate courts as to what states can do. Michigan’s law banning out-of-state wineries from shipping to consumers at all but allowing in-state wineries with a special license to ship was overturned in the appellate courts. However, New York’s law, which allowed out-of-state wineries to ship only if they first established a state distribution system, was upheld.

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