Part and parcel of rescinding the 19th amendment was allowing the individual states the authority to create their own regulations around the distribution and sale of alcoholic beverages. Never underestimate the ability of government entities to create a labyrinth of byzantine laws designed to modify individual behavior.
As someone who produces wine in California and sells it across the country, conforming to all of the state and federal laws associated with those functions is a mind-numbing exercise in regulatory hell. If you think the income tax code is difficult to navigate, don’t ever try to get into the alcoholic beverage business. You may end up, as my mother would say, “locked up in the loony bin”.
What better topic to rant about than government regulation? Unfortunately any in-depth rant on the topic would be so boring I would have to start ranting about my rant (OMG, did I just make a statement the kids call Meta?). Suffice to say, there are governmental agencies on the federal and state level that do nothing more than create and enforce these alcoholic beverage laws, resulting in the weird production and sales anomalies that we deal with every day in our attempt to provide products to the greatest number of consumers at the best value.
Instead of pointing out the intricacies of the various laws, it’s far more entertaining to list out examples of what results from some of these laws - some of which just don’t seem to quite make sense in the real world. I offer up for your enjoyment:
Licensing
If you ever wanted to live “off the grid”, don’t own a winery, brewery, distillery, retail store, restaurant, brokerage or warehouse related to the alcoholic beverage industry. You will find yourself fingerprinted, investigated and given a mountain of paperwork by both the federal and state governments that will make your taxes look like a picnic in comparison. Your name and information will be in so many databases across the country, you can forget about being anonymous. In order to operate in the alcoholic beverage industry, licenses must be obtained to make, warehouse, sell or broker alcoholic beverages. The licensing is different from state to state, along with being different from the federal licensing requirements.
This is life in a regulated industry. It’s mind-blowing that Prohibition ever existed. Both state and federal governments collect an incredible amount of taxes from the regulation and taxation of alcoholic beverages. The moral issues that drove Prohibition to become a reality in 1919 can be argued (along with the unintended consequence of providing a funding platform for the mafia), but the economics for governments never made any sense. Trying to regulate personal behavior usually doesn't turn out well (are we ever going to win that war on drugs?). As marijuana continues its almost inevitable march to being legalized at the federal level, I welcome all the people in the marijuana industry to regulatory hell. Be careful what you wish for!
AVAs
These are the American Viticultural Areas (AVA) specifically designated by the Alcohol and Tobacco Tax Trade Bureau, commonly referred to as the TTB (odd that the acronym doesn’t actually match) that you see on every bottle of wine. In general, these designations provide valuable information to the consumer. It’s helpful to know if a cabernet comes from Napa Valley or Lodi. There is an implicit assumption of quality as it relates to an appellation and the price being charged for the wine. But like everything government related, nothing can be (or will remain) simple and there are complex rules that determine if a wine can be labeled as coming from a certain region.
For an example let’s look at the AVA Napa Valley… Deep breath, here we go with a small slice of Napa: Napa Valley, Napa County, Rutherford, Oakville, Carneros, Diamond Mountain, Howell Mountain, etc. Confused yet? Awesome, lets muck it up with some rules for those areas. First of all, you can’t call it Napa Valley unless 85% of the wine in the bottle comes from Napa. A logical question would be “You mean it’s not all Napa Valley?” Nope. At some point in history, someone determined that it was ok to have 15% of a Napa Valley wine not be from Napa Valley. Why 15%? Who the hell knows. It’s arbitrary. If your wine is 100% from Rutherford, Oakville, Carneros, etc., guess what! You can put those sub-appellations on the label. There is also Napa County, which requires 75% of the wine be from Napa County. My head hurts.
Napa is just one of hundreds of AVAs in California. It gets mind boggling when you think of all the combinations that these rules produce for labeling purposes on the bottle of wine. You have to be very careful blending wines together. Lots of math is checked and double-checked to ensure that the correct percentages of each wine from the various appellations are what end up on the label. If for some reason you are not in compliance, guess what? You have to re-blend the wine or print different labels. Both of these are expensive solutions to a math error.
The irony of all these painstaking rules and regulations is that the vast majority of consumers don’t pay any attention to appellations. They tend to find a brand they like, at a price they like and they keep buying it. Nonetheless, rules are rules and you have to follow them. I’m not saying these rules are like the “don’t tear the tag off this pillow” warning, but one has to wonder why we have to have a Paso Robles Estrella District AVA. Most consumers struggle to point out Paso Robles on a map.
Varietal
If you buy a specific varietal, e.g. cabernet sauvignon, that wine only has to be 75% cabernet. The other 25% can be any other varietal. Although this is a simple rule, it seems oddly out of place when compared to the AVA rules above. It seems like the general consumer would be more interested in the fact that the wine they are buying is 75% of the stated varietal than an AVA. On the other hand, as I have said a million times: if you like the wine, what’s the difference?
Labels
This might not seem possible, but the federal and state regulatory offices have approved each label you see at a store. Labels can be rejected for a variety of reasons ranging from appropriateness to technical. No wine can be sold until you have what is called a COLA approval for your label from all of these governmental agencies… yikes. I have found out the hard way that this is not an easy process.
Most of the above regulation only affects people in the industry and is invisible to the consumer. But here are some ways people in various states are affected by “regulation”:
1. California produces most of the wine domestically in the United States (calm down Oregon and Washington… California is still king). However, because of state laws California wineries cannot ship directly to individuals in some states. This is really hard on small wineries that sell the majority of their wine in clubs and tasting rooms. Come on states; let the grapes out of jail!
2. Colorado only allows one location retail liquor license per company. For example, only one Whole Foods store in Colorado can carry alcohol. Better know which one, or you will be sorely disappointed when you go to pick up that last minute bottle of wine or six-pack. Looks like someone in Colorado has a strong lobby in the independent retail world, but I think the number of permissible stores is going up in the future. I wonder if the marijuana guys have the same restriction.
3. In Utah, all alcohol is purchased and controlled by the state government. That’s ok. Not enough people drink in Utah to make a difference.
4. In many parts of the United States, grocery stores can’t carry wine, beer or spirits in the main store. This creates a weird “separate” entry point into a smaller version of the store. It’s hard to imagine what purpose this serves as people are not going to drink less just because they have to go through a separate door.
5. Ohio requires that retailers make 50% gross margin on all the sales of wine. That is very nice of them to guarantee a gross margin to their retailers. I wish I could get that deal in my business.
6. Finally Pennsylvania… oh Pennsylvania. All of the retail stores selling alcohol in Pennsylvania are run by the state. It is called the Pennsylvania Liquor Control Board (PLCB). Imagine your state government actually being a retailer of anything? Ever been to the DMV? How’s that experience?
Why would a state want to become a retailer? As Deep Throat told Bob Woodward, ”Follow the money”. When a state has created a monopoly in a product category they can charge whatever they want and create whatever “profit” (i.e. additional tax revenue) they want. Ultimately it’s the consumer/taxpayer who gets the short end of the stick in terms of selection and price.
I have seen an article about every week for the past 15 years that Pennsylvania is going to privatize the retail stores but it never happens for one reason or another. Doesn’t it sound like something out of the old U.S.S.R.? That we are going to “privatize” the potato industry comrade? Gee thanks, glad I can be treated like most other Americans and have competitors go after my business.
There are more examples of how regulation makes our industry seem out of step with the 21st century, but you probably get the point. If you are in the wine/alcohol industry, you simply have to accept the odd rules we operate under across the U.S. and figure out ways to work within the system. Lord knows it would be lovely if we weren’t regulated to the degree we are, but then again I still wish I could dunk a basketball.
By Dennis Carroll, CEO of Wine Hooligans
This blog post was written by Dennis Carroll in his personal capacity. The opinions expressed in this article are the author's own and do not reflect the view of Charles Communications Associates...although we find them enormously fun and entertaining.
All the Swirl is a collections of thoughts and opinions assembled by the staff and industry friends of Charles Communications Associates, a marketing communications firm with its headquarters in San Francisco, California. We invite you to explore more about our company and clients by visiting www.charlescomm.com.