Wine Enthusiast Magazine
SubscribeI may hate myself in the morning, but here goes: There’s another way to look at Wine.com’s practice of ratting out other retailers than the scathing treatment I’ve read in Vinography and elsewhere, condemning the flailing Internet wine retailer as anti-consumer for its admittedly hardball tactic of reporting to authorities the direct-shipping transgressions of some of its fellow retailers around the country.
It was a juicy scoop apparently first reported by Rich Cartiere in his wine industry newsletter, the Wine Market Report. Wine.com has been writing letters to agencies in various states that ban out-of-state retailers from direct-shipping boxes of wine to consumers in their states. Turns out, it’s done all the time by some of the best known bricks-and-mortar retailers, despite being banned.
(There was a big legal case against retailers doing the same thing back in the 1990s that outed and embarrassed some blue-chip East Coast wine shops enough that you’d have thought they wouldn’t want to pay the legal bills on this issue again.)
I think Wine.com’s actions are only anti-consumer in a technical sense, and mainly pro law, pro free enterprise and pro Web.
(Disclosures: I did freelance editorial work for Wine.com several years ago. An internet retailer, WineExpress.com, is the exclusive wine shop partner of Wine Enthusiast Catalog.)
The thing is that Wine.com had been trying to play by the rules for many years before the Granholm decision in the Supreme Court in 2005 that banned states from discriminating against out of state wineries regarding direct-to-consumer deliveries. But that was wineries, not retailers. Blogger Tom Wark of Fermentation is an expert on this now, being the head of the Specialty Wine Retailers Association, and he chimes in from his perspective.
Granholm didn’t give out-of-state retailers much help in direct shipping. Wine.com, however, had decided years earlier to acknowledge the legal restrictions and open its own bricks and mortar retail locations in the banning states. That way consumers could order on the website and get their packages shipped from the local, legal, licensed in-state Wine.com store that sourced its wine from in-state distributors.
Actually the first dot-com to do this as an integral part of its business plan was Drinks.com, now deceased, but that’s another disclosure and another story.
It’s not hard for any struggling business owner to grasp the frustration that Wine.com must feel when it sees the well-heeled, established retailers across the country flaunting the laws that Wine.com is respecting, and that it has spent probably millions of dollars to comply with. (A retail liquor license can easily cost more than $100,000, and Wine.com has had to buy several.)
True, Wine.com has raised tens of millions of dollars over time, but as far as I know it has spent even more and has yet to make a profit. That’s not a reason to defend them. But it’s not a wealthy whiner. It’s the underdog in this case, really, just a medium-sized retailer that has nothing like the political clout and profits of the retailers it’s been exposing.
I don’t know if there’s any of its original spirit left. But when it was created in the mid 1990s by Peter Granoff and friends as VirtualVineyards.com, the idea was to democratize wine retailing through the World Wide Web and break down a wall of the fortress that the old-school retailers and distributors had built. (To be honest, the founders probably hoped to get rich, too.)
Virtual Vineyards and its successor business entities did raise a lot of venture capital. The company became Wine.com after the enormous (and in retrospect ridiculous) expenditure of $3 million for the the Wine.com name and URL. Another ambitious wine-selling website, WineShopper, merged with it, and then when the merged company couldn’t survive, tiny eVineyard of Portland, Ore., bought it at a garage sale price and continued the quest under the Wine.com name.
I am pro-consumer but I think Wine.com deserves a little understanding in this skirmish. At least until Wark’s group may succeed in its battle to open up interstate consumer-direct shipping for any retailer who would like to try it. Just like any clothing retailer, flower shop, or book-seller can already do.
Filed under: Industry Issues
10 Comments
10 Responses to “Ratting Out Is Rational for Wine.com”
Please Wait
January 10th, 2008 at 4:12:19 PM
There is a difference between playing hardball and being a weasel. Winecom is weaselish to a fault.
Their “sting” — and the maneuver’s endorsement by the wholeslaers lobby– show their true place in the direct shipping landscape: to keep archaic restrictions in place. Ultimately these barriers are is anti-American, anti-free trade, anti-Web and anti-consumer. Just because wine.com has wasted millions upon millions of dollars to play by such profit-prohibitive rules doesn’t mean they should expect sympathy or even a pat on the head.
More importantly, where I have seen the vinography thread and loads of passionate comments. Where do you personally stand on the issue of direct shipping? Just saying you are “pro-consumer” says nothing. Surely the technology and taxation schemes of our society can be adapted to control the shipment of alcohol and collect appropriate taxes without the ridiculous set of recpriocity laws we have now. You should be turning your attention to those laws, and then maybe wine.com can someday soon change its business model once again once they get the “level playing field” they claim to want.
January 10th, 2008 at 4:25:30 PM
I am personally in favor of consumers having direct access to wine from any state via legalized interstate shipping. My opinion, however, is that retailers who are doing this illegally are not winning friends in state legislatures or attorney generals’ offices, and may be hurting the chances that real legalization will happen.
January 10th, 2008 at 7:51:49 PM
“My opinion, however, is that retailers who are doing this illegally are not winning friends in state legislatures or attorney generals’ offices, and may be hurting the chances that real legalization will happen.”
Maybe.
First, this is the first really articulate defense of Wine.com I’ve seen, Jim. So, well done.
But there are a couple of things I just need to comment on. First, I think anyone who would accuse you or insinuate that you are pro restrictions probably is just angry. So, don’t take it personally. We know it’s not the case.
You are correct, however, that Wine.com’s actions are entirely within the bounds of the capitalist system. This I’ll grant.
What I really find interesting though is that with every state that opens its borders to permitted direct sales by out of state retailers, Wine.com’s expenses decrease. Think about that. Rather than having to, say, maintain an expensive warehouse in Florida, they merely ship from another existing warehouse.
No one has more to gain by the archaic, wholesaler-promoted, anti-consumer, anti-industry anti-retailers laws being removed than Wine.com. No one. Not even retailers that might be shipping illegally.
This is why I can’t understand the moves by wine.com. While it falls inside the boundaries of acceptable capitalist behavior, it falls outside the bounds of smart decision making in terms of resource allocation. In fact, I’d be willing to bet that with the money Wine.com spent on its stings in Washington, it could take that same money, put it into a lobbying campaign in Washington and get most of the way toward getting retailer-to-consumer shipping legalized in that state.
As always, good blogging! Good reading too.
Tom…
January 10th, 2008 at 8:16:00 PM
You’re right Jim…you’ll absolutely hate yourself in the morning.
January 11th, 2008 at 12:52:00 PM
Jim,
I think you’re forgetting some of the other costs. As a marketing campaign, conducting stings doesn’t seem like the best way to get consumers to flock to your store. I wonder if they’d have been better off trying to make the case that they’re working hard to level the playing field, do things by the book, and ultimately bring more choice and better prices to their customers? Once Wine.com has created the “wine cop” image, it’s going to be pretty hard to change it. Of course what they’re doing is “rational,” everyone wants to protect what they’ve got, but sometimes you have to take a hit to get one in. Why not run an open letter to those 29 retailers saying something like: We know why you’re selling wine in violation of the laws because we know how hard it is to do it the right way. We’re doing it the right way, and we call on you retailers to work with us to change the laws so that we can all compete on a level playing field. And we’re donating 5% of our profits to XXXXX campaign for wine-sanity. You get the point. Acting badly and justifying it using the rules, the law, or because you were just following orders may be “rational,” but it’s not necessarily right. Or smart.
January 11th, 2008 at 1:12:53 PM
JR: Excellent suggestion, pro-active and positive. And it would have brought more people to their side.
January 11th, 2008 at 1:18:42 PM
If you have gone on Wine.com site you will see who they are buying their wines from. Only major players in national distribution 3 tier system. It’s no wonder they are ratting out other retailers who buy from smaller importers and distributors that have more interesting wines and take a big bite out of their business. Why do I want to buy wines on wine.com that I can find at the gas station around the corner? their business model might work if they had someone buying wine that actually cared about offering a quality product to the consumer.
January 15th, 2008 at 9:41:30 PM
This is my overall principal:
Any wine. Any time. Any reason. Any location.
Any retailer who promotes that is my friend. Any retailer who will pose obstacles to that is my enemy (even if they are “obeying” the “law” in doing this.
January 19th, 2008 at 10:51:03 AM
I’m with Douglas on this one. I look at this purely from a consumer stand point.
One of their largest clients even dropped them from their site in response claiming support for the consumer – http://www.classicwines.com/articles/Classicwines-Com-Removes-Wine-Com-From-Site-Due-To-Aggressive-Behavior
January 20th, 2008 at 10:08:26 PM
You make some reasonable arguments – and JR makes an absolutely fantastic suggestion that wine.com would have been wise to follow in retrospect.
The thing that bothers me about their sting is that it is one thing to observe a crime and report it. It is quite another to ask someone to ship wine to me and then reporting them for doing so. I don’t know, it just seems weasel-ly.