Tuesday, January 17, 2012

FWWS Year-End 2011 Update


Dear FWWS member,

This posting provides you with a year-end summary of events, accomplishments, some important industry developments in 2011, as well as a look forward to 2012.

FWWS Progress in 2011

Initiative 1183

We won!

We are very excited about the success of Initiative 1183. We believe that the relationship we built with industry stakeholders including Costco since the disappointing outcome of the Joint Select Committee process four years ago led directly to the affirmative inclusion of wine in the distribution process reforms covered in I-1183, and consequently some of the most important economic reforms for the Washington wine industry since prohibition. However, I-1183 was not as sweeping as I-1100. I-1183 does not for example change the current one way credit ban in our industry that allows wholesalers to ask wineries for credit while denying wineries the right to offer credit to retailers. Nor does it end the almost entire ban on co-advertising and co-promotion between wineries and their retailer customers. What it does do is eliminate uniform delivered pricing and reform distribution restrictions on wine so that you will:

·       Now be able to charge for delivery of your wine if you so choose (or be recognized for your customer service if you do not!).
·       Charge different prices to different customers based on class of business or other tangible or intangible economic reasons (for example the PR value of a restaurant or glass pour program placement).
·       Recognize the inherent economies in multi-case delivery by offering volume discounts (or the inherent value, if you so perceive, in treating all your customers the same should you choose to do so). We have heard from several members that they have already benefited from this change by selling multiple cases to accounts that used to buy only a few bottles at a time.
·       No longer be limited to uniform post-offs and close-outs as incentive pricing for your wine.
·       Deliver wine to central warehouses of grocery store chains rather than individual stores (should you choose to make this option available for a given customer).
·       Deliver an unlimited amount of your wine to retail licensees via common carriers.
·       No longer be required to keep records of prices charged for your wines (price filing eliminated).

Furthermore, though not a direct benefit to wineries, retailers will now be able to sell and ship wine through central warehouses, providing additional sales channel access by Washington wineries to consumers in the (sadly somewhat limited) number of states that allow direct to consumer shipping by retailers. 

Another indirect benefit is the ability of retailers holding grocery store licenses to sell wine direct to restaurants and other retailers (less than 24 liters per transaction). Though probably somewhat marginal, in part because a federal basic permit as a wholesaler is required,  the effect of this provision could provide some economies of scale as well as a win-win situations such as restaurant owners being able to find wines at retail stores and keep them on their wine lists even though the wine is sold out at the winery.


The effective date of Initiative 1183 was December 8, 2011. Uniform delivered pricing, price filing and the bans on central warehousing and retailer to retailer sales ended that day. On March 1, 2012 distillers and craft distillers will be allowed to begin selling directly to restaurants. The Washington State Liquor Control Board (WSLCB) adopted several emergency rules to implement 1183 including provisions for retailer to retailer license endorsement for wine, retailer distributor licenses for craft distillers, etc. The state liquor stores will not be closed until June.

Legal Challenge

Two lawsuits have been filed against I-1183, both alleging that it violates the state constitutional ban on initiatives covering more than one subject. Plaintiffs, including unions representing public employees, liquor store operators and others have alleged that the initiative covers changes in liquor distribution law, franchise law and wine distribution law which are different topics. A request for an injunction against implementation of 1183 was denied in one of the suits filed in Cowlitz County. The plaintiffs in the other suit did not request an injunction. The motion on the constitutionality of the initiative is scheduled to be heard on March 16th of 2012. Filing such appeals is not uncommon in Washington. Your FWWS all-volunteer legal team believes that the claims of the plaintiffs are incorrect, that one subject only -- alcohol regulation -- is involved, and that changes in franchise and distribution laws are logically required to remove the state from the position of exclusive distributor and retailer of liquor in Washington. FWWS has been granted intervenor status in this lawsuit to allow us to submit information to the court in defense of the initiative. The two cases are expected to be consolidated soon.


In 2011, we put forward an ambitious legislative agenda. Included were the following bills:

  • Payment Parity Bill, to end the controversy over the credit ban by extending exactly the same terms to business checks that are now applied to EFTs, namely allowing wineries to leave wine with a retailer and receive a check in the mail provided they so choose and have a voluntary pre-existing written agreement with the retailer (otherwise wine would still be due on receipt). This bill was opposed in 2011 by the Washington Beer and Wine Wholesaler’s Association and the Washington Wine Institute. In 2011 we did gain support from the State Grocer’s Association. We have asked the Washington Restaurant Association to support the bill this year.

Based on the support for the credit ban (wineries and distributors to retailers) among some wineries, we have made this voluntary payment parity bill our proposed policy solution compromise to the credit controversy. More wine would be sold, and more wine shops and restaurants would stay in business, if the credit ban was completely eliminated, but at least you would be able to drop off wine and not have to wait for a check when you deliver to your favorite customers. While we remain open to further discussion of the issue, we find the current situation where wholesalers may ask wineries for credit but prevent wineries from offering it to their retailer customers discriminatory and unacceptable. We will be running this bill again in 2012.

  • Tax reporting Relief Bill, to allow wineries selling less than 6,000 gallons of wine per year in Washington to report and pay their wine taxes, at their option, annually. This bill has been hampered for the last two years by a large fiscal note by the WSLCB for computer improvements to implement the bill. Despite the fiscal note, this bill advanced through the Senate Ways and Means Committee, all the way to the Rules Committee where time ran out before it could receive a floor vote.

A welcome and unexpected benefit of Initiative 1183 is that the WSLCB has told us they believe the tax reporting changes can now be implemented at no significant fiscal impact as part of the computer system changes needed to accommodate reporting for liquor distributors and retailers under I-1183. We understand that the WSLCB fiscal note will therefore be removed. At this time, we are not aware of any opposition to the bill. We will be pushing the bill, which currently remains alive in both the House and Senate, vigorously this year.

  • Craft Wineries bill, to allow small wineries to opt-out of the arcane and burdensome tied house rules in the RCW. Due to the success of I-1183 and the elimination of uniform delivered pricing, some of the major goals of the Craft bill have already been achieved. Therefore, we are evaluating some changes to the bill and plan to amend it before taking it back to the legislature.

  • Retailer Direct Shipping bill, to allow out-of–state retailers the same right to ship to Washington consumers currently enjoyed by in-state retailers. We originally drafted this bill to allow direct shipping by wholesalers and importers, but amended the bill to include only retailers when it became clear that the Washington Beer and Wine Wholesalers Association vehemently opposed the out-of-state wholesaler provisions. Much to our surprise, even after the bill was limited to retailers, both the Washington Beer and Wine Wholesaler’s Association and the Washington Wine Institute testified in opposition.

We believe this form of discrimination against out-of-state retailers is much of the reason for the disparity in the number of states that allow direct to consumer (DTC) shipping by wineries (about 40) versus by retailers (about 15). We further believe that retailers such as FWWS Industry Member VinoShipper.com are uniquely positioned to provide regulatory compliance in DTC shipping that is daunting to small wineries and that retailer DTC shipping is a vital market channel for small wineries. However, given the need to prioritize, and the fact that this bill provides a strategic rather than a direct benefit to Washington wineries, we have decided not to pursue this bill in 2012. We will continue to discuss this issue with industry stakeholders on the local and national levels, and to support the efforts of FWWS Affiliate Member the Specialty Wine Retailer’s Association to fight this discrimination around the country.


“What is a Winery?” or “The Ban on Blending”

For several years the Washington Wine Institute and the WSLCB have proposed that the definition of “winery” in Washington State should be changed. At state wine forums last fall a written policy proposal in this regard was revealed for the first time by the WSLCB.

FWWS is extremely concerned about this policy proposal. We believe that, as drafted, this proposal is not only counter productive to the stated goal of regulatory clarity, it more importantly severely restricts the present right of Washington State wineries to make wine wholly or in part by blending. We therefore oppose this proposal as drafted.

FWWS contacted the WSLCB to ask whether this proposal will be submitted to the Legislature this year. We were told that the necessary requests have not been made by WSLCB to allow such a proposal to be put forward this year. A full analysis of this proposal is beyond the scope of this post but will be broadcast to FWWS members and other industry stakeholders soon. We stand ready to assist the WSLCB in drafting language to meet any clearly necessary and appropriate regulatory changes but we are prepared to vigorously resist the drastic curtailment of our member’s rights contained in the current draft proposal. 

WSLCB Business Advisory Committee

FWWS Board members began regularly attending WSLCB Business Advisory Committee (BAC) meetings in 2011. We believe our attendance will provide a closer dialogue with WSLCB staff and, equally importantly, with other industry stakeholders. In December we formally requested membership on the BAC. Given the stated purpose and membership makeup of the Committee, we see no logical reason why FWWS membership would be withheld.


Son of HR 5034

House Resolution 5034, the rather ironically named “CARE Act” that would overturn the Granholm decision and allow states to legally discriminate against out-of-state wineries in DTC shipping, is still kicking in the US House of Representatives. Fortunately this bill, now called HR 1161, did not make much headway in 2011 as Wine America, the Coalition For Free Trade, Free the Grapes, FWWS and others continue to educate legislators on this nefarious proposal.

Threat to Continued Existence of TTB

A proposal to fold the functions of the TTB into the Internal Revenue Service is being floated in Congress as a cost saving measure. We share the concerns of others in the industry that the TTB has specialized knowledge and regulatory skills that would not transfer well to the IRS.

New York Adopts Annual Tax Reporting For Out-of-State Wineries

Wineries shipping small amounts of wine direct to consumers in New York State will now be able to apply for permission to report their wine taxes annually rather than monthly. We applaud this move and hope that, with passage our Tax Reporting Relief bill, Washington will soon join New York and Idaho at the forefront of reform on DTC shipping reporting.

Reciprocal System Down to One State

With Iowa’s adoption of direct shipping permit requirements, New Mexico is now the last state still remaining in the former 17 state reciprocal system of “don’t regulate us and we won’t regulate you.” A one-state "reciprocal system" is obviously a non-sequitur.

Stay tuned and Happy New Year!

Your FWWS Board

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