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.
Implementation
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.
FWWS
LEGISLATIVE AGENDA 2011/2012
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.
OTHER WASHINGTON STATE ISSUES
“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.
OTHER
NATIONAL DEVELOPMENTS
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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