Federal Trade Commission speech shows support for direct shipping

Sovos | November 15, 2005

In a speech by Commissioner Jon Leibowitz titled Competition in the Information Society Uncorked and Unplugged, Leibowitz provides some great insight into interstate wine laws. I would encourage you to read this speech in its entirety, but here are a few choice passages:

the Internet is crucial to consumers. Barriers to e-commerce – whether erected by the state or around the state; west of the Atlantic, or on the Continent, locally, or across borders – have the potential to undermine the promise of the Internet that we as a global society have worked so hard to nurture, and that many of you here today have made a part of your work.

Commerce in the U.S.– and this includes the wine industry – is most often regulated at the state level, because business traditionally has been transacted on a local basis. States have a compelling interest in ensuring that transactions conducted within their borders are fair, that their consumers are protected from fraud and deception, and that consumers receive the best quality goods at competitive prices.

The advent of the Internet, however, has turned local commerce into a national – and often times international – affair. Consumers now have convenient access to a wide array of goods that are produced outside the borders of their home states – or countries. While this is unquestionably of great benefit to consumers, it has also amplified regulatory concerns – and concerns by local “bricks and mortar” retailers, who often feel “squeezed” by Internet-based competition.

Most wine in the United States is distributed through a complicated distribution network, which was developed after the repeal of Prohibition (a 13 year nationwide ban on consumption of alcohol in the U.S.) in 1933. Under this system, a wine producer must first obtain a permit from the federal government. The wine then must sold to a licensed wholesaler, who delivers the wine to a retailer. The retailer may then sell the wine directly to a consumer. Most states prohibit vertical integration among these three tiers.

This is, according to some, the most expensive distribution system of any U.S. packaged goods industry by far.

The FTC took a close look at this issue and concluded in its Wine Report that bans on direct shipping of wine prevented consumers from saving as much as 21 percent.

He also backs our earlier argument that shipments to minors can be avoided by forcing the common carriers to require an adult signature on delivery.

Many of those supporting the restrictions claimed that they are necessary to prevent underage drinkers (in the U.S., those under 21 years of age) from receiving direct shipments of wine. However, these concerns could be addressed by simply requiring a signature from a qualified adult upon delivery. In fact, the Commission’s study found that of the states that allowed direct shipping, most reported few or no problems with shipments to minors.