H.R. 5034: Congressional Reps Feeling Pressure on Bill That Could Devastate Small Wineries

By Evan Dawson, Managing Editor
Photo courtesy of PhilaFoodie

Imagine, for a moment, that you are on trial for a crime you did not commit. Sitting in court, before testimony even begins, the judge makes an announcement: He will rule on the case by talking to appropriate parties. Then he calls only the prosecutor forward and exits the courtroom. Is he going to base his ruling on private discussions with the prosecutor? It certainly appears that way.

Now you know how some small wineries feel regarding HR 5034.

Congressional representatives are learning about this bill, which was written by the wholesalers and would greatly strengthen their position at the expense of small wineries and consumers. But many lawmakers are learning directly from the wholesalers, who are claiming that the bill is all about states' rights (even though states are already capable of regulating alcohol) and protecting children (the common fallback when legislation would take rights away). 

The bill could lead to the end of direct wine shipping (and other forms of alcohol). States would be granted even greater control of alcohol sales and the three-tier system would be not only protected, but essentially enshrined. That's because the bill would make it all but impossible to legally challenge the three-tier system.

I've been in contact with the offices of Congressional representatives across western New York. Some have thus far failed to get back to me; others claim they're still "studying the issue." 

Here's a very common response, this one from the office of Rep. Chris Lee:

Chris is reviewing this legislation and continues to speak with constituents and stakeholders. There are no plans for this legislation to come before the full house as it hasn’t been brought up in committee yet. 

This response comes after Mr. Lee met with the folks who wrote the bill. Wholesalers are lobbying hard, and have already piled up more than a hundred co-sponsors.

Rep. Dan Maffei, a member of the Congressional Wine Caucus, sat down for an interview with me on this subject: Watch it now. Mr. Maffei is seeking a bill that would please all sides in this debate, which is either admirable or pandering, based on your point of view. But ultimately it's not possible. He seeks a "carve-out" for small wineries to make sure they're not devastated by losing the right to ship wine directly to consumers. Small winery owners have already made clear that a carve-out is hardly the solution.

"A winery should be able to run their business as they see fit," says Susan Higgins, co-owner of Heart & Hands Wine Company on Cayuga Lake. Higgins is also a professional management consultant who specializes in supply chain strategy and economics. She continues, "You should not be forced to work with a wholesaler or 'try to' work with a wholesaler to reach customers. I should not have to try to work with a distributor if I don't want to. There are many outstanding distributors, but that's not the issue. The issue here is making sure businesses maintain the ability to choose to operate how they decide is best."

Higgins points to the numbers, which tell an ominous story. "If the direct channel disappears, and you must sell through a wholesaler, it is a big deal. If, for example, a winery does $1 million in sales via direct shipment, and that channel goes away, that winery loses HALF of that revenue. A 50% loss of revenue for a growing sales channel is a big deal for a small business, and could legitimately cause a business to fail."

Rep. Maffei cited the fact that the wholesalers wrote the bill as one reason that he has not signed on to co-sponsor it. However, he argues that both sides tend to exaggerate the potential impacts. 

The congressman is still listening. He is able to sit down and talk about H.R. 5034 at length and in detail, which is much more than we can say for most members of Congress. Most of what they've learned, they've learned from the wholesalers. You can guess the probable result if that continues.

Comments

[Robin]

Has anyone been able to get Tim Bishops opinion of HR 5034???

[akatsuki]

Money talks. Calling isn't going to do anything without a formal lobbying arm, this is going to happen.

[susan higgins]

If this passes, it will be devastating for small wineries like ours. Small wineries depend on being able to ship direct to consumers to drive revenue growth.

When a winery sells direct to a consumer, the winery retains 100% of the revenue. Selling through a distributor, means offering the wine at a 50% discount. A winery selling a $20.00 bottle of wine direct would only receive $10.00 for this bottle from the distributor.

This system can work for wineries with large scale and high volumes. But for small producers losing this much margin means a significant hit in revenue.

Additionally, while there are some fine distributors out there, they are less interested in working with small wineries to promote our products - it simply isn't an efficient use of their time.

[Lenn Thompson]

Robin: I could be wrong, but I believe that Bishop has signed on as a co-sponsor, which is extremely disturbing given he represents a wine-producing region.

[vibram five fingers]

This system can work for wineries with large scale and high volumes. But for small producers losing this much margin means a significant hit in revenue.

[Charles Massoud]

Evan,

Thank you for bringing this to our attention.
Where are the various winery organizations on this?
One more time we are disappointed that organizations that exit to promote the wines of NY, do not seem to provide leadership. I have written to Rep. Tim Bishop to fund out what is his position and requested a meeting with him.

[Scott]

The co-sponsors in NY State are:
Tim Bishop (Long Island)
Michael McMahon (Staten Island)
Edolphus Towns (Brooklyn)

There are quite a few in New Jersey, Massachusetts and Pennsylvania too (106 across all states as of last count).

http://www.govtrack.us/congress/bill.xpd?bill=h111-5034

I find it interesting that it appears none of the Washington State delegation has signed on, and only a handful in California have either.

[Evan Dawson]

Scott -

Thanks for the additional info. As Charles notes, NY's wine industry is not exactly galvanized, and leadership tends to be lacking on issues like this one. Perhaps that's why the west coast producers are represented in Congress by people who understand the potential impact.

[Chris]

We've interviewed a number of wineries that rely on clubs and direct shipping for a significant portion of their business. The clubs and shipping help to normalize their incomes throughout the year, leaving fewer "slow spells". Changes to the current system would be devastating to most small to mid scale wineries that rely on a dedicated fanbase, whereever they may be.

[Lenn Thompson]

Hey Evan...have you spoken to anyone at the NYWGF about this? I'd be curious to hear their position and find out if they are doing anything about this.

[uggs on sale]

The good news is, data is everything. The more we get, the stronger our analysis will be.