Regulatory Hurdles for DTC, Social Media, and Third Party Sales Channels

During last week’s Unified Wine & Grape Symposium, DP&F attorney John Trinidad moderated a panel discussion titled, “Regulatory Hurdles for DTC, Social Media, and Third Party Sales Channels.” Trinidad led off the session with a presentation describing how the Internet has “disrupted” the wine industry’s traditional sales and marketing models.  You can access Trinidad’s PowerPoint presentation by clicking on the image below:

Trinidad noted that the promise of e-commerce has become significantly more important for small wineries given the increase in the number of suppliers and continued consolidation of the wholesale tier.  As noted by a respondent to a Gomberg, Fredrikson & Associates study:

“It is tougher than ever int he 3-tier channel.  We have a hard time getting distributor attention as tehy have way too many brands, not enough people and we are just too small to matter.”

While wineries now have a significantly increased opportunity to reach consumers directly without having to find national distribution or share their revenues with intermediary tiers, a number of hurdles still remain.  These include production caps, on site requirements, and other impediments to direct-to-consumer shipping.  Additional issues arise due to regulatory uncertainty regarding how state alcohol beverage agencies will treat “new players” in the wine sales model, including third party providers.  In short, e-commerce and the increased ability to ship directly to consumers offers a number of opportunities for wineries, but also raises a number of unresolved regulatory questions.

Similarly, social media provides wineries with the opportunity to interact and build relationships with consumers, but may still wonder how federal and state regulations apply to “new media.”  Government agencies concerned with transparency and consumer have, by in large, ported their advertising restriction and applied it broadly to social media.  This includes tied house laws, which prevent wineries from providing things of value (including free advertising) to retailers.  Trinidad noted that regulatory uncertainty is likely to continue as new Internet-based business models appear and blur the line between e-commerce and social media.

Finally, Trinidad provided attendees with an update on the Empire Wine / NYSLA dispute.  As noted in prior blog posts, NYSLA has accused Empire Wine, a New York based retailer, of shipping wine to states where retail direct to consumer shipping is prohibited, even though those states have not pursued any disciplinary action against Empire.  NYSLA believes this action is grounds for suspension, revocation, or cancellation of Empire’s New York State License.  If NYSLA prevails, a California winery that illegally ships wine to a consumer in, say, Utah, may be putting their NY Direct Shipper’s license at risk.