Last week’s historic decision, affirmed by 7 to 2 by the Supreme Court, has struck down Tennessee’s residency requirement for wine and spirits retailers. The decision, written by Judge Alito, found the requirement to be unnecessarily protectionist in nature and not beneficial to Tennessee’s economy.
The same ruling also called into question if wineries should benefit from the same privileges as wine retailers in terms of which states to which they can ship wine. It has opened the way for retailers to be able to ship products into many more states and bring allocated wines to markets where they haven’t been easy to find.
The decision does not affect the enforcement of the three-tier system—implemented at the repeal of Prohibition to insure that no one sector of the industry has undue control over the sale of alcohol—which will will stay in place. The bulk of American wine and spirits wholesalers have been opposed to retailers having the right to ship wine from state to state.
I sat down with the Wine & Spirits Wholesalers of America’s (WSWA) president and CEO Michelle Korsmo, to explore some of her 360-members’ concerns about the recent ruling and interstate wine and spirits shipping in general.
All responses have been edited and condensed for clarity.
Liza B. Zimmerman (LBZ): In that all products will still have to go through the wholesale tier, why does WSWA oppose this opportunity for retailers to benefit from interstate shipping?
MK: This opinion ruled on the issue of durational residency. Clearly, there will be many cases brought seeking to define the boundaries of this opinion. WSWA has long believed that shipping products raises questions about safety, in terms of if local laws are being followed and underage access is being prevented.
LBZ: How does this decision in any way compromise the state of the three-tier system?
MK: To be clear, the opinion was not focused on the three-tier system. In fact, the court reaffirmed that the three-tier model and system are legitimate.
LBZ: How do residency laws help communities? Given that people can live right over a state border and understand a community better than those who reside hundreds of miles across the state?
MK: Many multi-generational and family owned businesses, that are involved and invested in their communities, have been success stories. The three-tier system has created a very safe and dynamic marketplace that provides unparalleled consumer choice in every state. Laws that differ just across the state border are a reality that citizens face on many issues. Taxing authorities have jurisdictions, for example, and different state laws are part of our Federalist System.
LBZ: Will it be harder for small wine producers to get distribution?
MK: There have never been more viable ways to market, regardless of the supplier’s size, than there are today. Wholesalers are help to pave new ways to market. The future is very bright in this regard.
LBZ: Will the wholesale tier change how they do business, as a result of this decision, in terms of their distribution models and brand focus?
The wholesale tier is constantly evolving, innovating and seeking to meet the market demands of both their supplier customers and retail clients, while remaining consumer centric.
LBZ: Do you think interstate taxes will be properly paid when retailers avail themselves of the benefit of interstate shipping?
MK: In the current shipping environment, current interstate taxes are not consistently paid. Unlike the winery world, there are hundreds of thousands of retailers all across the U.S.: coast-to-coast, including Alaska and Hawaii. If they were all shipping, collecting taxes from them would be extremely complex and inefficient. Additionally, the accountability to public safety and health could be compromised due to lack of regulations, controls and safeguards. The wholesale tier welcomes technological solutions that are three-tier compliant and consumer focused.
LBZ: What are the greater ramifications of this decision?
MK: The immediate impact of the decision will be played out over the next few years, but one thing that is clear from the outcome is that the 21st Amendment grants states latitude with respect to the regulation of alcohol. The Court specifically mentions that states can monitor alcohol stores’ operations through onsite inspections; revoke operating licenses; limit the number of retail licenses; limit the amount of alcohol that may be sold to an individual; mandate more extensive training for managers and employees; and demand that licensees demonstrate that they possess adequate knowledge of the local community.