Stomping Grapes: How Arizona Tramples Consumer Choice in Wine

Posted on September 22, 2004 | Type: Policy Report | Author: Jennifer Wright
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Arizona wine consumers are getting the short end of the stick when it comes to buying wines they enjoy. A bizarre set of laws makes purchasing many wines impossible, despite the fact that such wines are widely available on the Internet.

In a November 2003 Goldwater Institute policy report, Mark Brnovich made the case for removing restrictions on the purchase and shipment of wine.  As a follow-up to that report, this policy brief demonstrates how practical application of existing laws impedes consumer choice and hampers the free market.

Ten years ago, few people realized the vast potential of the cyber-marketplace-some even considered it a passing fad.  Now, consumers can buy everything from rare baseball cards to homes with just a click of a button.  Like other consumer-driven industries, wine sellers have seen a dramatic boom in online sales.1  Once impossible-to-find vintages from small vineyards can now be bought online, and many wineries have their own websites.

While the Internet provides an infinite selection of goods, Arizona law makes it illegal for online retailers to sell directly to Arizona consumers. Instead, wines must be sold through Arizona wholesalers, then to retailers, and finally, to consumers. This three-tiered system creates a barrier to trade and puts wines that are readily available in other states out of the reach of Arizona consumers.2 According to the Federal Trade Commission, such bans represent the single largest regulatory barrier to expanding e-commerce in wine.3

A restricted wine market is especially problematic because each wine is unique, making substitutions difficult. As wine connoisseurs will attest, the flavor, aroma, and appeal of wine is heavily dependent on the variety of grapes used to make the wine, the type of soil and region where the grapes were grown, the amount of exposure to sunlight the grapes had while growing, how the juice was extracted from the grapes, how long the grapes fermented, and what kind of barrel the grapes fermented in, to name just a few key elements.4 With this endless array of factors producing a wine's flavor and quality, wine varies even within the same brand. Despite using the same grapes and methods, the host of unpredictable variables (such as one year's weather conditions), often make wine markedly different from one year to the next-and often one barrel to the next.5

The proliferation of the Internet means consumers can now purchase wines directly, giving consumers an unprecedented selection not typically available at local retailers.6 In fact, the amount of money spent on wine purchased over the Internet doubled between 1994 and 1999.7 But in states like Arizona, legislation bans the direct shipment of wine, with few exceptions.8 The Arizona wine market is therefore limited to wines available through major wholesalers. And because wholesalers limit their selections to those wineries with which they have contracts, consumer choice is reduced to a small fraction of the total market. Small, boutique wineries are largely shut out and consumers are denied access.

For example, in a sampling of 15 specialty wines readily available for sale on the Internet, only two could be obtained from Arizona retailers, and one was available as a brand and variety, but not vintage. The other 12 wines could not be obtained at all. One Phoenix-area retailer told customers, "We can't get east coast wines,"9 while another retailer exclaimed, "My wholesaler doesn't sell those!"10

To test the availability of a broad cross-section of wines, a random variety was selected. Some wines were regional selections, while others were from popular wineries with special vintages. All of the wines, absent Arizona regulations, were available for online purchase and direct delivery to the consumer.

To determine Arizona availability for the selections, five Arizona wine retailers, known for their large selection and variety of wine, were chosen. Each retailer was asked about the availability of three different wines.11 The survey results are shown in Figure 1.

Because Arizona has a three-tiered distribution system whereby retailers must buy wines from a limited number of licensed wholesalers, all retailers are limited to essentially the same selection of wine. This three-tiered system restricts consumers' freedom of choice. While the opportunities are ample, the actual freedom to purchase wine from the vast Internet marketplace is extinguished under Arizona law, leaving only those wines selected by wholesalers. Wholesalers typically do not maintain contracts with small, regional or boutique wineries, and certainly do not maintain a stock of rare special vintage wines-it just doesn't make economic sense. Eliminating Arizona's protectionist laws and allowing Arizona consumers to buy wine over the Internet will give Arizona consumers the same personal choice and freedom of commerce available in other states.

Read Stomping Grapes here.

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