Battle brewing over direct wine shipments

Monday, January 30, 2006

CHICAGO -- As Lynfred Winery's marketing chief, Christina Andersen-Heller very well may raise a glass to how far the suburban Chicago business has come in its 27 years. The maker of 76,000 gallons of wine a year lures global guests, has about 5,000 wine club members and two sister stores.

But Andersen-Heller, like dozens of others licensed winemakers across Illinois in what has been a rapidly ripening industry, worry of a possible wine war unfolding in Springfield over dueling pieces of legislation, including one they say could squeeze their business.

That measure, backed by the state's beer distributors, would restrict Illinois wineries from selling via mail, telephone or Internet. Under that bill, wineries would be allowed to ship directly just two cases of wine each year to customers -- and only after that buyer made the initial purchase in person at the winery.

Dozens of Illinois winemakers sniff that the face-to-face provision could chill the growth potential of Illinois wine sales, notably to out-of-state wine club members. They are convinced the Associated Beer Distributors of Illinois seeks to restrict direct shipping because the practice cuts the alcohol distributors out as middlemen -- something the group disputes.

"We aren't threatened by wine," said Bill Olson, the distributor association's executive vice president. "We're threatened by precedent being set -- the concern that if you deregulate wine, it will lead to further deregulation" of other forms of alcohol, including beer.

Nonetheless, many Illinois wineries back a countermeasure that let them produce even more wine and expand the number of retail sites they can have.

Headed to the House

Both proposals have advanced to the full House for consideration.

The haggling comes against the backdrop of an Illinois wine industry that has blossomed from just a dozen wineries in 1997 to 63 now, according to the Illinois Grape Growers and Vintners Association. The state's grape acreage, just 140 less than a decade ago, has ballooned to about 1,000.

By the trade group's estimates, Illinois produces about 500,000 gallons of wine a year in what has become a $20 million industry statewide.

In Illinois, alcohol generally can be legally sold after first going through distributors, then on to retailers. But state lawmakers have let Illinois wineries sell directly to tourists or other visitors to their wineries.

Justifiably, Olson said, winemakers won the on-site sales exception by arguing that it would help them draw tourists to distressed areas, including a Southern Illinois stretch now home to the "Shawnee Hills Wine Trail." But Illinois wineries took things too far, selling by catalog, direct mail and over the Internet, Olson said.

State Rep. Mike Bost, the Republican from Murphysboro in Southern Illinois who drafted the bill seeking to expand direct shipping, called the face-to-face idea "ridiculous," insisting "it would strangle the wine business in Illinois that we've grown."

Under Bost's bill, each Illinois winery would be allowed to run up to 10 shops for wine sales, up from two now, and be allowed to ship up to three cases of wine to each customer per month -- a considerable departure from the ABDI-supported measure's two cases per year -- without any face-to-face meetings.

The legislative showdown in Illinois follows a U.S. Supreme Court ruling last year that struck down laws in New York and Michigan as discriminatory because they allowed in-state wineries, but not out-of-state businesses, to ship directly to consumers. The ruling's bottom line: Either all wineries should be allowed to ship directly to consumers or none.

The ruling was particularly important to smaller wineries that don't have the volume for wide distribution in liquor stores and supermarkets and rely on direct sales to consumers, many of whom have developed a taste for their products on winery visits.

The number of states allowing limited, regulated direct-to-consumer shipments from out-of-state wineries jumped from 26 to 30 last year, according to Free the Grapes, a Napa, Calif.-based group that has sought to loosen shipping restrictions.

Illinois has reciprocal deals with only about a dozen states, each letting the other ship directly to its residents.

The Supreme Court ruling has prompted scrambles by Illinois and other states to adjust their laws, deciding whether to let all of the nation's winemakers ship directly into their state or allow none. Going with the latter could mean in-state wineries wouldn't be allowed to ship, either.

On the Net

* Associated Beer Distributors of Illinois:

* Illinois Grape Growers and Vintners Association:

* Illinois General Assembly:

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