What if you could order any wine, from anywhere, on the net?

This week, the US Supreme Court is hearing the cases brought against the states of Michigan and New York, cases that could drastically change the notorious three-tier system of liquor distribution in American states. Today's session didn't bode well for the states, Michigan and New York, who are the defendents, as Justices poked holes in their central arguments in favor of continuing to restrict what amounts to mail-order commerce, across state lines, in alcoholic beverages. What would it mean to you if states are told they can't set up trade barriers to purchase and delivery of, for example, wines?

Pro

No more ambivalence in reading wine reviews. For those outside major wine-producing areas or large cities, there are far more wines written about than are available. But if the plaintiffs prevail, your ability to order a bottle or a case or a truckload of something you've seen in Wine Spectator will improve vastly.

Con or Pro??

So if I can order a case of wine at four in the morning while surfing the web, what does that do to my friendly local wine retailer? Maybe not that much, initially -- if the mail-order market is primarily interesting to wine enthusiasts, the over the counter sales of Two-buck Chuck may not suffer much at all. But isn't it the enthusiast retailers that we most want to preserve? On the other hand, one of our most effective and well-connected retailers here told me that he isn't concerned at all -- that if anyone suffers, it will be the second tier guys, the distributors. He feels that it will just make it easier for him to bring in interesting, hard-to-find wines for his admittedly demanding customers.

Pro

New personal-business opportunities. If some of the local wine shoppes do have to go low-end, they may not need as many knowledgable wine staff. But the sales will still be there -- people will still be buying wine, they'll just be able to deal directly with the producers. So maybe there'll be a niche for individualized wine consultants, people who come to your house once a month or send you hot tips by email or text message, telling you what to jump on line and order. They'd spend their time in contact with the wineries, picking up on what's good and cheap and about to be released, matching it with their clients' tastes, and then making that "Buy! Buy!" phone call before it's all snapped up.

Pro or Con??

A recurring theme among the people I've talked to is the hope that a change in the law would result in lower prices, by removing one of the tiers of middlepersons. (At least one wholesaler here in Michigan is saying, "We're doomed," or words to that effect.) And I can see a potential for lowered costs, on the wine itself -- but how about the shipping? Certainly, a wholesaler who's bringing in hundreds of cases at a time pays less shipping per bottle than you'd have to pay FedEx.

But here's another consideration: suppose today, under the current law, I'm a vintner and I'm selling my wine in your protectionist state, through the 3-tier system. I charge the wholesaler $1.00 a bottle, and each tier tacks on another dollar: the wholesaler charges the retailer $2.00, and you pay $3.00 for it. Standing over here in my state, I look at your state and think, "I'm making $3.00 wine." Now the law changes and I quickly update my web site to allow you to buy the wine directly from me. What's my incentive to charge you anything less than $3.00?

Well, I want you to buy it from me at a price that meets the following criteria: more than the $1.00 the wholesaler gives me, plus enough to cover my costs to sell it to you. So the minimum I can charge you (unless I'm stupid) is $1.00 + (cost of my eCommerce site + cost of staff to fulfill orders + sales tax in your state + shipping) + .01 profit. In fact, of course, I want more than one cent profit -- again, unless I'm stupid, I want as much more as I can get, right up to the point where it's no longer attractive for you to buy from me and not through the tiers. So the maximum cost to you can't be more than $2.99 (including shipping), but it doesn't have to be much less.

And that's just the raw, heartless economic analysis. There's also the image aspect of it. As we said, you now think of my wine as $3.00 wine. That puts it, in your mind, in a given quality bracket -- much better than a $2.00 wine, not quite so good as a $4.00 bottle. If I suddenly make it available for $1.50 -- hmmm, what does that do to your perception of it? Better for me to keep the general price within the general range of your expectations, but enough lower to make it worth your while to give me the bulk of the money, rather than the pittance I've been getting from the wholesaler.

Unknown

As far as the impact on restaurant wine lists goes, it's not at all clear. I've talked to a couple of local wine directors in the last 48 hours, and except for a general perception that costs might go down a bit, there wasn't concensus on the impact. Since they're in the retail tier and have, to a certain extent, a captive audience, the main effect on their lives might be an expanded opportunity to offer exotic and high-end wines at the high ends of their wine lists. At the lower end, it seems unlikely that there'd be much advantage for a restaurant to become its own wholesale/distribution operation.

At any rate, the arguments have been heard, the justices were grumpy with the state attorneys, and now all we can do is wait and see how it all plays out. Stay tuned!

Want to read the legalese? Visit the Supreme Court site at this link and look for Granholm et al. v. Heald et al., Docket No. 03-1116 and Michigan Beer & Wine Wholesalers Association v. Heald et al. Docket No. 03-1120 and Swedenburg et al. v. Kelly et al. Docket No. 03-1274, on the December 7th oral argument docket.