Washington passes bill to allow direct shipments

Modern Brewery Age,  March 20, 2006  

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Washington Gov. Christine Gregoire has signed a bill allowing direct-to-retailer sales by out-of-state wineries and breweries.

"There is the potential for some economic loss for distributors, but it's really an unknown," Phillip Wayt, executive director of the Washington Beer and Wine Wholesalers Association, told the Puget Sound Business Journal.

Washington law had prohibited out-of-state vintners to ship direct, unless their were reciprocal arrangements with the state of origin. Washington had reciprocal arrangements with 13 states, but the 2005 Supreme Court ruling mandated that state laws must treat wineries equally regardless of their location.

"We would like to see free trade in wine across the United States. In a way, this is a step forward," said Tim Hightower, president of the Washington Wine Institute.

Had lawmakers not approved the bill by April 14, Washington's in-state wineries would have lost all self-distribution rights.

"We felt it was critical to the health of the Washington wine industry to preserve the right of Washington wineries to be able to self distribute," Hightower said. "Even if it meant allowing out-of-state wineries to self distribute to Washington retailers."

The direct-to-retailer law answers some of the issues raised by Costco in its distribution lawsuit. The giant Issaquah, WA, retailer had argued that Washington's "protectionism" inflated the cost of non-Washington wine and beer. A U.S. District Court judge agreed late last year, forcing a legislative remedy.

Self-distribution is already common among Washington wineries and breweries, but out-of-state producers may have more difficulty, since the legislation bars central warehousing. A winery or brewery will not be able to deliver to a main chain warehouse, but instead must deliver to each individual account. In his comments to the Journal, Mr. Wayt noted that this makes self-distribution "a lot more difficult."

Small wineries may be the most likely players to take advantage of self-distribution, but analysts say these very same wineries may find themselves without the muscle to get into accounts.

And the changes definitely throw the system into flux. One possible outcome, according to Paul Shipman, CEO of Redhook--the development of big-box alcohol retailers. "You could have a warehouse-type experience focused on alcoholic beverages," Shipman said.

Wayt discounted this, but lamented the whole affair. "This is a fundamental change,"Wayt told the Journal. "There may very well be unintended consequences. Our system in Washington worked just fine. It's only because of Costco's litigation that we're in this position at all."

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