Local wineries get stomped

Lobbyists get their money’s worth

Laura McPhee

Editors Update

The shipping injunction allowing Indiana wineries to sell directly to customers has been extended to Wednesday, April 5.

Beginning March 1, 33 Indiana family-owned wineries will be prevented by law from selling their products directly to restaurants, retailers and consumers using in-state shipping. They will, instead, have to share a portion of their profits with the large beverage wholesale and distribution companies they must hire to deliver products to customers.

Since prohibition, Indiana has prohibited the direct shipping of wine to consumers. The state has required what is known as a “three-tier” system requiring a wholesale distributor to act as middle tier between wine manufacturers and their customers. Then in 1979, an exception was made for small in-state wineries to sell and ship to restaurants, retailers and customers within state lines.

But a battle began in the spring of 2005 when the U.S. Supreme Court overturned laws prohibiting direct shipping of wine in New York and Michigan by in-state companies. The court acknowledged a states’ right to regulate alcohol within their borders, but said the two states’ laws offered preferential treatment to in-state wineries.

After the Supreme Court decision, the Indiana Alcohol and Tobacco Commission issued an enforcement bulletin stating that direct-to-consumer shipments of wine violated Indiana law and that anyone shipping at the time should cease — including local wineries.

In turn, several of the small Indiana businesses sued the State of Indiana, and a Marion County judge issued an injunction to halt the state’s enforcement of direct shipping limitations, allowing wineries to ship through March 1, until the Legislature could decide what to do.

Wine is a growing business in Indiana, with local wineries contributing more than $33 million to the state’s economy. In the last five years, sales have increased 78 percent and the number of acres used to grow wine grapes has seen a 300 percent increase since 1991.

The ban in direct sales will most likely be devastating for local businesses.

Lobbyists weigh in

According to Charles Thomas of the Chateau Thomas Winery, more than 50 percent of the local winery’s business will be affected by a requirement to use a wholesale distributor. “Thirty percent of my sales are shipping and another 15 percent is sales to restaurants and wine shops. That’s [almost] 50 percent of my sales,” he said.

Members of the Indiana General Assembly attempted to settle the matter out of the courts this legislative session by introducing legislation that would allow the wineries to continue selling to in-state customers.

That bill did not make it out of committee, however, and in its place legislators introduced House Bill 1190, banning direct shipment by local wineries.

The change came after an additional lawsuit was filed by two of the state’s most powerful lobbying sectors: the beer and wine industry and conservative Christians.

“It was never our strategy to battle this out in the courts,” said Jim Purucker, lobbyist and executive director of the Wine & Spirits Wholesalers of Indiana. “Filing lawsuit after lawsuit, in state after state, is the course that the wineries and their attorneys chose. But, given that our interests parallel the interests of state regulators, we responded to the wineries’ attempt to blur the legal lines by defending Indiana’s regulatory structure in court.”

While the distributors don’t cite economic incentives as part of their lawsuit against local wineries, it does seem as if money plays a central role in how the politics of wine sales may ultimately play out in Indiana.

Contributions from beer and wine distributors account for nearly 20 percent of all campaign funds collected by Indiana politicians. During the 2002 elections, 637 contributions totaling $466,357 were made in campaign contributions. The numbers jumped to 683 donations totaling $645,098 for the 2004 election. Donations are fairly evenly divided between Republicans and Democrats, with a slight lead going to the majority party.

The most generous lobbying group on behalf of alcoholic beverage distributors, and one of the plaintiffs in the lawsuit to prevent direct shipping and sales by small wineries, is the Indiana Beverage Alliance Beer Industry Political Action Committee (BIPAC).

During the last election, BIPAC made nearly half of the donations (304 of 683) and one-third of all campaign contributions by alcoholic beverage distributors ($208,119 of $645,098), with Democrats receiving 57 percent of their lobbying money and Republicans receiving 43 percent.

In addition to the wholesale and distributor opposition, more than 10 conservative lobbying groups that identify themselves as conservative, evangelical, Christian and/or faith-based are also named as plaintiffs in the lawsuit to prevent Indiana wineries from selling/shipping directly to consumers.
As a result of the lawsuit filed by beer and wine wholesalers and conservatives, Senate President Robert Garton, who also heads the Senate Rules Committee that was scheduled to vote on HB 1190, pulled the bill from this year’s legislative agenda last week. Garton said it has been a longstanding Senate rule to stay away from bills for which there are pending lawsuits.

On March 1, the temporary stay expired and wineries are now banned from direct shipping.