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Bill to Cut Wine Prices Tastes Sour to Many

Posted on: Monday, 16 January 2006, 21:00 CST

By Mark Fisher, Dayton Daily News, Ohio

Jan. 15--COLUMBUS -- A wholesale wine proposal fermenting in the Ohio General Assembly will either lower prices, stimulate competition and expand choices for consumers, or it will reduce selection, have little or no impact on prices and throw thousands of Ohioans out of work.

Those two starkly contrasting scenarios emerged last week as the bitter battle over wholesale wine laws spilled over before state lawmakers.

A bill sponsored by State Rep. Bill Seitz, R-Cincinnati, would eliminate Ohio's mandated minimum wholesale markup of 33.3 percent on wines, leaving the markup to be set by wholesalers.

It would also change other rules that govern how wholesalers operate in the state -- changes that most local fine-wine retailers oppose.

The rhetoric on both sides of the debate has left local wine enthusiasts, such as Doug Lehrer of Centerville, in the middle. Like other consumers, Lehrer said he would love to see lower prices, but is concerned about the impact of the proposal on Dayton's "vibrant, progressive wine community."

The cornerstone of that wine community is the diversity of independent wine shops, and any legislation that harms those shops in favor of "big-box stores" will ultimately hurt consumers, Lehrer said.

The proposed changes have stirred considerable controversy within the wine industry: the bill's first hearing Tuesday before the Ohio House of Representatives Finance and Appropriations Committee attracted a standing-room-only crowd of 150.

And the tone of the testimony had the tension of a shaken-up bottle of Champagne, starting with Seitz, the bill's sponsor, accusing some of the bill's wholesaler opponents of "just wanting to protect their monopolies."

Legislators' questions, however, suggested some are concerned about the impact on existing wine wholesalers and retailers, and the bill's fate is uncertain.

Seitz said his research suggests Ohio is one of only two states -- Washington is the other -- to still have state-mandated wholesale minimum markups on wine. Such markups were implemented after Prohibition in part to discourage cut-rate sales of alcohol.

Under Ohio's three-tiered wine distribution system, a bottle that a winery sells to a wholesaler for $10 is marked up to a minimum of $13.33 when sold by the wholesaler to a retailer. The retailer is then required to sell the wine to consumers for at least $20.

Seitz's proposal would not affect wine's 50 percent minimum state-mandated markup from the retailer to the consumer.

In his sponsor testimony before his fellow legislators, Seitz said he wanted to avoid the fate of past efforts to overhaul wine pricing laws that failed after strong resistance from retailers.

The bill's proponents, who have formed the Coalition for Fair Wine Laws, brought some wine country glamour and clout to their witness list. Testifying before legislators were Iron Horse Vineyards co-owner Joy Sterling, whose Sonoma County sparkling wines have been served at the White House for four consecutive administrations, and Pete Downs, vice president for government affairs for Kendall-Jackson Wine Estates and chairman of the legislative committee for the Family Winemakers of California. And bill sponsor Seitz also released a letter from Federal Trade Commission staff that supports his position.

The staffs of the FTC Office of Policy Planning, Bureau of Competition, and Bureau of Economics said in a letter to Seitz that passage of the bill "would increase wholesalers' incentives to lower wholesale prices. ... if enacted, the proposed legislation is likely to lead to lower wine prices for Ohio consumers, and may increase the variety of wines from which Ohio consumers can choose."

Kendall-Jackson's Downs said minimum wholesale markups "serve no purpose other than to assure a particular level of wholesaler profits at the direct expense of Ohio consumers."

For beer, Ohio sets a minimum retail price but does not specify a wholesale markup.

Timothy Bechtold, senior counsel for the Wholesale Beer and Wine Association of Ohio -- which opposes the legislation said in a letter to legislators that the FTC has no authority to regulate the sale of alcoholic beverages in the state. Ohio's history, Bechtold said, "has taught us there are social costs that need to be balanced against purely economic considerations when the product in question is alcoholic beverages."

But the costs will be far more than social, according to Ohioans for Choice and Competition, the umbrella group of several wine retailers, wholesalers and others opposing the legislation.

The coalition said the legislation, if it becomes law, would "result in the loss of anywhere from 3,200 to 6,800 jobs at Ohio distributors, retailers and wineries, as more and more power is placed in the hands of mega-retailers and mega-wholesalers."

And the coalition names names, singling out Texas-based wine wholesaler Glazer's, which moved into the Ohio market five years ago, as the driving force behind the legislation, with the aid of large retail chains such as Wal-Mart, Wal-Mart-owned Sam's Club, World Market/Costco and Meijer. The bill would allow Glazer's "to seize control of vast segments of the Ohio wine market," a coalition report said.

A.J. Hammer, who sold his northeast Ohio wine importing company to Glazer's in 2002 and who now works for the wholesaler, acknowledged Glazer's is spearheading the effort to change Ohio's laws, but said hundreds of smaller wine-retail outlets and restaurants have signed on to support the effort. And Hammer said the bill would allow Ohio to reclaim wine sales it is now losing to Ohioans buying their wines in other states because of the Buckeye state's higher prices.

But the overwhelming majority of fine-wine retailers in the Dayton area oppose the legislation and are listed among the members of the opposition group, Ohioans for Choice and Competition. The retailers include Marshall's Wine and Liquor, Boston Wine Cellar, The Little Store, Miami Valley Wine, Dorothy Lane Market, Cuvee Wine Bar & Cellar, the Winds Wine Cellar, Grapes of Ruth and Arrow Wine & Spirits.

Ruth Hagedorn, owner of Grapes of Ruth wine shop in Springboro, said she's not convinced the bill would lead to lower prices for consumers. She visited Los Angeles in recent weeks -- California has no minimum markups -- and found wine prices there to be "the same or higher on the more common brands like Kendall-Jackson, Blackstone and Yellowtail," although lower on Champagnes, Hagedorn said. The larger retailers she shopped had only a limited selection of wines, she said.

Denny Freyvogel, who operates Arrow's Centerville store, said he believes the bill is a precursor to eliminating the retail markup and will squeeze out smaller wholesalers and ultimately smaller retailers. Large wholesalers, Freyvogel said, "will want to deal almost exclusively with big-box retailers."

Seitz said he would not accept "in any way, shape or form" any amendments that would affect the retail markup. But in the advisory letter he requested from the FTC, bureau staffers apparently felt compelled to comment on the retail markup anyway, noting that it "limits price competition and protects inefficient, high-cost retailers from competition from more efficient rivals, all to the detriment of wine consumers in Ohio."

Seitz's bill was introduced in the previous session of the Ohio General Assembly but did not receive a hearing. The Cincinnati legislator wouldn't predict his bill's chance of passing, other than to say, "Go ask the House leadership."

House Speaker Jon Husted, R-Kettering, said so far he hasn't seen much support for the bill. If that were to change, the House Republicans would give it a look, he said.

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Copyright (c) 2006, Dayton Daily News, Ohio

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Source: Dayton Daily News

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