Why winemakers are split on Initiative 1100

Visions of opportunity clash with fears of being squashed by the big players.

Chateau Ste. Michelle Winery in Woodinville.

Chateau Ste. Michelle Winery in Woodinville. David Herrera/Wikimedia Commons


Washington wine producers are split on a November ballot initiative that would make their state the most deregulated wine market in the country. The state’s main wine lobby, the Washington Wine Institute, opposes I-1100, while a rival group, Family Wineries of Washington State, supports it.

Some winery owners say they feel conflicted, welcoming some of the initiative’s likely effects while fearing others. While typically describing themselves as free-market libertarians, they admit they fear the impact of a deregulated free market on small producers like themselves facing off against giant wholesalers and retailers.

I-1100, backed by Issaquah-based Costco, Safeway, and other large retailers, would erase state laws regulating the economic aspects of the wine, beer, and spirits industries, as well as close state-run liquor stores and allow private liquor sales. The measure would repeal laws barring volume discounting and centralized warehousing, requiring retailers to pay cash on delivery, and limiting cross-ownership between the producer, distributor, and retailer tiers. Costco, the Washington Restaurant Association, and other supporters say they could offer consumers lower prices if they could negotiate discounts for big orders, as they do with other types of products.

The wine institute and other opponents are using explicitly protectionist arguments, and are spending significantly more than supporters on TV ads. An anti-1100 coalition called Protect Our Communities — backed by the wine institute and the Washington Beer & Wine Wholesalers Association — has been airing a TV ad featuring Darby English of Darby Winery in Woodinville, walking through a vineyard and urging viewers: “Protect Washington wine and jobs: Please vote no on 1100 and 1105.”

Wine producers are not taking a position on a separate ballot measure, I-1105, spearheaded by the wholesalers association, which also would close state-run liquor stores but would have no direct impact on wine. It would retain many of the current regulations on the wine business. If both initiatives pass, it’s unclear what would happen other than liquor sales would be privatized.

Both I-1100 and I-1105 have been polling at less than 50 percent support in various surveys.

Costco first tried to win the right to engage in volume discounting and other free-market practices when it sued Washington state in federal court six years ago, arguing that the state’s regulatory system violated federal antitrust laws. It lost that case on appeal in 2008. Last year, the company unsuccessfully pushed for state legislation to allow volume discounting.

The wine institute has held meetings with winemakers around the state urging them to oppose I-1100, even though its largest member, Chateau Ste. Michelle, is remaining neutral.

Washington’s current wine laws allow small wineries, which make up more than 90 percent of the state’s 700 bonded wineries, equal access to the marketplace, said Jean Leonard, director of government relations for the institute, which has more than 200 winery members. “If all the laws are crossed out," Leonard said, "that would allow retailers to force wineries to pay for the best shelf space and for advertising and promotional materials. That will tip the scales against small wineries.”

At a Sept. 8 meeting in Walla Walla attended by about 20 winemakers, Rick Garza, deputy director of the state’s Liquor Control Board, said if I-1100 passes, his agency no longer would have any role in overseeing pricing and market activity, though he took no position on the initiative.

Many of the winemakers who attended the meeting spoke against the initiative with only one speaking in favor, according to Caleb Foster, owner and winemaker at Buty Winery, who was there. “Most people understood the dangerous ramifications for small Washington producers,” he said. “We’d have to pay to have significant placements. And retailers would say, ‘If you don’t give me a 2-for-1 deal, I won’t sell your wine.’ I can’t play that game. This would leave the market to the biggest, baddest, fastest, and most monied interests.”

Leonard added that “our wineries already feel price point pressure, and quantity discounts will wipe them out of the market.”


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Comments:

Posted Thu, Oct 21, 9:53 a.m. Inappropriate

I think the likely outcome for either of the two initiatives is bad for a geat many small businesses. I-1100 is clearly worse for small wineries, small breweries, small distributors and small to medium sized retailers as it unfolds a "pay to play scenario". I-1105 is slightly less damaging for these businesses, but the simple reality is, under either initiative, that if I am a retailer and liquor becomes available for me to sell, I am cutting 40-60% of my wine space and items to get into that business. Having done a lot of category management work in the wine business over the years, the reality is that 30% of items in a store do about 90% of the business, so I keep the top 30% of wine items (Columbia Crest, Ste. Michelle, Hogue, Kendall Jackson, Sutter Home, etc), get rid of the rest and bring in the top 30% of skus in the liquor category. I split the existing wine shelf space in half between the categories and viola, business is good. The ring ups and dollar profits on the liquor more than make up for the wine I got rid of. It is about that simple, a lot of other angles to consider in this debate (social, safety and budgetary issues) but as far as business goes, this is clearly a special interest grab of the enormous profits associated with liquor by a few larger corporate interests. Also, for the record, Wal Mart is also a financial contributor and supporter of I-1100 and you can take that for what it is worth.

All that said, a few more innovative retailers may spring up or a company like Bev Mo might be interested in coming to Washington, but the wine business lost in National and Regional grocery chains won't be made up by a handful of new, selection orientated retailers.

Posted Thu, Oct 21, 12:55 p.m. Inappropriate


"James Mantone, owner and winemaker at Syncline Wine Cellars in Lyle, who describes himself as a libertarian, warns that offering restaurants and retailers payment terms and variable volume discounts would increase his business and accounting costs and force him to raise prices."

Doesn't this say it all when it comes to the self-interested nonsense that our opinion leaders offer us: a 'libertarian' who supports government setting the terms under which he can transact business with other businesses, including a prohibition on volume discounts? Is the author actively attempting to undermine the winemaker's case by using this guy's quote?

Posted Thu, Oct 21, 3:20 p.m. Inappropriate

To DocMaynard, you'll notice I raise that contradiction in the second paragraph of the article. All the winemakers I interviewed described themselves that way without any prompting from me. They seemed well aware of the contradiction between their general economic views and their ambivalence toward this deregulatory initiative affecting their own businesses. What it suggests is that small business owners who believe in the market also fear that big corporations have too much market power.

Posted Fri, Oct 22, 3:40 a.m. Inappropriate

When Costco and Wal~Mart moved into our small town, our retail wine business took a hit because we couldn't compete with their small profit margins. Our distributors couldn't get themselves through their doors fast enough and we were treated like outsiders thereafter. We found, however, that we could offer boutique and unique wines that a number of customers desired. It was our aggressive marketeering that allowed us to offer a selection that "didn't have the turns" the big stores require for a product to have shelf placement. We found our customers were looking for the nostalgia of the small winemaker toiling to produce a few bottles for sale to the public. And we sell the small winemakers that way. Yes, the majority of customers flock to the homogenized taste of "big tank" wine products and they still ask me for "two-buck chuck". Being a good salesperson requires me to advise them that "chuck" could also be a verb and that is when I educate them about the difference between mass produced wines and those wines that are produced with love. I know very few wine drinkers who have gone from cheap/value wine to fine wine and then reverted to cheap wine. Once they enjoy the taste of fine wine, they are ours forever. To all of you small winemakers... "THANK YOU!" You help keep us in business. Let the big stores have the unsophisticated wine drinker and use your money to educate them to the better wines rather than pay the big boys for shelf placement. Don't fret over the liquor store privatization initiatives. Find your niche and build from that. You do not need government protection if your wines are what the public wants.

Note to small winemakers.... please take the time to personalize your select product by personally signing each label. It becomes another selling point that you personally are proud enough to affix your name to your wine. Make sure you include your title as "Winemaker". I can't tell you how impactful that is to a wine buyer. It's as if you personally handed the bottle to the buyer. It may also be a talking point between diners when your wine is opened to be enjoyed. Word of mouth is the best advertising.

jwglantz

Posted Sat, Oct 23, 3:49 p.m. Inappropriate

jwglantz makes a great point. I buy a lot of stuff at Costco, but I don't buy wine there. I buy ~95% of my wine from a small shop in the neighborhood. The owner knows my palate and is always happy to recommend something new. While I'm sure his prices are higher than Costco's on a label to label comparison, he is quite adept at bringing in real bargains from small producers generally in lesser known appellations. If small producers see their sales hurt by lack of shelf space they would do well to focus on the small retailers who even now are more likely to give them more prominent positioning, or let them come in and pour a few samples for customers.

Harris - "The I'm a libertarian but I fear playing in a free market" irony is too good to pass up. I'm curious if looking at things from this perspective has change their mind on other issues.

I'll be voting for I-1000 primarily because I like good Whiskey almost as much as I like good cab, and I'd like to be able to buy it from someone who could actually teach me thing or two.

normfox

Posted Fri, Oct 29, 9:50 a.m. Inappropriate

The whole thing underscores one of my laws of political economy: Everyone favors competition, except when it applies to them. Will it hurt small firms? Certainly. The bigger problems with the initiatives remain 1. Essentially giving away the state's liquor business, which should be auctioned, not given away for free; 2. The loss of revenue to the state, which still has to pay for all the services people say they want, apparently for free; and 3. The higher incidence of juvenile alcohol abuse that is likely to follow if these initiatives pass.

T.M. Sell

Posted Thu, May 5, 1:58 a.m. Inappropriate

For me, why can't winemakers talk to themselves to solve this problem. After all they have this one goal, to prosper wine industry. Wine makers should focus on wine making like for example, a good example, Savanna Samson. Savanna Samson is a pornography star who decided to get to the business of wine-making. There were many surprised individuals with the wine. It tasted great. You could try it yourself if you would like. I found this here: Sogno Uno Wine. Wine makers, cheer up!

chrisly

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