"LEVELING THE PLAYING FIELD IN WINE COUNTRY - CONSUMER RIGHTS"
Written by John Olney, September 11, 2007
Jon Bonné, Chronicle Wine Editor, with his article of September 7, 2007, titled: “Napa off the map Beyond the corporate players and cult hits is a side of the valley few people know,” brings forward the very interesting subject of the lesser known wine producers in California’s wine industry.
THE PROBLEM IN THE WINE INDUSTRY OF CALIFORNIA
What the vast majority of wine consumers and writer's do not know is that there are 100’s of wine producers dispersed throughout the 23 producing areas of the State, that fall into the California Alcoholic Beverage Control (CABC) Type 17/20 license. These are wine producers from whom they could be tasting and buying wine except these wine producers DO NOT own or SHARE their own grape-into-wine processing equipment. Thus, their CABC license 17/20 restrictions prevent them from direct face-to-face contact with the wine consumer, including their own wine club members! You CANNOT visit them at their site nor can they visit you at your home, favorite restaurant or elsewhere. They can ONLY sell their wine directly to the wine consumer via the Internet; not even by phone call or fax.
Meanwhile, the CABC also issues another license type (CABC 2) and it is for those wine producers that own and/or share ownership/use of grape-to-wine production equipment. Holders of this type of license allow the wine producer to market and sell his/her wine directly, face-to-face, to the wine consumer, and/or through the use of phone, fax and the Internet.
The underlying problem is that many wine producers with a CABC Type 2 license (own/share grape processing equipment) feel that the Type 17/20 (do not own/share grape processing equipment) would be allowed to sell its wine without having to expend sufficient sums of money, such as the Type 2 have spent, yet the Type 17/20 can sell its wine at the same price as the Type 2. Thus the Type 2 feels that the Type 17/20 makes more off its wines! This simply is not the case!
From the standpoint of the wine consumer, they could be tasting and buying from the CABC Type 17/20 license holder if they knew about them except it is too difficult for the consumer to search and find them in cyberspace - the Internet.
Because of the Type 17/20 marketing and sales restrictions imposed on this license type these wine producers do not generally know of each other on any significant scale, thus they do not have their own trade association to advocate for them or to collectively and mutually market their products like the Type 2 have.
ACTIONS TO DATE
We are trying to organize Napa/Sonoma Type 17/20 into a cohesive body with the power to sway public opinion and change unfair laws while also exposing the consumer to their fabulous products and thus them to the consumer. We selected these two counties because they represent the largest number in the 23 State wine producing regions.
Our intentions are to produce and sell wine to the consumer primarily through our own wine club membership but also to others. However, since we cannot yet afford to own our own processing equipment, we will have to utilize the “for hire” services of a custom crush house. We reviewed CABC rules & regulations and find we will be seriously hampered in our efforts to sell our wine product. Thus, we went out to other similarly desirous wine producers and asked them to join us in getting the existing laws changed and in forming our own trade association to advocate our interests and mutually market our products. We have also gone to select state lawmakers representing the wine country.
We received a response from one of the wine producers who recently received a citation for illegally donating and pouring at a charity event. We also heard from a major wine trade association to our call for change. Both responses warned us that we should expect to receive strong resistance to our efforts from two sources - the Wine Institute and the Napa Valley Vintners.
MARKETING & SALES
Type 2 buy their equipment individually or pay for it on a lease-rent basis and share its use. For example, Napa Wine Company in Oakville owns equipment and produces their own wines, and they have 25 other small wine producers who pay them to use that equipment to make and store their own wine. These 25 are labeled "Alternative Proprietorship Type 2."
CABC Type 17 license holders use “for hire” operations to make their product. They pay a per-case or per-barrel price. Unless the Type 17/20 know how to make wine, they hire consulting winemakers. Many hire artists and marketing/promotions consultants to design and produce their label and their sales & distribution plans.
Based on all of the above, it can be seen that all wine producers, whether Type 2 or Type 17/20, expend money to process their grapes into wine. Some own, some lease, some rent and some contract out to a bonded facility to produce a wine product. But, they all spend money to derive essentially the same end product - wine - for sale to the consumer: the only difference being the stylistic approaches applied to each varietal by each wine producer.
To distinguish between the types of title on the equipment is simply an economic issue. Some can afford it all by themselves, some can only produce on shared bases and others must simply use “for hire” services. But it is all still just an economic issue. This being the case, then it can be said that the CABC licensing structure (and therefore the legislative acts that create it) must be changed to reflect the difference between the amounts of money that:
(1.) A giant 20 million cases per year CABC Type 2 producer manufactures and markets as compared to,
(2) a mid- sized Type 2 wine producer at 2 million cases per year,
(3) versus a small sized Type 2 wine producer at 20,000 cases per year,
(4) then all the above compared to the capital outlay that is made by a small Alternative Proprietorship Type 2 operation at 2,000 cases per year, and finally,
(5) all of the preceding levels of CABC Type 2 License holders need to be compared to a 200 cases per year Type 17/20 wine producer who buys grapes and has them crushed and processed by a bonded custom crush house.
All produce a wine product designed for sale to the wine consumer, but one segment of the wine producers are disallowed marketing and sales opportunities to the favor of the other segment that has almost no limits on reaching the end user- the wine consumer. Yet all have paid money for the use of bonded wine production facilities to create, in an environment protecting the safety, health and welfare of the people, a product that the consumer wants.
With the above in mind, we then looked at the licensing restrictions on the alcoholic beverage manufacturing of beer and distilled spirits. We did not find any evidence of restrictions being placed on how these beverage producers are allowed to market and sell their products based on the type of ownership of the beverage production facilities.
SO WHY ONLY WINE?
Unknowingly or knowingly, state legislators have denied a segment of the wine producers to market and sell their product on a level playing field with another segment of the wine producers. This is at least a case of lassie-faire or at worst, clearly consists of unfair business practices and restraint of trade by one market segment over another, as supported by state laws, in the same end product industry.
We looked at the statement by the 2006 ABC Director which was published on their Web site as quoted here. CABC “…is pleased to do our part to promote small business growth, expansion and productivity within the State. ….. We hope the following information will be helpful in developing a productive and profitable relationship with the ABC.” Added to this statement is the following quoted from the CABC on its Web site: “OUR BASIC PRINCIPLE …… we will meet our licensing, enforcement and regulatory mandates with honesty, impartiality, and the highest degree of concern for the people of the State....."
In light of all of the above, we feel that CABC has missed its mark in assisting the small wine producer while also denying the consumer equitable access to all legally produced wines!
The California wine production laws and CABC Rules & Regulations require revision to create a level playing field among all wine producers.
If you would like to read a complete report on our extensive analysis of the CABC licensing differences please feel free to reach Internet Web site postings listed below:
Click here>> COMPARING CALIFORNIA ALCOHOLIC BEVERAGE CONTROL RULES & REGULATIONS FOR WINE PRODUCER OPERATIONS:
We have also prepared a possible structure for a CABC Type 17/20 Trade Association. Click here>> http://winecntryselect.blogspot.com/2008/01/wine-country-select-wineriesproposed.html
Finally, we have designed proposed initial funding events. Click here:>> http://winecntryselect.blogspot.com/2007/01/marketing-and-selling-of-concept-napa.html