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Governor Blagojevich signed into law late Wednesday HB 429, which brings into balance the amount of wine wineries in and out of Illinois can sell directly to consumers, but prevents out-of-state retailers and wine clubs to sell product directly to customers in Illinois. HB 429 goes into effect June 2, 2008.
Under the terms of HB 429, smaller wineries with an annual production yield of under 25,000 gallons may sell directly to consumers with the purchase of a permit. This shuts out larger wineries such as Lynfred Winery in Roselle and Galena Cellars Vineyard & Winery, which helped lay the foundation for the increased profile of the Illinois wine industry. Supporters of boutique wine retailers like the Specialty Wine Retailers Association have also threatened to challenge the legality of HB 429 in court. We've been following the debate over HB 429 for months, and feel that this could be a disastrous bill for Illinois wine consumers, as it will limit their selection. As we studied the legislation and talked to people on both sides of the debate, we determined that the biggest winners in HB 429's passage are the state's beer and liquor wholesalers. HB 429 tightens their grip on the three-tier distribution system that governs how liquor and wine reach consumers. By shutting out the out-of-state retailers and wine clubs, it forces larger out-of-state wineries who don't qualify for the permit system to find a wholesaler in Illinois to distribute their product. Given the wide array of specialty and boutique vineyards producing limited yields, finding distribution in Illinois is not a certainty.
Lynfred Winery President and CEO Fred Koehler wrote via e-mail that HB 429 "tak(es) away from Lynfred (and any 2nd class winemaker producing over 25,000 gallons of wine in the state) the right to self distribute 4,100 cases of wine. Losing that right takes away profit that is made by selling that wine directly. That impacts consumers who purchase Illinois wine outside of the winery. By having to sell the wine to a distributor, who in turn sells it to the restaurant, the price goes up for the restaurant wine consumer. Now, to keep consumers happy, the winery will have to shave their profits to keep prices the same, which keeps our industry from growing."
Earlier this afternoon Chicagoist placed a phone call to Brenda Logan, the owner of Baxter's Vineyards in downstate Nauvoo and the Secretary-Treasurer of the Illinois Grape Growers and Vintners Association to get her reaction to the signing.
Chicagoist: What are your feelings toward HB 429?
Brenda Logan: I think it's great. It'll be great for the smallest wineries in Illinois, including my vineyard, and out of state vineyards as it will allow us to reach a wider range of customers because we can now sell directly to them.
C: What is your reaction to the criticism of the larger Illinois wineries who feel that HB 429 isn't looking out for their best interests?
BL: Wineries like Lynfred and Galena have done a wonderful job in raising awareness of the quality, if not the existence itself, of the wine industry in this state. This bill will mean wonderful things for 99 percent of the vineyards in Illinois, and my eyes are on the bigger picture here.
C: Couldn't the concerns of the larger vineyards to sell their product directly to customers have been remedied by calling for a tiered permit system in the legislation?
BL: We tried to do that.
C: Why couldn't it be done, then?
BL: It's something we couldn't agree on. Hopefully, we can amend this in the near future to accommodate the larger wineries.
C: What about the concerns raised by supporters of specialty wine retailers that they'll no longer be able to sell directly to customers in Illinois?
BL: We think that this bill will benefit consumers throughout the state, and we'll continue to work to accommodate the concerns of those retailers. Chicago, in particular, is such a lucrative and desirable market for wine retailers.
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Here is a radical idea: Why not let people buy and sell whatever they want to whomever they want in whatever quantity they want?
That's sort of how it is currently.
They should leave it that way! I was talking to a wine distributor who said it's such a difficult business because not only are you dealing with each country, county and city's almost impenetrable red tape, it's also extremely corrupt. I recognize everything in the world can't be pared down to idealistic simplicities, but I just don't understand laws like this. I feel like if I want to order a few cases of wine from Australia or Canada I should have that right.
What this does is fuck the consumers as it eliminates all but local retailers for upscale wine. Ie, if I want a specific bottle of wine, I now have to use Sam's or Binnys or John Hart or whatever. Don't you think they don't know it.
I thought that according to the Constitution, the right to regulate commerce was reserved to the federal government. Didn't the U.S. Supreme Court recently hear cases about this from NY and MI?
The big losers here are the consumers. I've vacationed in Napa Valley and while there, signed up for a couple of wine clubs, from both large and small wineries. I always enjoy getting the wine shipped to directly to me because it's (A) convenient and (B) a nice reminder of our vacation. If I wanted to buy Illinois wine I would, either from a retailer or directly from the winery. I don't and I won't. Forcing me to give up my wine club memberships won't make me buy more wine from Illinois vinyards. How Brenda Logan thinks this bill benefits consumers is beyond me. She obviously only cares about her own interests. Baxter's Vineyards won't be on my shopping list any time soon.
"Any person manufacturing, distributing, or selling
2 alcoholic liquor who knowingly ships or transports or causes
3 the shipping or transportation of any alcoholic liquor from a
4 point outside this State to a person in this State who does not
5 hold a manufacturer's, distributor's, importing distributor's,
6 or non-resident dealer's license issued by the Liquor Control
7 Commission, other than a shipment of sacramental wine to a bona
8 fide religious organization, a shipment authorized by Section
9 6-29, subparagraph (17) of Section 3-12, or any other shipment
10 authorized by this Act, is in violation of this Act."
I thought you weren't allowed to interfere with interstate commerce as protected by the constitution.
Anyway, fuck this law, I'll buy whatever I want. FedEx don't check shit.
4: Even though Illinois is considered a state that offers what's known as "full reciprocity" with regards to intrastate wine commerce, as it currently stands, wineries out-of-state are allowed to sell only two cases directly to a customer in Illinois. As long as they stay withing those guidelines, they have no restrictions.
HB 429 raises that limit to twelve cases, which is equal to the current amount that Illinois vineyards can sell to residents in the state. It also brings Illinois in "compliance" with the Supreme Court's majority opinion in the 2005 Granholm v. Heald case.
Note my quotations around the word "compliance." If you look solely at the disparity of case sales between in-state and out-of-state wineries, then Illinois is not in "compliance." Even though that case disparity exists, out-of-state wineries can still reach Illinois customers. If you go by the majority opinion in Granholm, Illinois is in compliance with intrastate commerce law.
So what this law effectively does, #4, is force those Type 2 wineries Fred Koehler is defending both in and out of Illinois to find wholesale distribution if they want to reach Illinois consumers. It's an ingenuous move on the part of the wholesale lobby, which was the main muscle behind this bill. They've managed to effectively guarantee an increase in business by locking out the out-of-state retailers and wine clubs, without violating those Federal guidelines. And since most of the wineries in Illinois produce such small yields that locking them up into franchise rights would be considered by distributors as a waste of resources, the permit system works out perfectly for wineries like Baxter's.
This is all assuming, of course, that the legislation holds up in court if the SWRA and allied organizations decide to litigate. What Brenda Logan never answered in my phone call was why the wineries couldn't find a compromise on a tiered permit system that accommodates the larger wineries and out-of-state retailers. If that happened, most everyone involved would have been happy with HB 429.
Indeed, based on her last answer she's turning into a great politician.