Can Retailers Do Direct-to-Consumer (DtC) Wine Shipping?

The demand among retailers and consumers for interstate direct-to-consumer (DtC) wine shipping is growing, further bolstered in the wake of the COVID-19 pandemic. Retailer DtC shipping is allowed in just 12 states and the District of Columbia, but retailers still saw significant increases in online orders and DtC shipping in the past year. But what exactly are the rules around retailer DtC shipping? What can we expect for the short- and long-term?

Sovos ShipCompliant’s Alex Koral, Senior Regulatory Counsel, sat down with Tom Wark, Executive Director at the National Association of Wine Retailers (NAWR), in a recent webinar to discuss The State of Retailer DtC Shipping: Where We Are and What’s Ahead.

Together they explored how the retailer DtC shipping market can move forward holistically, in a healthy and safe manner, like that established by the $3.7 billion winery DtC channel. This is an important time for the DtC market and for retailer shipping. Understanding the details for retailer DtC shipping can help the bev alc industry continue to evolve in a way that benefits all parties involved.

Check out the full on-demand webinar, and read the below recap for quick highlights.

How does DtC shipping work?

Generally, DtC shipping rules require shippers to adhere to the following:

• Be licensed by the destination state
• Use approved carriers who will check IDs and collect signatures
• Verify age of the purchaser and recipient
• Label boxes with a notice of alcohol contents
• Abide by per person volume limits
• Agree to remit all applicable sales and excise taxes to the destination state
• File regular reports detailing all their shipments

There are also key differences between shipping and delivery. For example, if a customer uses the Drizly app — which is really about local delivery of a product brought to market through the three-tier system –  they only have access to products brought into the state by wholesalers. That leaves a broad array of not-widely distributed products, particularly imported wines, out of their grasp. Even through arrangements like special order purchases from a local retailer, these wines are generally unavailable, or at best require lots of time, cost, and personal effort for the consumer to access them.

It’s also important to understand the difference between sales and shipping. It is illegal for an out-of-state retailer to ship into Texas, but it is not illegal to sell to an individual from Texas. The issue is about how the product can legally enter the state. A Texan could travel and purchase limited amounts of wine outside of the state that they personally carry back in their trunk or checked luggage, but they cannot have that same wine shipped to their home. Instead, the importation of wine, even a single box brought by a common carrier, almost always requires the responsible party to hold a beverage alcohol license and remit taxes.

Wark confirmed that the most common comment that NAWR members get from customers is, “What do you mean you can’t ship to me?” While the majority of states allow wineries to ship DtC, retailers (and consequently their customers) have fewer options.

Which states allow wine shipments from out-of-state retailers?

Currently 12 states, plus Washington D.C., allow wine shipments from out-of-state sellers. Comparatively, wineries can ship to nearly every state, with the exception of Delaware, Mississippi, and Utah.

Wark noted that the most commonly heard arguments against interstate retailer shipping include the following:

• It’s impossible to regulate 400,000 retailers
• It won’t be a fair playing field
• Consumers can currently get all the wine they want
• It would harm in-state retailers
• It compromises the three-tier system

However, such arguments are not always accurate. For example, there are not 400,000 retailers that would be shipping wine, according to Wark. Of the approximately 1,200 retailers listed on wine-searcher.com, 500 are currently active in shipping interstate. Even if more retailers enter the market, the total number would be low, limited more to specialty retailers who are willing to undertake the cost and effort to establish a DtC market. But the larger number, the total number of retailers in the entire country, is what often gets cited.

Retailers that oppose DtC shipping sometimes claim that allowing it would not be fair because retailers that ship wine DtC do not have to live under the same rules, specifically with regard to paying taxes and adhering to specific laws or regulations. Wark noted that this argument is attenuated at best, as DtC shippers are required to abide by local restrictions, including licensing and tax remittances. Every retailer must also already both follow the rules of their home state and purchase all the wines they resell through their home state’s three-tier system. Additionally, retailers shipping DtC cannot take advantage of the on-the-ground benefits that are enjoyed locally by retail shops, such as having police or fire protection.

What is the future of retailer DtC wine shipping?

While it is impossible to fully predict what will happen down the road for retailer DtC wine shipping, Wark remained optimistic. If just seven more states were to make law changes to allow for retailer DtC shipping, a significantly greater population of the U.S. could be served. Specifically, 29% of the U.S. population may receive shipments from retailers today. But if Illinois, Michigan, Ohio, Pennsylvania, New Jersey, New York, and Texas opened up, more than 60% of the population could be served.

That is one of the ultimate goals of NAWR, Wark said. Giving consumers more options and a greater awareness of the market will help them try more things and, ultimately, make more purchases. With retailer DtC bills currently pending in Illinois, Rhode Island and New York, it might not be too lofty of a goal after all.