The struggles of small wineries – a tempered rant in two parts

by Matt

There are a number of reasons why small wineries have a harder time of it than larger ones. Most are just the nature of the business. But when the bigger wineries go out of their way to make it harder for us small guys, it gets my hackles up.

Economies of scale are one example of how size matters. When I order labels, the price I pay barely budges whether I buy 1000 pieces or 10000 pieces, so the price per label naturally drops rapidly the more you print. Imagine if your print runs ran to the millions….. Other supplies, too, get cheaper in quantity. Moreover, spending power can lead to further discounts as vendors don’t wish to see those funds go to a competitor. All of this is sensible, even if I don’t particularly like it.

Last year the California Alcoholic Beverage Control commission (ABC) started going after wineries that mentioned restaurants and retailers on their social media accounts. For example, “Restaurant X now has our wine by the glass. Go check it out!” This is a violation of California’s tied-house rules, which state that an alcohol producer cannot give anything of value to a customer other than the alcohol they explicitly purchase. Apparently ABC considers a tweet to have value (a dubious supposition). So many wineries got dinged over this that there was a backlash and the rules were changed somewhat. Producers are now able to tweet about upcoming events at restaurants and retailers as long as they stick to facts (e.g., the date of the event) and not opinions (e.g., the food is great!).

When ABC was asked about the social media crackdown, they explained that they had received complaints and that they have to act upon all complaints they receive. In other words, the crackdown was not the result of an ABC busybody but rather an anonymous tipster who had it in for the smaller brands who don’t have the legal teams and resources to fight back. An anonymous ABC source implied that it was a winery employee who had made all the complaints. I have my guesses about who, but just imagine what kind of winery has enough employees that they can assign one the task of scrolling through endless twitter feeds looking for violations of this obscure rule. That’s right, a big one.

This year it seems something more nefarious is afoot. Take a look at John Hinman’s story here.

Recently, a number of wineries received one-day license suspensions for allegedly allowing consignment sales, which are not allowed under federal rules. Sitting out a day of business might have seemed easier to these small wineries than taking on the expense of contesting the charges. However, as Hinman’s piece explains, the accused may not have understood the consequences of pleading guilty to even a minor charge. Hinman’s law firm represents at least one of the accused, and Hinman makes a strong case that the sales in question were not in fact consignment sales and the charges could likely have been successfully fought.

What is more troubling to me, however, is the fact that TTB charged only small wineries with this violation, when many larger wineries also practice what TTB is calling consignment sales (though they may not be). What’s behind the TTB’s focus on small wineries? I don’t know, but I hope to find out.

I hope that was not too arcane for you. I would love to hear your thoughts. I’ll be back with another way the big wineries are sticking it to the small, and it may surprise you. Can you believe that a push to require nutritional labeling on wine bottles is actually a veiled effort to increase costs for small producers? Stay tuned…..