April 17, 2014

MN-WI Distribution Differences Wider Than The Mississippi

The Wisconsin and Minnesota wine industries have much in common.  Both states specialize in cold climate grape winemaking, and both can call Elmer Swenson, the godfather of cold climate grapes, a native son.  (Swenson did much of his grape breeding in Osceola, WI, but is best known for his research at the University of Minnesota.)  However, when it comes to distribution of wine, Minnesota and Wisconsin are like two different worlds.

Wisconsin

In Wisconsin, the state’s 80 bonded wineries can no longer self-distribute.  In 2008,  legislation was passed requiring wineries to use a distributor to sell their products to retailers.  The stated purpose of the law was to level the playing field for in and out-of-state wineries.    However, Wisconsin’s  liquor distributors have considerable resources and lobbying power,  some of which comes from the state’s per capita beer consumption which ranks 6th nationally.

“When the legislation changed, small wineries got caught between the mega-wineries and distributors,” said Jon Hamilton, owner of  15,000 gallon per year producer White Winter Winery in Iron River, Wisconsin and president of the Wisconsin Winery Association.   In response to the 2008 change in distribution laws,  a group of 29 wineries formed a co-op in the same year.   Marion Weglarz, owner of Weggy Winery in Richland Center, is the president of the Wisconsin Winery Cooperative. “We formed a co-op to be able to obtain a license to distribute our wines,” he said.

To qualify for the Wisconsin co-op, which gives wineries the ability to sell directly to retailers, a winery’s production can’t exceed 25,000 gallons per year.  The retailer pays the co-op, which means the winery’s fees to the co-op are directly proportional to sales.  Co-op members can sell only to retailers in the state. “We have a member winery from Iowa, which allows the winery to sell in Wisconsin, ”  Weglarz said.   However, the co-op has no reciprocity with other states.

The co-op advertises for member wineries and has created a promotion where customers receive a booklet describing the co-op’s wines.   As co-op wines are purchased, the customer receives a stamp in the booklet — much like a passport stamp. Once all co-op winery stamps have been acquired, the booklet holder receives two wine glasses proclaiming, “I did the Wisconsin Winery Co-op Trail.”

Wisconsin-produced wines make up about three to four percent of wines sold in the state, according to Weglarz.  Currently, the options for distribution are to be a part of a co-op or obtain representation of a distributor. “You can sell directly to customers on your website, but even then,  the state of Wisconsin tracks all the information a customer provides during the sale,” Hamilton said.

In Wisconsin, a winery owner also cannot hold two Class B  liquor licenses which allow for on-premise tasting room and bottle sales. “I have one license that allows me to pour wine at my winery, but I cannot obtain an additional license to distribute my wine to resale or wholesale sites or to own a restaurant that serves wine,”  Hamilton said. “Out-the-door sales give us our best margins. We have good seasonal tourist traffic, but we rely on wholesalers to survive when the tourist season dies down.”

 Minnesota

In Minnesota, a “farm winery,” which is essentially any winery headquartered in the state, can self-distribute.   This includes direct calling and selling to liquor stores and restaurants in wholesale quantities.  However, Minnesota has fewer retail outlets per capita for sales of alcoholic beverages than most states.   That’s because in Minnesota only state licensed liquor stores can sell liquor and wine.  As a result of these retail restrictions, wine prices are 7% higher than wine prices in Wisconsin according to a 2006 study by the State Auditor.

Despite the limitations on retailers,   Minnesota’s distribution laws are more conducive to the growth of the state’s wine industry than Wisconsin’s severely restrictive distribution limits.   “Minnesota Farm Winery license holders can produce and pour on premise and distribute and sell to any retail and wholesale site in the state ,” said John Maloney, owner of Cannon River Winery,  Minnesota’s largest winery with production of  around 8,000 cases a year.  “The Minnesota self-distribution regulation allows for the longterm success of the state’s wineries,” Maloney added.

“The lion’s  share of Cannon River’s sales are made in the winery.  We also have a full-time sales person who represents us in liquor stores, wine shops, and restaurants in Minnesota. It’s a challenge to sell in other states. We are seeing growth in our area, so we don’t bother distributing outside of Minnesota,”  he said. 

In 2006, Minnesota wineries were part of a landmark legal ruling that affected online wine sales on a national level.   Fieldstone Vineyards, White Winter Winery, and private consumer Kim Crockett joined with the Institute for Justice, Minnesota Chapter, to challenge Minnesota’s complete ban on internet wine sales.  At the time, wineries could ship directly, but they were forbidden from telling any Minnesotan about their direct shipping services.  The lawsuit, filed in the U.S. District Court for the State of Minnesota, struck down Minnesota’s wine advertising and internet speech ban as a violation of the First Amendment and the right to equal protection of the law under the 14th Amendment.

“This case was not only about shipping wine. Our suit directly addressed freedom of speech,” said Lee McGrath, the executive director for the Institute for Justice.  “Banning direct-sale wine ads to customers had nothing to do with health and safety or consumer protection, which is under the purview of the Health Department.  It had everything to do with protecting the profits of retailers and distributors. It restricted competition and protected the economic status quo,” said Mc Grath.

Minnesota currently has 91 liquor distributors, so wine self distribution has apparently not hurt the state’s distibutors.   For example, Vinocopia, with a staff of 22 in Minneapolis, distributes Wisconsin and Minnesota wines as well as wines from around the world.  The company has annual sales of around $3 million.   “We represent mid-to-high tier spirits and wines of the world,” said Marion Dauner, general manager of Vinocopia.  The company distributes more than a dozen wines from Northern Winery in Minnesota and about a half-dozen wines from Maiden Wines in Wisconsin.

 

 

 

 

 

 

 

 

 

 

 

 

Comments

  1. Not all of Wisconsin’s extraordinary wine growers and producers belong to nor adhere to the philosophies of the Wisconsin Winery Association. You would better serve your audience by looking beyond the obvious sources to identify some of the equally popular and long-standing vineyards for stories and insights regarding legislation, sales, etc. that stand apart from those of the association members. We welcome your interest and serious inquiry.

    • mganchiff says:

      Sarah,

      Thanks for commenting on the Midwest Wine Press Wisconsin wine distribution story. As a relatively new publication, we’re in the process of establishing contacts in the industry and your input is appreciated. Our reporter wrote the story from the perspective of the sources she was able to contact, which admittedly were somewhat limited. However, part of the reason for the story is to advocate for the Wisconsin wine industry. (As a resident of the state with perhaps the worst state government in the U.S. (IL), it was surprising to learn that WI has more restrictive distribution laws than ours.)

      Would you be available as a source to contact for future articles in Midwest Wine Press? Also, I’d like to visit Botham Vineyards this spring or summer and I look forward to the possibility of meeting you.

      Best regards,

      Mark Ganchiff
      Publisher
      Midwest Wine Press

      • Oh, and we’d love to welcome you to the vineyard & winery sometime this spring. Please let me know when you plan to visit so that we can be sure to be here.
        kind regards,
        Sarah

  2. We would be happy to be a resource for future Midwest Wine Press articles. Thank you. Please contact me or my husband, Peter, at this email address for story needs or insights.
    And best of luck to you in this endeavor.
    Sarah

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