NYS Wineries -- 28 November 2002

>WXXI -
WXXI [CAPTIONING MADE POSSIBLE BY THE U.S. DEPARTMENT OF
EDUCATION] -
>> Just ahead on "Need To Know" -- -- the wineries of the
finger lakes -- one of the unique industries in our region.-
You'd think that these wineries would be thriving with the
advent of the Internet as a way to market products.-
But that's not at all the case, as one recent court Rheauming
showed.-
State laws are squeezing web wine sales.-
We'll look at this issue and the larger issue of how current
laws are clashing with the new technology.-
We'll also have our weekly business section with the "Democrat
and Chronicle."-
All coming your way on "Need To Know."-
-
>> The current issue is really one, for all practical purposes,
it's illegal for New York wineries to ship wine to consumers
out of state.-
Captioned by the National-
Captioning Institute-
--www.ncicap.org-- -
>> Thank you for joining us.-
I'm Michael Caputo.-
Call this a collision between old laws and new technologies.-
After prohibition was repealed in the mid 1930's, states were
given authority to regulate the sale of alcoholic beverages,
including wine.-
Many states prohibit wine from coming in across state borders.-
Instead, they have a system that uses a middleman, a
wholesaler.-
Now, there are about 160 wineries up and down the finger lakes
and in western New York.-
How easy it could be to market the products on-line, ship them
to the thousands of tourists who visit their vineyards, but
they can't.-
WXXI's Matt Cummings took a trip down to the finger lakes to
flesh out an issue that's been making news in recent weeks.-
-
>> Nestled in the rolling hills of the finger lakes region are
many of New York's popular wineries, a staple for tourism and
getaway weekends.-
Those who come here enjoy old favorites and new-found
delights.-
But if you want to send a case of your favorite to family or
friends out of state, beware.-
-
>> The current issue is really one of, for all practical
purposes, it's illegal for New York wineries to ship wine to
consumers out of state.-
-
>> Gene Pierce owns Glenora Wine Cellars on Seneca lake.-
He says we're not alone when it comes to shipping
restrictions.-
25 other states have laws on the books prohibiting interstate
wine sells as well.-
With 75,000 people a year flocking to his winery, about 40% of
them from outside New York State, pierce says his inability to
ship to out of state customers limits his product's exposure to
new markets, therefore, potential business.-
-
>> With the advent of the Internet and Internet marketing, web
sites, that sort of thing, it's easy for our consumer, Florida
is an example, to click on to a Glenora web site or fox run web
site or any New York winery's web site and say I'm interested
in those wines, I'd like to buy some.-
Or they may have read an article in a press release or
something like that and want to purchase some of our wines.-
So, when they call and ask and we tell them we can't, it's
difficult for them to understand why we can't ship our wines
when they can have their prescription drugs sent to them, they
can actually buy guns an that sort of thing, but they have a
hard time understanding why we won't do this.-
-
>> That point was not lost on a Federal Trade Commission
workshop last month where the sale of wine over the Internet
and the future of e-commerce was discussed.-
But for consumers, it's still a matter of convenience.-
-
>> Not a lot of people can get up here to the wineries, so I
think that it would be, you know, easier to get things off the
Internet.-
If you can get everything else off the Internet, why not
wines?-
-
>> You should be able to.-
I mean, interstate, you should be able to.-
We're in the same country.-
Why would we not be able to ship from state to state?-
-
>> This is not the first time this issue has been raised in
Albany.-
Each year, state legislation is introduced to relax the law
with no success.-
In fact, in 1995, the state senate and assembly both
overwhelmingly passed legislation to change the regulation.-
Only to have governor Pataki veto the plan.-
As late as this year, state Senator Randy coole introduced a
new proposal, but it never made it to the floor for a vote.-
Many wholesale distributors such as Eber Brothers of the
Rochester area say maintaining the current tree three-tier
system of wineries selling to retailers, who sell to
wholesalers who sell to customers is efficient.-
A new law ruled it's unconstitutional for a Virginia winery to
be prohibited from selling directly to New York consumers.-
It could be ground breaking.-
But this conflicts with other court rulings that have upheld
state's rights to regulate the flow of wine across the
boarders.-
Eber Brothers declined to comment on the issue but referred us
to Craig Wolf, the general counsel for the wine sellers
wholesalers of America.-
-
>> They love their convenience of alcohol available to them and
the overwhelming ma scrorte of people are satisfied with the
system.-
The danger comes to opening the system to unregulated sale, and
that's what the propoints are seeking.-
They say it under the guise of a bottle here and reality here.-
But in reality, I have new wine, blackburn wine, grain alcohol,
and alcohol is alcohol.-
Wine is not an agricultural product.-
It is ap alcohol.-
So, the dangers with shipping alcohol are the same as they are
for any other alcohol are same for wine.-
-
>> Wolf says wholesalers get an 18% to 25% cut of profits when
they sell wine to retail stores.-
They get nothing when wineries sell directly to consumers.-
He says more than $1 billion of alcohol is shipped illegally to
consumers each year, and his group wants to protect not only
the state-based alcohol control system that evolved from the
21st amendment but also consumers.-
-
>> If you look at the on-line sales market today, for instance,
the wineries that can ship direct, what you see is they are not
passing on any savings to consumers.-
In fact, they nearly charge the retail price on-line for direct
sales an the consumer has to pay the retail price and the
shipping cost.-
Who loses in this, of course, wholesalers lose whatever profit
they would have made, but the states lose the tax dollars.-
So, consumers are not the beneficiary of these direct sales in
terms of price by any means.-
The wineries have admitted an will tell you most of the prices
you will find on-line are retail prices.-
They do not pass those savings on to the consumer.-
-
>> But pierce believes this is an opportunity for both wineries
and distributors.-
-
>> Certainly, I can understand where they're coming from.-
I do not agree with their point.-
Their concern seems to be one of the fact that they're going to
be losing business.-
I look at it as an opportunity to increase their business.-
Most consumers are not going to spend on a regular basis, $30,
$40, $50 to have wine shipped into them, at least not on a
regular basis.-
But if they're exposed to those wines and like them, they'll go
to the retail wine shops and ask them to carry the wine, which,
in turn, will increase business.-
-
>> Thanks, Matt.-
Here in studio to discuss this issue and broaden the
conversation are Joseph Morelle, a Democratic assemblyman from
Irondequoit, John Martini, co-owner of the Anthony Road Wine
Company in Penn Yan, and Eugene Fram, professor of marketing at
Rochester Institute of Technology.-
Thank you all for coming.-
We'll start with you, Joe.-
Why has the push to relax wine sales into a New York State
continually failed in Albany?-
What's holding it back?-
-
>> I think what you're facing is a collision of new technology
and the ability to broaden markets dramatically outside the
borders of New York.-
Yet, there's an historic decision by the federal and state
government that states should regulate the sale of alcohol.-
You're dealing with a substance that has some controls on it
because 21-year-olds and older are only allowed to purchase
alcohol.-
So, with a direct shipment, there's questions about who's at
the end of the ordering.-
If a 12-year-old or 15-year-old gets a hold of dad or mom's
credit card, there's no way to know who's ordering, no
constraints on the shippers, to FedEx or us understand -- -
>> Couldn't you have the person signing for the wine has to be
21?-
-
>> At the home.-
But the question then is where is the liability?-
Is FedEx and U.P.S. going to have the responsibility for
verifying the person they gave the ship p to, when they may not
even know what the product is, that person is over the age of
21?-
I'm not saying these issues can't beresolved, but technology
has moved faster than government, typically the case, so how do
you do in in a comprehensive way that guards the interests of
society generally, which is to make sure young people are not
accessing alcohol, that people in state who are selling have an
equal playing field so they're not disadvantaged and lose jobs
in the state?-
There's a whole host of issues.-
I'm not saying it can't be worked out, but I think tech
knowledge has moved much faster and the ability to move
products as moved faster than legislation.-
-
>> Mr. Martini, I'd like to ask you about young people buying
alcohol, underage people buying alcohol.-
Should that be a worry?-
-
>> Personally, I don't think so.-
All the people that say that type of thing, I don't think they
remember when they were teenagers.-
-
>> When I was a teenagers -- -
>> Was wine one of your products of primary consumption?-
-
>> No.-
S the illegal.-
-
>> How about the case of $120 versus a six Pak of beer in your
local store?-
There have been stings that have shown wineries have shipped
wine to underage people.-
But I don't think there's any record of underage consumption
that has been prosecuted.-
It's not a venue for people to get alcohol.-
It's much easier to get it on the corner, obviously.-
-
>> It's on the web.-
You have a web site on the web.-
Tell me what this could mean -- I know we heard from Mr.
Pierce, but tell me what this could mean if you could take
advantage of this and sell directly.-
-
>> Basically, we have, as gene pointed out, lots of customers
coming from Ohio, Pennsylvania, Massachusetts, New Jersey, and
even farther, Florida.-
We have a lot of customers coming in through Florida.-
They live up here in the summer time and go down to Florida in
the winter time.-
They like our wine.-
We don't ship.-
So, it would mean more money for us.-
What it would do is -- to build a market, I agree with gene,
the distributors are short-sighted here because if we establish
a market for Anthony road wine in Ohio and we get to the point
where we're shipping 100 cases, for us that's important, for
distributors, not necessarily, but at least we start to
establish the market.-
They're the most efficient way of getting the wine to the
consumer.-
U.P.S. is not.-
It's expensive ch but for the occasional case a consumer may
want or a six-bottle pack, it's efficient and builds the
market.-
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>> Professor, I want to get to you in a second.-
I want to broaden this a little bit.-
But, Joe, is this a battle between the distributors and the
retailers and, you know, I know that Eber Brothers is a
contributor to many campaigns out there, especially the
governor's campaign, is this politics?-
-
>> Understand, the three-tier rule was set up, as you say in
your piece, in the 1930's after prohibition as a way to
essentially control the marketplace so no one got the ability
to produce, distribute, and sell it retail.-
The question of whether or not that's outdated is legitimate,
particularly the ability to do commerce globally now.-
That's something I think the state ought to look at.-
Is a three-tier system necessary to protect the public interest
in I'm not sure it is entirely.-
But that's something that should be thought out.-
-
>> There's not politics involved in all that?-
-
>> I don't think so, honestly.-
The reality is the producers and retailers are politically
active, so I'm not sure necessarily that's the issue here.-
The point that iped to make relative to what John said, I think
right now you have wineries that are very good for tourism.-
I'm concerned about that as the chairman of the committee on
tourism.-
This is a burgeoning industry for New York State.-
I don't think it's small wineries producing and selling over
the Internet.-
The question is if that extends to nonwine products, alcohol,
you might be able to start order vodka and gin and then you
might find teenagers more interested rather than buying wine
trying to buy something else over the Internet.-
That's a different issue.-
We have to be cognizant of the broader issue.-
-
>> Mr. Frahmm, let me give you a quote from the Federal Trade
Commission last month.-
Itis not just the winery that's affected by this clash between
technology and laws.-
They say there's been anti-competitive state regulations or
business practices in the automobile industry, the retail
industry, the real estate industry, funeral caskets -- a lot
bunch of things.-
Somebody who looks at marketing, what is the potential and just
how much has it been held back by sort of these laws that are
there?-
-
>> Well, from my point of view, and from the statistics, this
may be kind of a tempest in a teapot in the sense that
currently only 1% of retail sales go through the Internet.-
And even with products that are very well-known, for instance,
books, only 11% of book sales are through the Internet.-
So, you're talking about a very small market.-
I think John hinted at it in his comments there.-
And whether this is going to grow in future years, anybody can
predict anything on it.-
However, the wine industry that we're talking about, this is
not what I call a safe product.-
A safe product is one that has little risk in terms of style,
in this case, in terms of taste, in terms of safety, and those
sort of things.-
So, looking at the potential here, it may not be as great as
some of the people might indicate in the prior sections of this
program.-
-
>> So, do you think, though, that -- let's say it was
unfettered.-
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>> Yeah.-
-
>> Do you think it would be 1%?-
-
>> If it's average, it would be 1%.-
If it's less than average, it would be less than 1%.-
>> I mean, if it were an unfettered market, no regulations in
place, do you think it would still but a 1% -- -
>> It would be my guess.-
-
>> Really?-
-
>> Yes, because of the fact that it is not a safe product,
because you have varying tastes, even from year to year.-
-
>> Right.-
-
>> You will have varying tastes.-
>> Beyond the wine industry, if it was unfettered, do you think
1% would be the number?-
-
>> I think yes.-
-
>> It's not clear that the constraints on the market place when
people are on the Internet, that they're even aware of it.-
There's obviously direct shipping going on and people
participating in it.-
I'm not sure if it's a question of state law prohibiting it.-
I think the technology is not as comfortable with people who
are the big market participants right now, people that may be
over the age of 50 who perhaps aren't as comfortable in that
environment.-
But this new generation, I think there will be more and more
people buying on the Internet.-
It may not be the explosion people have talked about for years,
but clearly there will be increased activity.-
The question for governments in the broader sense is you who do
you deal with the new technology and with the facts that
markets aren't as local as they used to be?-
100 years ago, everything was in your own local community and
village.-
-
>> It's alleges a question of fairness, isn't it?-
A bit of a question of what is fair.-
Let's take it out of the realm of wines.-
You go to a brick-and-mortar store, you're going to get taxed.-
Right now you won't get tactsed on the Internet.-
Nobody knows how to do it.-
-
>> I don't necessarily disagree with the 1%.-
If I look at the numbers we get requests probably wouldn't
amount to more than 1%.-
But it gets back to establishing markets for us in other states
where then the three-tiered system makes more sense and it
becomes more efficient to deliver that product.-
But, you know, it is a piece of business that we would like to
have.-
-
>> Go ahead.-
-
>> Even with the support -- to support what John says, if you
talk with a lot of retailers who have been in the Internet
business for five, six, seven years, they will tell you the
same thing which John says.-
A lot of it is simply promotion, the idea of spreading the word
about your product.-
A lot of it there is -- sales are still not profitable in many
of the areas.-
So, I think what you have here is typically what we have seen
in other industrieses.-
-
>> Joe, you were going to say?-
-
>> I was going to broaden the point you make.-
There's a gray run of fairness.-
What you have, not related to alcohol products, but the things
you would buy on-line, if you were in an area where you live in
suburbia, for instance, you can go to Wal-Mart or one of the
supercenters there and get a price break there versus your
counterpar that might live in distressed neighborhoods in urban
America where they're going to the corner store and paying a
premium because they don't have access to the broader
marketplace.-
They pay a premium there.-
Then because they might not have access to the Internet, they
pay an additional -- they don't get the savings you'd get on
the Internet because typically that's price-sensitive.-
So, you're buying things on the Internet because they're less
expensive than retail.-
That's an additional advantage.-
Now a price break because you don't pay tax on Internet sales.-
It's further creating a gap between the haves and the
have-nots.-
We need to come to grips with how technology is making the
world smaller.-
I don't know that Amazon.com is still struggling to make a
product other than EBay, virtually everyone trying to do retail
sales.-
But there will come a time where there will be a greater
percentage of Internet sales.-
-
>> Would you comment on that last point that Joe made?-
-
>> Yeah.-
I would agree it's going to grow, but on the other hand, will
it grow anywhere beyond let's say 3%, 4%, or 5%?-
If you look at tv selling of products, the Q.V.C. type of
operation, that was anticipated to have us all in front of our
television sets buying merchandise.-
Om 8% of the population has ever made a single purchase that
way.-
And the numbers are from a retail point of view are very, very
small.-
-
>> Mr. Martini, I want to get back to the wine situation.-
-
>> Sure.-
-
>> And I think that the federal court ruling, there's also a
worry about the federal court ruling because right now in New
York you can ship within the state anywhere you want.-
-
>> Right.-
-
>> To level the playing field, you could go one of two ways.-
You could stop it all together within the state of New York.-
-
>> Right.-
-
>> Or you could let everybody come into New York.-
Are you worried about that?-
-
>> I'm not worried about letting everybody come in.-
That's the question a lot of people have.-
Aren't you going to be inundated by, for instance, California
wine?-
Apparently they don't walk in the stores.-
Not so much reeptly but New York wines were in the back and on
the bottom shelf.-
Now we're moving forward but there's a lot of California wines
and -- -
>> Are you worried they may stop the ability to -- -
>> That's a bigger concern, definitely.-
We have some concerns that -- because we do ship wine within
the states.-
I try to support all the retailers that carry our wine, so if
somebody calls up from Albany and lives near Delaware plaza,
say, and says I'd like to get a case of Delaware red, I say go
down the street.-
If they call from someplace where I know we don't have -- they
wouldn't have access to it, we ship it to them.-
-
>> I want to thank you all for coming.-
That's going to be the last word.-
We've run out of time.-
There is plenty more information on the Internet.-
Visit our web site at www.wxxi.org/ntk and for politics and
government news including columns from WXXI news reporters, log
on to www.NYcitizens.org.-

NOW IT'S TIME FOR THIS WEEK'S
EDITION OF "THE BUSINESS
SECTION" WITH THE "THE DEMOCRAT AND CHRONICLE."

(Music)

we're joined by Ellen Rosen, editor of the business section for
the "Democrat and Chronicle" and Ellen, month of November, lots
of layoffs.-
If ubbed, recap a little bit about what we've seen over the
last month or so.-
-
>> It's just been a run from companies we were expecting them
from and those we weren't expecting them from.-
Kodak, we were expecting some.-
We knew they wanted to trim the workforce.-
I don't believe local officials were expecting quite a big a
jump from Kodak, an entire unit would close, talking about
1,000 jobs out of Kodak alone.-
Xerox and the C.E.O. had given a hint there would be more
layoffs because she announced she would be cutting another
billion dollars in costs and taking a charge.-
That normally signals layoffs, but, again, I don't think anyone
was expecting it would be that big in Rochester, 860 layoffs.-
Then frontier, rg & e, it & t, the vaccine company closing
before they said they would.-
It's been a shock to the system to Rochester's economic system
all of a sudden.-
-
>> I don't want to belittle the point.-
We're talking about jobs and people.-
I want to belittle that point.-
But we also have a shopping season we're entering into.-
And retailers out there have to be wondering now, at least
locally, what are we going to do?-
-
>> I think it's nakes wide.-
The C.E.O. of KMart, which is struggling in bankruptcy and
needs a good Christmas, said, "we're all biting our nails."-
That was his quote.-
That's true.-
Consumer confidence has been very shaky.-
There's mixed signs of an economic recovery and if there is
one, it's been slow.-
There's a lot of job uncertainty.-
Then you get 2,500 layoffs announced within a two-week period
here and it's got people very worried, consumers wanting to
hang on to their wallets.-
For instance, Kodak announces the layoffs but you don't know
it's you until the pink slip comes up.-
-
>> It's beyond that number.-
Everybody's wondering should we lay off?-
I don't know how you appeal to folks who are that worried.-
-
>> Well, it's very difficult.-
I mean, we did a story for this past Sunday where we met a
couple where the husband had been out of work for about a year
and his wife was laid off in the recent Xerox layoffs.-
It's really hitting families.-
And manufacturing, those manufacturing jobs reason being
replaced here, so it's difficult to find those kinds of jobs
here.-
You have to wonder how much more this economy can absorb.-
Our local economists say we can take more.-
Akron, Pittsburgh, Buffalo, in the decade after their big
industries of steels and tires closed and they see that they
did better in the decade following.-
Yes, that makes sense, but you have to wonder if you're
starting at the bottom, you have to go somewhere up.-
I think the jury is still out as to how we'll weather this.-
In the short term, it will be painful.-
And companies, as sad as it is, traditionally do this fourth
quarter cutting to balance the books.-
It's difficult for people.-
It feels bad because of the holiday and worries the retailers.-
It's a difficult time.-
-
>> It is winter now and we are seeing lots of news also I think
about rate hikes possibly in terms of heating.-
Again, if you could recap a little bit about what we've heard
just generally speaking.-
rg&e are in difficulties and they're blaming on it on flat
rates.-
They're asking for rate increases.-
The company that owns them and all their utilities have this,
it's called a weather normalization clause, which means that if
it's a warmer-than-expected winter, they can raise the delivery
charges on natural gas so you're paying more for using less.-
They say if I's colder than usual and it's more, you'll get a
credit on your bill.-
But people don't want that.-
Rg&e wants to flatten out everybody's bills.-
You can choose to go on budget building but it will be a force
on everybody.-
It's controversial.-
Rate pairs don't like it.-
It's been approved in other cases, so it's before the public
service commission right now.-
I think it would probably be February before we hear.-
-
>> And another energy east company also.-
-
>> Yes.-
-
>> What will we see this Sunday?-
-
>>> We'll continue to look at the economy.-
We're looking at people with difficulty finding jobs in
Rochester and have had to go elsewhere.-
-
>> Ellen, thank you very much for being here.-
We're done but visit our web site, www.wxxi.org/ntk.-
"Need To Know" will take the next two weeks off as our
television fundraising effort begins.-
But when we come back, we plan on continuing our series,
"children on the Edge."-
Please join us on December 19.-
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