Arkansas may soon be only state to have ‘face-to-face’ rule for online wine sales

In Rhode Island, it is called the “wine visit penalty.” In Arkansas, it is known as the “face-to-face provision.” In both cases, the terms define a stipulation that states consumers cannot receive a direct shipment of wine from a winery unless they have visited the establishment in person.

Semantics aside, the two states share the distinction of being the only ones left in the U.S. with such a law on their books, but Rhode Island could soon be leaving that distinction to Arkansas.

Senate Bill 2072 and House Bill 7620 are in committee in the Rhode Island Legislature, and they would replace the statute with language that has been largely adopted by a majority of states. Some of the primary provisions include the following:

• An in-state or out-of-state winery must first obtain a shipping license from the state;
• Shipments would need to be for personal use only;
• Taxes would be collected and remitted by wineries to the state;
• All boxes would be labeled and require an adult signature; and
• The licensed winery would need to consent to the jurisdiction of the state.

With the bills in motion, Talk Business & Politics reached out to individuals, who would be affected by similar provisions in Arkansas, including Michael Post of Mount Bethel Winery; Audrey House of Chateau Aux Arc; and Stan Hastings, CEO of Moon Distributors, which along with Glazer’s is one of the two major in-state liquor distributors.

‘THE THREE-TIER SYSTEM’
For Post, the face-to-face provision “is a very anti-business policy that we’ve been trying to be rid of for 20 years.”

“There are certain entities in Arkansas that just want to protect the three-tier system of distribution and force all wine sales to go through a wholesaler, even though most states allow some sort of a shipment program,” Post said.

One of those “entities” supporting the three-tier system Post refers to is Glazer’s, which claims on its official website that it encourages “social responsibility.” The three-tier system, federally mandated after the repeal of Prohibition in 1933, provides for the safe delivery of alcoholic beverages from a supplier or manufacturer to a wholesaler, who in turn delivers to a retailer, who then sells the product to the end consumer. Glazer’s calls it “a key factor in preventing the distribution of alcohol to minors,” adding that it “also provides a process that guarantees the integrity of products to end consumers.”

According to the company’s official statement, “we support legislation that discourages alcohol sales to minors, drunk driving and other unsafe uses of alcohol” and “understand that as distributors of adult beverages, we have an enhanced level of accountability for the safe delivery and the responsible consumption of the products we sell.”

MORE REGULATION, PLEASE
Hastings seconded that distinction in an interview, stating that “we’re one of few industries out there that says more regulation is a good thing.”

“A good reason for that is that we deal in a product that not everyone needs to have, and we know that,” Hastings said. “A lot of people are big fans of increased access, an ‘I want to buy my alcohol any place, any time, anywhere’ model that has gotten out of control. Just look at the UK. Fifteen years after deregulating alcohol, their problems are totally out of hand.”

According to the Office for National Statistics, alcohol-related deaths in the UK are down from 2008, but up from 1994 at 14.3 deaths per 100,000; however, the awareness organization Alcohol Concern has culled an extensive list of references – some eight to 10 years old, some as recent as 2016 – that would seem to back Hastings’ claim.

Hastings also says that by “cracking open that door” and removing the face-to-face provision, “there are going to be a lot more kids ordering alcohol online,” and indicated that far too many wineries throughout the U.S. are already skirting the lack of enforcement in Arkansas laws and shipping anyway, making it a “moot point.”

To that, Chateau Aux Arc owner Audrey House said she had no problem labeling shipments and requiring an adult signature from FedEx or UPS as mandated by the proposed changes in Rhode Island.

“I’m a law abiding citizen and work hard,” she said. “As a single mother and business owner, why the hell would I take the risk” of skirting the face-to-face provision?

House also doubted the idea that the three-tier system is any more effective in keeping alcohol out of the hands of minors.

“Who do you trust more on that – someone getting paid minimum wage sitting in a liquor store who could sell to a minor out of the parking lot or accept a fake ID, or a FedEx employee with a salary and 401K, who’s not about to lose his job because he delivered liquor to a minor?” she said.

THE LIMITATIONS
To get wider distribution under the current structure, House would have to go through a grocery store, which would mean producing a minimum of 250,000 gallons per year as opposed to the 12,000 gallons she now handles. That sort of volume doesn’t interest her, so she is essentially handcuffed to in-person customers. That hasn’t stopped her from collecting contact information on more than 100,000 customers since opening her tasting room and gift shop in 2005, however.

She calls those represented by her data “the wine club” and hopes that by getting the face-to-face provision removed from Arkansas law, she can start growing her business through wine-to-consumer shipments that target a clientele considerably more “niche” than those who typically buy from a liquor store.

“Essentially it would allow me to make a living without having to be a large winery,” she said.

Post seconds that the face-to-face provision hinders wineries from being able to do online sales “like virtually all other businesses have been able to do, which is an extreme handicap” in spite of the fact that there are “plenty of safeguards in place” to prevent some of the individuals Hastings referred to from accessing product.

“The bottom line is that wineries are run by farmers who are contributing a lot to tourism, and at the end of the game, our business is suppressed by not being able to ship wine directly to the consumer.”

‘A LOT OF PUSHBACK’
It’s an issue Rep. Bill Gossage, R-Ozark, would like to address soon with his fellow legislators, telling Talk Business & Politics he would “love to expand wine shipping from its current status,” but expects “a lot of pushback” from state liquor stores that “wouldn’t want to lose what primarily is a monopoly on wine sales in Arkansas.”

“They have the retail wine business locked up, and if shipping took place, it would bypass their stores,” Gossage explained, though he did not believe it would make a significant impact on them.

“We’re talking about just a few wineries here, and they’re relatively small,” he said. “It wouldn’t have a great effect on overall business that’s done in Arkansas, but any time you start down that road, they (liquor stores) are skeptical and perhaps a little afraid of where it might end.”

He says removing the face-to-face provision would be good for business and tourism and it would add jobs, but he acknowledges that “we’re certainly concentrated in such a small area that we don’t have broad support across the state,” he said of the wine producers in Franklin and Logan counties. Nevertheless, the state did go from nothing to the face-to-face provision two sessions ago thanks to legislation pushed through from former House Speaker Davy Carter, Gossage said.

He continued: “It did not go as far as would have liked for it to go, but it was a start. We would certainly be open to limiting changes to wineries with small farm designations. I know some folks would love to have wine in general arguments being made, but however you did it, there’s no question our wine industry would benefit.”

In 2012, Arkansas Tech University and Frank, Rimerman & Co. released the last economic impact study of Arkansas grapes and wine using 2010 numbers and found the industry had an overall impact of $173.2 million, which produced $23.698 million in total tax revenues. There were also $21 million in wine-related tourism expenditures and approximately 306,000 wine-related tourists. According to industry research firm IBISWorld, online beer and wine sales are expected to hit $4.4 billion nationally by 2019.

“We have a shot,” Gossage concluded. “Prior to the legislation two sessions ago, there was nothing. If we continue to see improvements, then we can get there. I know wine sales are picking up, tourism is picking up, and jobs are being added; so I think it would be a great thing for our state.”