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North America

Background

  • The United States is the fourth-largest wine producer in the world, producing over 250 million 9-liter cases in 2009, according to the Wine Institute. The amount of land under vines in California as of 2009 is more than 500,000 acres. This includes almost 20,000 acres that aren't even in production yet.


    The US is also the second largest market for wine in the world, consuming 90% of our production, and importing another 100 million cases, with shipments for the year totaling approximately 300 million cases. By any measure, California wine is the single most important category in the market.

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  • The vast majority of wine in the United States is labeled with the name of the varietal as well as the region of production. American consumers respond to varietal labeling, although the blend in the bottle is seldom as straightforward as the label would make it appear. In order for a wine to be labeled with the name a grape, it must be composed of at least 75% of that grape. Few consumers realize that up to 25% may be grapes other than those listed on the label.

    Fewer realize that if the name of a county appears on a label, only 75% of the wine must come from that county, except Napa with 85%. If a specific region such as an American Viticultural Area or AVA is listed, 85% must come from that AVA. If the name of a single vineyard is used, 95% of the wine must come from that vineyard. It is only when the name of a state appears alone that all of the wine must come from that state. Even the vintage is not necessarily what it seems, 95% must come from the stated vintage, but up to 5% of the wine may be produced in another vintage. In order for a wine to be labeled as estate-bottled, the wine must come from a vineyard either owned or controlled by the producer, located in the AVA stated on the label.

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  • The three-tier system
    Labeling laws are not the only arcane and difficult part of the US market. Beverage alcohol laws are promulgated on a state-by-state basis, and this leads to sometimes contradictory and arbitrary legislation. This is because the amendment repealing prohibition in the U.S. specifically gave the right to regulate the industry to the individual states. Prohibition refers to the period from 1920–1933 when the 18th Amendment to the US Constitution prohibited the manufacture, sale or transportation of intoxicating liquors. This was a result of the temperance movement of the 19th century and was not repealed until the passage of the 21st amendment in December of 1933.


    The Legacy of Prohibition
    One concern during the Repeal of Prohibition was not to encourage intemperance and laws were put in place with this in mind, including the banning of "tied houses," or vertical integration of the production and sale of beverage alcohol, with ownership extending from producer, through distribution to the point of sale, either in a bar or tavern or a store. With the passage of the 21st Amendment, this vertical system of ownership at all three levels (producer-distributor-beverage alcohol licensee) was outlawed. The result of these laws was the creation of what is called the “three-tier: system. The three-tier system mandates that suppliers, distributors and the on- and off-trade remain separate. The supplier tier is composed of producers and importers, the wholesale tier is composed of resellers that must sell to a licensed premise, and the retailers and restaurateurs sell to the consumers and are not allowed to sell to licensed premises.

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  • State-to-State Variation in Beverage Alcohol Laws
    One result of the three-tier system is a lack of uniformity from state to state. There is a broad framework of legislation at the federal level that is interpreted differently by different states. For example, the nationwide prohibition against providing an "inducement to buy" is interpreted variously as no dealer loaders, no cash payoffs or no free goods. In some states, wholesalers must list selling price of each product in advance with state liquor authority, while in others they are free to set their own prices and change them at will.

    Other examples of this lack of uniformity include the banning by some states of retail chains, grocery store licenses, beer/tobacco/food sales on same premise as alcohol and/or wine, and in-store tastings of wine and/or alcohol. In some states, all retail operations are controlled by the state. In others print and/or radio and/or TV advertising is illegal, while some legislate minimum and/or maximum pricing to consumer and/or the retailer.


    Credit
    Credit terms are also legislated at the federal level. It is illegal to extend credit longer than 30 days, but application of this law differs from state to state. Some states consider the thirty days to begin at the date of invoice, while others practice cycle billing, where all invoices taken between certain dates must be paid on a specified date. Some states mandate that all alcohol sales are C.O.D. while others have this stipulation only for beer.


    Franchise
    The right of wholesale distribution is a franchise protected by the government in varying degrees from state to state. In states such as New Jersey, it is nearly impossible to change your agent, while in New York it can be done with thirty days notice. In some states, such as Minnesota, this franchise is protected for wine agencies but not spirits. In some states, called control states, distribution is handled by the state monopoly.

    State-to-state differences make nationwide operations impractical for many, although consolidation has been a steady influence at all levels, however, and there are examples of large, multi-state distributors with separate organizations in each state. Consolidation has also enabled the creation of many large, multi-state retail operations.

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