Small wine importers fight to hold share of the industry

By Stefanie Frith, The Associateed Press
Saturday May 11, 2002

SACRAMENTO — Small wine importers fear a bill that would limit distribution of wine into California, backed by a British beverage conglomerate and the wine industry’s trade group, could monopolize the state’s wine market and wipe out their businesses. 

Pushed by Diageo, the multinational corporation that owns Guinness, Seagram, Sterling and Beaulieu Vineyards as well as Burger King, AB 1922 would let only an importer designated by the winemaker bring its brands of wine into California. Diageo also has import rights for hundreds of French wine brands. 

Called a “primary source” law, the proposal would benefit consumers by allowing greater quality control for wine, said a representative from the Wine Institute, an industry trade group. 

Marketing experts and owners of small wine shops disagree, however. Instead of looking out for consumers, Diageo and its allies want to lock up a greater share of California’s huge wine market. 

Diageo is angling to create trade barriers to boost the prices they can get for their brands, said Ira Kalb, a Santa Monica-based marketing consultant. 

“They haven’t been able to create enough identity (in California) and are looking for the government to do it for them,” Kalb said. 

With its purchase of Seagram’s brands last year, Diageo can now claim the No. 1 or No. 2 make in each category of world’s biggest spirits market, the United States. But financial analysts say Diageo paid a premium for those brands and must look for ways to improve its revenues. 

So far, the bill by Assemblyman Marco Firebaugh, D-Los Angeles, has attracted the support of the biggest players in the state’s wine industry. Along with Diageo, the bill is backed by giant wholesalers, such as Young’s Market and Southern Wine and Spirits. 

It is also supported by the Wine Institute, which represents more than 600 small wineries in California. Top Diageo executives are members of the Wine Institute’s board of directors. 

Diageo officials did not return repeated calls for comment from The Associated Press. 

Wholesalers and Diageo have donated thousands of dollars to Firebaugh and other members of the Assembly, including House Speaker Herb Wesson, D-Culver City, and Assemblyman Jerome Horton, a Los Angeles Democrat whose committee approved the bill April 15. 

According to state campaign finance records, these wholesalers have donated more than $80,000 to Wesson and funds he controls, $15,000 to a fund controlled by former Assembly Speaker Bob Hertzberg, $2,000 to Firebaugh and about $6,500 to Horton. 

Also, state lobbying records show, Diageo’s United Distillers and Vineyards division has spent more than $100,000 on lobbying expenses during this legislative session. 

Opposing them is the recently created California Fine Wine Alliance, a coalition of small wine importers. They said the bill would cost more than $100 million in retail wine sales each year, and California would lose $10 million in sales taxes. 

The bill would expand California’s primary source law to include wine, meaning importers would need to pay taxes on all wines they bring into the state. 

The law now applies only to distilled spirits, which can only be brought into the state by wholesalers authorized by the alcohol maker. California is one of the few states that does not have a primary source law for wine, said Mike Falasco, a legislative analyst for the Wine Institute. The bill would just make California comply with the rest of the country, he said. 

Thirty-two states have primary source laws for wine, said Bob Frohling, an analyst at the National Conference of State Legislatures. 

The bill, Falasco said, would also let wineries better determine who is selling their products and give wineries more control over quality. 

If a customer is dissatisfied with wine, Falasco said, the winemaker wants to know why. “Maybe it’s a bad batch or a bad cork” caused by wine importers storing wine improperly in hot warehouses. 

That’s ridiculous, said Todd Zucker, president of K&L Wine Merchants in Redwood City, a small wine importer. 

Importers take great care in importing wine, storing it in refrigerated boxes and warehouses, Zucker said. Even the $6 and $10 bottles are cared for, because “we can alienate more customers by not taking care of inexpensive bottles.” 

“We would not be able to keep our brands strong if we were constantly selling products that were coming back to us,” Zucker said. 

Firebaugh said the bill is about preserving a brand’s integrity, and small importers could still import wine if they sign an agreement with the wine maker. 

The agreement, Firebaugh said, would require that the product be safeguarded against tampering. This way, the manufacturer would always know who’s selling their wine and where. 

Importers, however, said reaching such agreements would be difficult, because they often import just one bottle from many wineries. 

Assemblyman Dick Dickerson, R-Redding, the only one to vote against AB 1922 during its first hearing in the Governmental Operations Committee last week, said the bill “would hurt small wholesale businesses and small wineries if they had to live under these regulations.” The bill is set to be heard by the Appropriations Committee May 8. 

The bill was approved by the Committee on Governmental Organization with an 18-1 vote. Horton, however, rushed through opponents because the meeting was running late. He did, however, allow the proponents to speak on the bill’s behalf, while the long line of opponents was left to only state their name and affiliation.