POSTED ON FEBRUARY 20, 2008:
Wine, Whine, Wine
From the winery to the wholesaler to the liquor store owner to the consumer, Oklahoma liquor laws couldn't dissatisfy everyone. But they end up doing just that
Descretion Advised. Wineries are completely dependent upon wholesalers, but wholesalers are free to buy or not buy whatever wine they choose, putting winemakers at the wholesalers' mercy.
As any student of history and religion knows, wine is a potent and multi-faceted symbol in Judeo-Christian tradition. It is a gift of God given to "gladden the heart of man" and a staple of hospitality and celebration, a token of prosperity, as well as an emblem of atoning blood.
Given its potency of meaning, it's no wonder the ancient rabbis said that, in the promised Messianic Age, the prosperity of the land would be such that "wine will flow as abundantly as water."
By that measure, and perhaps ironically--considering our location in the buckle of the Bible Belt--our first century of statehood hasn't come very close to resembling that hoped-for era.
Oklahoma was a dry state before it even became a state, and even now, long after the legalization of alcohol, and, only recently, liquor-by-the-drink, it still retains many of its Prohibition Era-laws relating to the sale and transport of wine, among other beverages.
"Oklahoma's laws are pretty antiquated and squirrelly," said state Rep. Danny Morgan, D-Prague, about the laws governing the state's small but growing wine industry.
During his relatively short career in the state Legislature, Morgan has risen to prominence as the House minority leader, but championing the interests of the state's winemakers has been a concern since before he even took office.
When he was campaigning for the first time in 2002, some of his would-be constituents, who happened to be a part of Oklahoma's fledgling wine industry, asked what he planned to do about the state's arcane alcohol-related laws, which is when he said the "squirreliness" of the laws was first brought to his attention.
"I'm sure there was an intelligent reason for them at the time, but it doesn't make a lot of sense now," he added.
Unless, that is, you happen to be a lobbyist for the wholesale industry, but we'll get to that later.
What doesn't make sense, Morgan said, is that the law prohibiting liquor stores doing business on election days is a throwback to the time when elections were held in saloons. Local candidates would offer a drink or a cigarette in exchange for a vote--a practice that was outlawed before statehood and not revisited until relatively recently, long after voting booths moved to churches and community centers.
"That's what some old-timers told me, anyway. Whether that's actually where it came from or not, I don't know," Morgan qualified about the election day law.
While that law has had minimal, if any effect on the fortunes of the wine industry in particular, there are plenty of others that do and are equally outdated, having been crafted for circumstances that no longer exist in Oklahoma, as Morgan and others see it.
"It appears that a lot of the laws we deal with come from the Prohibition," the lawmaker said.
Gary Butler, president of the Oklahoma Grape Growers and Wine Makers Association and proprietor of Summerside Vineyards, Winery and Inn in Vinita, said the wine industry is a pretty novel undertaking in Oklahoma, especially compared to surrounding states.
"Arkansas, Missouri and Texas--they all have wine traditions going back to the 1880s," he said.
"But Oklahoma--we came into statehood during the Prohibition," Butler continued, explaining that the market for wine, and the expertise to make it, isn't as much a part of the state's heritage and history as it is in other states, since laws restricting its production and distribution were written into Oklahoma's constitution.
Rebuild and Renew
That all started to change in the year 2000, which winemakers and wine drinkers point to as the moment of the industry's real conception in Oklahoma.
That's when the legal framework governing the state's wine industry began to shift, thanks to state Rep. Curt Roggow, R-Enid, who managed to put a constitutional amendment before the voting public, which they approved, giving wineries the legal right to self-distribute to retailers, without going through wholesalers.
Or so everyone thought at the time at least.
With the ability to self-distribute, wine-production in Oklahoma took off.
Prior to the constitutional amendment of 2000, winemakers could only sell directly to consumers who visited the winery, and were dependent upon wholesalers to get their bottles on the shelves of liquor stores and in the kitchens of restaurants and caterers.
"We weren't forced to use wholesalers anymore," said Butler.
Prior to that landmark shift the state's constitutional wine laws, he said, there were only four wineries in the state. Now there are more than 50, with more sprouting every day (see the sidebar piece, page 21).
With that growth, Oklahoma joined an already booming national industry of small-business wine makers.
"Nationwide, there's been a growth of wineries. There's been a general trend of people wanting to get back to the land, and making wine is a popular way to do that," explained Butler, as the appeal.
Of all possible ways to "get back to the land," he said vineyards hold a special appeal because "wine makes you think of celebrations--of weddings and dinner parties."
Butler said the number of wineries in the U.S. more than quadrupled since 1980, growing from 919 to more than 3,700 in 2004.
"All 50 states now have wineries," he said, noting that more than half are in states other than the recognized juggernaut of wine production, California.
Butler pointed to other states' comparatively less-restrictive laws as the impetus for that growth.
"Most states have fostered the growth of local wineries by allowing them to have tasting rooms, sell directly to consumers and ship wine to in-state customers," he said.
That's why Morgan has been trying to get the same legal landscape in Oklahoma.
He describes the current terrain of legal minutiae related to wine and alcohol as a "patchwork."
"Beer laws are different than wine laws, and there are different kinds of laws for different kinds of beer," he said. "We need to rebuild the legal framework as it relates to alcohol," he added.
While 2000's state question resulted in wineries being able to self-distribute (at least, for a time, but more on that to follow), they still couldn't ship their wine directly to consumers or retailers.
In other words, they could load their wine onto their own trucks and physically transport it to a liquor store or restaurant, but they still couldn't package and send it to customers or retailers.
So, when tourists came through Oklahoma along Route 66 and stopped at a vineyard/winery for a tour and tasting of the Sooner State's finest, they weren't able to have any shipped home, Morgan explained. They'd either have to pack it with their clothes and gamble that it wouldn't dye all their clothes red as the wine bottle jostled around inside their luggage, or get their fill on the spot.
The lawmaker recounted an instance related to him by one of the winemakers in his district, which was when some tourists came through on motorcycles, expecting that the winery would be able to send bottles directly to their homes, as they'd experienced in other states.
Their response upon discovering that they couldn't was something along the lines of "Only in Oklahoma . . . ," and they didn't have a way to take any with them on their bikes when they discovered they couldn't.
Even in the case of tourists who do decide to take some wine with them, such restrictions don't enable small wineries to build any repeat business, Morgan explained, since tourists aren't likely to travel all the way back to Oklahoma to get a refill when they deplete their supply at home.
So, since 2003, Morgan has proposed legislation attempting to allow wineries to ship wine in-state and out of state to states that allow direct shipping, but his efforts have been thwarted consistently by lobbyists for the wholesale industry, he said.
It's the same wine and liquor wholesale industry that filed a lawsuit seeking to repeal the 2000 constitutional amendment, which they won in federal district court in the summer of 2006.
Since the amendment specified that "Oklahoma wineries" could self-distribute within the state, the court found that it unconstitutionally discriminated against out-of-state wineries.
However, since the voters' intent was well known, the court let the amendment stand until last year, giving the Legislature a chance to propose another constitutional amendment removing the specification of Oklahoma wineries, propose another that expressly included wineries in other states, or just let it go, letting the amendment become null and void.
The Legislature took no action, so wineries lost the right to self-distribute last year.
Except for a few small advances, such as a 2004 constitutional amendment allowing wineries to self-distribute at wine-tasting events, Morgan said the wholesalers' lawsuit victory effectively sends the wine industry back to square one.
"I've got liquor stores within 30 minutes of my winery," lamented Butler.
"But, I have to sell my wine to a wholesaler, then it goes all the way to Oklahoma City to sit in a warehouse, and then it comes back to the liquor store up the road from my winery," he said.
But, that's only if a wholesaler decides to sell his wine.
Butler said wineries are completely dependent upon wholesalers to buy and resell their wine, but wholesalers are free to buy or not buy whatever wine they choose, putting winemakers and their businesses at the wholesalers' mercy.
As a result, he said, consumers have access to only 17 percent of the wine labels produced in Oklahoma.
Butler said many winemakers see the wholesalers, and the influence they wield over state lawmakers, as the main impediment to progress.
He said the current legal landscape related to wine distribution is a "hangover from Prohibition," in which the wholesalers have developed their niche, and that the status quo is maintained, not so much to protect the public interest, but to protect the wholesalers' established turf.
"In 1959, when they repealed Prohibition in Oklahoma, there was no long-distance jet travel and no long-distance telephone without operator assistance," he explained.
"The wholesale distribution model was the model for everyone," he added, explaining that such a model is outdated in a world of jet travel and internet shopping.
Keep the Middle Man
Bruce Robertson, though, said Butler and other winemakers are oversimplifying the situation.
Robertson is a lobbyist for several of the wholesalers in question, including the three that filed the lawsuit that led to the overturning of the 2000 constitutional amendment: Tulsa-based Jarboe Sales and Oklahoma City-based Action Wholesale and Central Liquor Company.
He said winemakers and consumers often look at other states and comment on how much simpler it would be if Oklahoma relaxed its strict wine and liquor laws, but they aren't reckoning with unintended consequences.
He said the current three-tier system (producer to wholesaler to retailer) has worked well since 1959, and that the states Oklahomans want to emulate operate under a franchise system, which would restrict consumers' access to certain brands.
For instance, under a franchise system, a store can sell either Jack Daniels-brand whiskey, or Jim Beam-brand whiskey, but not both, explained Robertson.
Under the current system in Oklahoma, he said, there's a more level playing field for everyone, giving consumers access to whatever labels they want.
"We feel, with the wholesale system, we're actually more competitive than in other states," Robertson said.
Some, but not all wholesalers would likely go out of business under a franchise system, he said, which would do more harm to the state's economy than the benefit it could bring by encouraging the wine industry.
"The wholesalers employ a lot more people than the wineries do," he said.
But, Robertson contends that the wholesalers are good for Oklahoma's home-grown winemakers anyway.
"We do carry Oklahoma wine. We have never turned an Oklahoma wine down," he said.
"Why would we turn down a product somebody wants? We even send out letters to wineries, asking for their wine," he added.
Robertson acknowledged that, of course, wholesalers can't carry every label created in Oklahoma, but said if winemakers create enough of a market for their wares, then wholesalers will buy them for resale.
Of course, the middle man has to eat, too, which is why there's a 21 percent markup by wholesalers. "Yeah, people have to pay more for it, but how much would it cost to ship it?" Robertson countered.
"People are figuring out that we're cheaper than Fedex a lot of the time."
Think of the Little Guys
Robertson also said that if the state constitution is amended to allow all wineries, in-state and out-of-state, to self-distribute in Oklahoma, it wouldn't help Oklahoma winemakers because they'd have to compete with big producers in California, like the Gallos and Kendall-Jacksons.
That is why Rep. Don Armes, R-Faxon, has proposed legislation to allow wineries producing 10,000 gallons or less to self-distribute.
He said any winery producing more than that would be better off going through a wholesaler anyway, but enabling smaller winemakers to self-distribute would encourage the industry to grow.
But, he isn't terribly optimistic. "That's our hope, but I'm not sure the wholesalers are going to go for that," Armes said.
"I hoped we could get everyone in agreement and get it passed without having to have a big mess, but it doesn't look like that's the way its going to go," he told UTW in between negotiations.
Armes said they might have to lower the gallon limit or make other changes, depending on what he and other lawmakers can get the wholesalers to agree to.
"What it looks like now and what it metamorphoses into by the end of the session is the big question," he said.
"The wholesalers aren't evil. They're in business and they're just trying to keep their market share. You can't blame them for that," Armes added.
Strangely, though, Robertson said the wholesalers he represents have yet to take a position either way on Armes' proposal.
"We actually tried to do that last year, but since then our lawyers have decided against it," he said.
Robertson said there are lawsuits pending in other states related to similar legislation, exploring questions about the constitutionality of a law that discriminates between small businesses and larger businesses by basing a winery's required participation in the wholesale system on how much it produces.
He said the wholesale companies he represents are waiting on the outcome of those lawsuits before taking a position.
Their position is already set on another revolutionary proposal that might come before voters.
Get With the Times
A group calling itself "Oklahomans for Modern Laws" is currently working to raise $400,000 for a petition drive to get a question on the ballot that, if approved by the voting public, would allow grocery stores to sell wine and high-point beer.
"Our mission is to work with Oklahoma consumers to help create an open marketplace for the sale of beer and wine, to encourage Oklahoma's fledgling wine industry, to make Oklahoma more user-friendly for tourists and our own citizens, and to modernize and update our image as a progressive state," said Larry Wood, spokesman for the group.
"We're opposed to that," said Robertson. That status quo is good, and that would completely change the three-tiered system."
While the wholesalers are mostly unanimous in their opposition to such a development, winemakers are somewhat more ambivalent about the proposal.
"Some of our members are in support of it; others are reluctant to take a stand," said the OGGWMA president.
Butler said the same proposal came up in the state Legislature in 2003, which winemakers supported, but the liquor stores exacted a price.
"The liquor stores took all Oklahoma wines off the shelf and it has taken years to mend fences," he said in explanation of winemakers' reluctance to get behind the proposal.
Some liquor store proprietors are a bit more open-minded to the idea, since it would allow them to get in on the larger beer market dominated by the Budweisers, Coors and others currently available in grocery and convenience stores, as well as enabling them to sell things like cork-screws and chips and other amenities, most liquor stores are resistant to the idea of having to change their business models to accommodate the shifting legal landscape.
But, Butler thinks that struggle is inevitable.
"In the coming years, another big 800-pound gorilla on the Capitol steps is that retailers want a uniform playing field," he said.
He pointed to growing interest among developers in Oklahoma City, which has an ambition to build upscale condos, which need upscale grocery stores and to cater to their residents, like the Austin, Texas-based Whole Foods Market grocery chain.
It's one of the largest grocery chains in North America, but is nowhere to be found in Oklahoma.
"Whole Foods won't come into Oklahoma because they can't sell wine here, and that is one of their biggest products they sell," said Butler.
While many of the powers-that-be are fighting to maintain the status quo, though, Morgan, Armes and others hope to see more fertile ground for the state's up-and-coming wine industry.
"Part of the situation is that we haven't done a good job of education the Legislature on this industry," said Morgan. "But, each year we have a little more success in that."
"We've got too good of a country for growing grapes for us not to try to help this industry," said Armes.
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