Archive for Thursday, January 26, 2006

Kansas wineries worry about proposal to end direct sales

January 26, 2006


— Kansas' winemakers, currently allowed to sell directly to liquor stores, bars and restaurants, said Wednesday that a legislative proposal to make them go through wholesalers could put some - if not all - of them out of business.

If it doesn't drive their prices too high for the market, they said, the measure will alienate proven retailers. Either way, they believe it will cripple the state's small but growing wine industry.

"I'd be going to all my growers - the people I've been begging for a half-dozen years to, 'Plant grapes, plant grapes, plant grapes,"' said Norm Jennings, general manager of Smoky Hills Vineyard and Winery near Salina and a member of the Kansas Grape and Wine Industry Advisory Council, which advises the state agriculture secretary about the industry. "I'd tell them, 'Don't plant grapes - and as a matter of fact, if you planted any last year and you can still mow them down and put corn on the land, you might do that.'

"Because five or six years down the road, it's looking pretty nasty right now."

The Senate Federal and State Affairs Committee heard testimony on the measure Tuesday but took no action. On Wednesday, the wine board voted 5-1, with one abstention, to oppose it.

Wholesalers, who back the Senate measure to take away direct sales, say they only want to comply with court rulings that states may not treat winemakers from different states differently.

"We think the current self-distribution system ... is not constitutional, is not supportable," said Tuck Duncan, a lobbyist for the wholesalers who also is a member of the advisory council.

In May 2005, the U.S. Supreme Court ruled that states that allow direct shipping of wine to in-state customers must extend out-of-state wineries the same privilege.

And in December, a federal judge in Seattle ruled that Washington state may not allow in-state wineries and breweries to sell alcohol directly to consumer outlets, unless out-of-state producers are also allowed to do so.

Kansas law prohibits direct shipping of any wine, regardless of origin, but its 13 "farm wineries" are allowed to deliver their products directly to retail outlets. The latest proposal would still allow direct sales at the wineries themselves.

Out-of-state winemakers, distillers and brewers must go through distributorships.

Kansas winemakers also discriminate when they refuse stores' requests to stock their product, Duncan said.

But Dennis Reynolds, co-owner of the Somerset Ridge Vineyard & Winery near Paola, said his winery's small output requires careful allocation to keep proven retailers happy.

"Farm wineries make the decision that they have the capacity to service maybe 10 retailers, and they want to be able to supply all 10 of those retailers equally when they call and want a particular wine," added Reynolds, who has said his winery would be forced to close if the measure becomes law. "They know that if an 11th retailer calls, or a 12th, they're not going to be able to do that."

And if retailers can't get the wines they want in the amounts they want, Jennings said, they're likely to drop a winery entirely.

"I've got a list of retail stores telling me, 'Norm, I'm probably not going to carry many, if any of your wines if we have to go through distribution. ... Your volume will either disappear or be a fraction of what it is now,"' he said.

Wholesalers also contend direct sales would hurt the state's ability to collect taxes efficiently.

"I'm just saying that it's easier to tax 724 retailers around the state than 5,000 wineries," Duncan said.


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