Amazon Wine – the ‘Everything’ store’s third attempt to sell wines – is to to shutter at the end of this year. Despite Amazon’s size, reach and power, it has found itself entangled in the USA’s complex three-tier system.
These so-called Tied House laws mandate that a retailer may not be a distributor and vice versa. Amazon seems to have run afoul of these rules when it purchased Whole Foods in August.
The company released a curt, two-sentence statement on Monday saying, “As Amazon continues to offer customers additional retail options for buying wine, we will no longer offer a marketplace for wine at this time and Amazon Wine will close on December 31st, 2017. Wine will continue to be offered through Amazon Fresh, Prime Now and Whole Foods Markets.”
A closer look
In 2000, Amazon attempted to enter the wine market by partnering with wineshopper.com; in 2008 it attempted to sell wine online, but failed partly because its delivery partner had financial troubles, and partly because of regulatory hurdles. Its latest iteration simply offered producers a platform through which to list their wines, with the producer taking responsibility for shipping.
“Once they bought Whole Foods, they picked up a slew of retailer licenses that put them out of compliance with tied house laws,” said Rob McMillan, the executive vice president and founder of Silicon Valley Bank’s wine division.
In the case of Amazon Fresh, Prime Now and Whole Foods, the company will probably acquire wine retail licenses in multiple states, which they are likely to use to deliver wine in urban markets and ship it in rural ones, according to Deveraj Southworth, CEO and co-founder of New York City-based Thristie, a wine delivery platform.
None of the attorneys, bankers and consultants contacted by Meininger’s thought that this would put Amazon out of the wine sales business. “They will probably adopt the Wine.com model,” said John Hinman, a partner in the law firm of Hinman & Carmichael. Wine.com has a long-standing agreement with Fedex and legally ships wine to 43 states. He added that if he were Wine.com, he would be very afraid at this moment.
It is likely that the smaller wine brands that will initially suffer the most but also that Amazon’s marketplace withdrawal will encourage more competition by third-party providers such as delivery apps, noted Hinman. Such delivery platforms—such as Thristie and Minibar Delivery—are also starting to sell directly from producers such as Dom Pérignon and have the legal right to do so as they are not brick and mortar retailers.
The Tied House laws were put in place after Prohibition not only to prevent undue competition between the sales tiers but also to insure that US states – which each have their own sales tax rates – would not lose revenue to consumers who might try to buy wines from a different state with a lower tax rate, said Stephen Rannekleiv, the global beverages strategists at Rabobank International’s RaboResearch Food & Agribusiness department.
The laws make selling wine in the USA complicated, as it means the country functions as 51 separate countries, rather than as one country. They have also been challenged before: multi-billionaire Warren Buffet has been waging, and losing, a long battle in Texas to get a wine distribution license on behalf of his McLane food distribution company. He has been continually turned down by the Texas courts because the company owns shares in Walmart.
Despite battles by both McLane and Amazon, the Tied House laws seem to endure the test of time.
Liza B. Zimmerman