Booze Rules Blog

This blog is dedicated to occasional (and hopefully interesting) reports of state and national alcoholic beverage regulatory developments that we encounter in our practice. Booze Rules (and any comments below) are intended for informational use only and are not to be construed as legal advice. If you need legal advice please consult with your counsel.

The History of Amazon and Wine: What Has Changed?

by Sara Mann 10.23.12


Amazon is back in the wine business. During its first foray, in the Wild West dot com days of the late 1990’s when Amazon invested in WineShopper.com, the idea of Internet technology being used to sell and direct ship wine to consumers terrified alcohol regulators (and wholesalers) and ran into a wall of resistance. The dot com bust then finished off the WineShopper program. Shelving the plans for almost a decade, Amazon’s second foray into the wine marketing and direct shipping business was in 2009 with New Vine Logistics, one of the pioneers of warehousing, compliance and logistics services for wineries. That attempt failed because the CA ABC, having gotten wind of Amazon’s plans, released an Advisory in 2009 that gutted the crucial components of Amazon’s proposed program, including service fees “based upon a percentage of the sale of alcoholic beverages.” That bankrupted New Vine Logistics and set back the program until a new ABC Trade Advisory addressing Third Party Marketing was released on November 1, 2011. By this time the marketing channel had gotten so important to the industry that the ABC was forced to address it head on.

Amazon had, by 2012, gotten smarter and learned how to navigate the regulatory minefields, so they are coming at it now with a very different approach – the Amazon Marketplace model. The winery will have an Amazon storefront and the winery will be totally responsible for shipping and compliance – not Amazon.

What it means is that (a) the consumer knows they are purchasing the products from the winery; (b) the winery makes the decisions regarding selection and pricing of products; (c) the winery accepts and fulfills the orders from the winery or another authorized shipping point and (d) although Amazon can collect the consumer funds (including credit card information and payment authorization), it must pass the full amount onto the winery and cannot retain any fee for itself out of those funds. Rather, Amazon bills the winery.

Amazon’s Wine Marketplace fee structure thus appears to have been tailored to strictly comply with the 2011 Advisory. Based on press reports Amazon will be charging wineries $39.99 per month to enroll in the program, a “cooperative fee” of $49 for each $350 sold (which will kick in next year), plus a 15% commission on each sale. The 2011 ABC Advisory simply says that Amazon’s service fee must be “reasonable” and commissions based on sales price appear to be permitted as long as they are reasonable. From what we have seen, this works.

Sara Mann, Hinman & Carmichael LLP. Sara, who has been in the alcoholic beverage industry since 1998 and joined Hinman & Carmichael LLP for the second time in 2011, was Corporate Counsel of both WineShopper.com and New Vine Logistics from the beginning to end of each company.

Showing 3 comments

  1. Agent Red

    It is nice to see such a concise reporting of the Amazon Wine Marketplace. Thank you.

    Are Amazon’s fees reasonable – and sustainable? Time will tell.

  2. Bill Leigon

    Sara, how does this comply with the ABC Trade Advisory? Is not a “15% commission on each sale” a fee “based upon a percentage of the sale of alcoholic beverages”?

    Thanks

  3. Sara Mann

    Bill, the most recent Trade Advisory (2011) does not prohibit fees based on a percentage of the sale of alcohol, which is a significant change from the 2009 Advisory, which did. The 2011 Advisory says that third party providers may receive “reasonable” fees for their services, as long as they don’t control any of the business operations of the licensed seller, and also says that the ABC will look at the “total operations and relationships between the parties” when determining whether third party is acting too much like a licensee.

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