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Market Restrictions Seen in SB 589 : Proposed California Legislation Will Affect Wine Prices in the State

July 25, 1985|NATHAN CHROMAN | Chroman is a free-lance wine writer and author who also practices law in Beverly Hills

There is no peace in the wine world today. Consumers, vintners, importers and wholesalers are at odds over California legislation that appears to restrict competition and maintain artificially high prices, such as $65 for a bottle of Dom Perignon Champagne instead of the current price of $35.

The bill, SB 589, would require that any wine (or any alcoholic beverage) imported into California must come through an importer who has been appointed by the producer as its authorized agent for pricing and marketing that particular brand. The bill's practical impact is to reduce competition by restricting the number of the brand's distributors and by requiring the importer and/or producer to engage a wholesaler and/or middleman to deal with the retailer.

While it may be hard to find compassion for wine enthusiasts who are willing to pay for Dom Perignon, the noted Champagne presents a classic case of what can happen when supply and price are controlled by an exclusive agent. My concern is that all imports, even low priced ones, are likely to cost more. A worrisome side effect is that California vintners may increase domestic prices if imports are increased. Plunging prices on European wines plus the ready availability of most Common Market wines to discount dealers caused many to reduce their prices.

'Most Regulated' Consumer Product

At first sight, it seems that the bill is not in the best interests of the general wine consuming public. Jack Davies, proprietor of Schramsberg Vineyards and chairman of the California Wine Institute, disagrees. He claims that an objection raised by the bill's opponents is that the legislation interferes with the free market for wine and is inappropriate in a free enterprise economy. The reality he noted is that wine is perhaps the most regulated of all consumer products. Davies explained: "The law tells me how to print my labels, which size letters I may use, what kinds of promotion I may employ, what ingredients I may use, how I may describe my wine, who I may have as investors, directors or officers. . . ." Moreover, he pointed out that the law requires him to pay an excise tax for every inventory location and collect among the highest excise taxes in the world on any consumer product. "That is hardly consistent with free market principles," Davies said.

While recognizing the price concerns of the consumer, Davies feels the wine drinker's welfare is not best served by short-term consumer cost consideration, apparently the only serious argument raised by the bill's opponents.

Wines Are Unique

Davies noted that wines are unique; that their individualism, developed over decades, should be protected for the benefit of the product and the consumer. He explained: "We're talking here about proper temperature control storage facilities, delivery vehicles, trained sales personnel and training support for retail clerks and restaurant personnel. The discount gray marketer, sometimes described as the gypsy wholesaler, who 'cherry picks' outstanding wines, which generally sell themselves, performs none of these services and indeed they never offer full lines. In the short run, they don't need to. What about the long run and the damage that will inevitably be done to the brand and the consumer's interest at the same time?"

Another question Davies poses is that if the legitimate wholesaler is forced to cut corners to meet competition from the gray market in the short run, where do funds come from to reinvest in the product, ultimately for the benefit of the consumer? If the only criterion is short-run price, inevitably all producers and marketers will have to compete on short-term pricing alone, resulting in forced quality cutting, product development and diversity that surely cannot be in the consumers' long-term interest.

Davies concludes with concern for his right as a brand owner to do with it as he pleases insofar as determining who shall market it and who shall not. "In any part of the world," he said, "I ought to be able to determine the quality and competency of an agent-marketer entrusted with the task of distribution and sale of my product in which I have invested millions."

A Different View

California State Atty. Gen. John Van de Kamp and Allen Sumner, senior assistant, offer another view. They are concerned about the bill's creation of state-mandated monopolies to preserve promotional costs of designated distributors and to ensure quality control. Sumner said: "There has been no showing whatsoever that traditional trademark protections and the prohibitions against unfair competition are incapable of protecting legitimate business interests; nor has there been any explanation why far more perishable products are successfully distributed by other industries without statutory monopolies.

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