In a surprising setback for selling wine online, the New York State State Liquor Authority ruled yesterday that the sale of wine by third-party “advertisers” violates its code. Some online sales and marketing companies, such as wine clubs and Lot 18, sell or market wine online without a New York retail license, instead rely on a licensee to process or fulfill the orders.
The SLA ruled on a January 17 request from ShipCompliant, a regulatory compliance company for the wine trade, that had sought clarification for the expansion of its “MarketPlace” product. Although not mentioned specifically in the ruling, Lot 18, which uses ShipCompliant, was the focus. Lot 18 does not hold a NY license to sell wine and had been processing orders through a licensee. The order fulfillment had been occurring off-site from the retailer’s physical location. The SLA states that, in their interpretation, selling wine includes soliciting or receiving orders for wine. It further states that licensees are not allowed to make their license available to a person who has not been approved by the authority. In this specific case, the licensee was not involved in choosing the brands to be sold or in determining the prices and the licensee had no control in discretion in dividing the proceeds of each sale, the ruling states.
“The best thing a state’s alcohol regulatory body can do is be clear about how it expects a company like ours — and our competitors — to operate,” says Dini Rao, Chief Merchandise Officer for Lot 18. “Clarity is better for us and, ultimately, better for consumers. We’re working on several legal and technical solutions to comply with the SLA’s ruling, which we expect to introduce soon.”
The ruling has ramifications for wine clubs too. The Wall Street Journal wine club is run in a similar manner: their web site states that orders are received and fulfilled by the licensed retailer Shermer Specialties of Carmel NY. The NY SLA fined Shermer $50,000 last month for third-party internet sales. Shermer has not responded to a request for comment. Global Wine Co. based in San Rafael, CA, operates several wine clubs including The New York Times wine club, Food & Wine wine club, Williams-Sonoma wine club. Global Wine Co has yet to respond to a request for comment about how they will react to the ruling.
The ruling has national implications. Previously, the California Department of Alcoholic Beverage Control ruled that it was illegal for unlicensed third parties to profit from the sale of alcohol. This stymied online wine sales in the state and nationally for years. However, after a lengthy review, the state reversed its position and deemed the sales as legitimate, liberalizing wine sales with a less restrictive view of sales. According to one person at the January 17 New York meeting, a participant pointed out the new California position to the Board; the chairman was unmoved.
The ruling states that the SLA will be issuing an advisory providing more comprehensive guidance.
Ruling: 2013-01006A Internet Advertising Platform(pdf)