eSkye: National Wine Industry Implications of Costco’s Legal Victory

Costco’s legal victory versus Washington State’s three tiered pricing system for wine and spirits could lead to lower beer and wine prices in Washington — and across the nation, if the case stands as precedent.

“Even if this was the expected result, it’s a dark day for many distributors,” said J. Smoke Wallin, CEO of eSkye Solutions. “The judge made it clear that the state pricing laws are “plainly anticompetitive” and “not shielded by the 21st amendment” in addition to being antitrust violations.”

Costco claimed that Washington’s three-tiered system for distributing beer and wine was in violation of federal antitrust law. Although the state claimed the 21st Amendment (repealed Prohibition) gave states the right to establish this system, the judge disagreed. This Washington case will be appealed by the beer and wine wholesalers of Washington. It will have far reaching effects even if the Supreme Court does not agree to hear it. If not, it will stand as a valid ruling and have implications in every state. This is the second domino to fall after last years ruling in Granholm causing massive changes in an industry that has not changed much since Prohibition was repealed in 1933.

These rulings have wineries increasing the modernization of the wine business as they face the very real opportunity of having a nationally competitive free market in the US. The distribution and retail business are changing as the market moves national as distributors have to continue to reach for scale. Small one market operators are increasingly becoming marginalized by the growth and consolidation of the big players. Opening up retail direct means distributors cannot rest on their past but instead invest smartly in technology and capabilities to meet a changing and more competitive market place. Retailers also have more new opportunities to source their products more competitively and to rate their vendors based on service and price.

About the only thing Costco lost: judge upheld ban on retail-to-retail sales, ruling that was unilateral restraint “imposed purely by the state” that “does not run afoul” of fed antitrust laws.

The bottom line of all this: consumers should see more selection and lower prices as a result.

A few posts worth viewing:
Seattle PI article
Tricia Colliane’s Blog
Wine Direct Shipping Compliance Blog
Wine and Spirits Daily