Here are five arguments made against DTC that simply don’t stand up to scrutiny.
By Alex Koral
Americans spent more than $4 billion on DTC wine shipments in 2021, and polls show broad support among consumers for liberalizing DTC shipping laws. Despite this, opposition to alcohol DTC shipping remains a constant challenge for the market.
Some of the loudest voices opposing the expansion of DTC shipping permissions come from the alcoholic beverage industry itself, primarily at the wholesale level, who almost universally oppose DTC shipping and spend large amounts of lobby money impose legal constraints on current and potential shippers. Others in the industry, such as pack shops and grower guilds, have expressed their own reservations.
Arguments against the expansion of DTC shipping revolve around the theoretical harms that states and the public could suffer if consumers were able to have alcohol shipped directly across state lines. However, many of these claims crumble under any real scrutiny. Instead, it seems much of the opposition is less concerned with public safety and more about maintaining a competitive advantage.
This fierce opposition to DTC shipping shows the liquor industry’s particular susceptibility to this kind of parochial behavior.
Here are five arguments made against DTC that simply don’t stand up to scrutiny.
Myth: Miners will buy DtC
In the liquor industry, there is perhaps no more fundamental guideline than preventing sales to minors. Every state even prohibits accidental sales to people under 21, and regulators are making enforcement of those rules an ongoing priority.
Of course, as long as they are prohibited from purchasing alcohol, minors will look for ways to break down these barriers, and so DtC shippers have had to find systems and practices to block access to minors. Opponents would have you believe that the DtC shipping market presents a very unique situation, with widespread disregard for state laws and miners freely buying whatever they want from all shippers.
Although DtC shipping presents some challenges in preventing sales to minors, there are many services available that limit minors’ ability to receive DtC shipments. When executed correctly, point-of-sale age verifications and point-of-delivery identity verifications effectively reduce access by minors.
In many ways, DtC shipping is not an attractive market for miners, as most licensed DtC shippers are smaller wineries that only sell a limited list of desirable wines (with an average price of a bottle hovering around $40 and often requiring additional charges for shipping and handling). While they can afford it, it’s not exactly what most freshmen or high schoolers are looking for.
There are also access issues, with online purchases requiring the use of a credit card. And then the shipments must be handed over to an adult who will sign for the package. While these aren’t insurmountable challenges for a motivated miner, using a fake ID at a local parcel shop or finding a friend or adult sibling would be much easier.
A FTC Report on the transport of DtC wines leads to the conclusion that the market is not conducive to sales to minors. And while this report predates the explosion of DtC shipments, there has been little clear evidence of miner purchases through the DtC channel. Indeed, underage drinking rates have been fall dramaticallyeven as the DtC wine transport market has developed.
Again, no one is saying that underage access to alcohol isn’t a problem, but it’s hypocritical to ban interstate DtC shipping or to label the DtC market as problematic – especially since states are expanding local deliveries, which often face the same challenges when it comes to preventing sales to minors.
Myth: DtC shippers don’t pay taxes
If there’s anything that scares a regulator more than minors buying alcohol, it’s missing taxes. States derive substantial revenue from taxes on liquor sales, and they are right to want all their due. However, many opponents allege that DtC shippers are tax evaders and that states are losers in this market.
The truth is, DtC shipments are a huge source of additional taxes, bringing in a lot of money that otherwise wouldn’t be available to states. At Sovos ShipCompliant, we have facilitated the remittance of hundreds of millions of dollars in tax revenue to various states in the past few years alone. And because DtC shipments are often rare, low-distribution wine brands, it’s not tax revenue that the state would otherwise have recouped from sales made at package stores.
DtC shipping is an entire market beyond store and restaurant sales, and states that ban or heavily restrict DtC shipping lose out by taxing those additional sales. In my experience with this industry, it is shocking how often DtC shippers are anxious to pay taxes to the states in exchange for permission to ship there; if these states block these senders by denying them DtC licenses, the states are only hurting themselves.
Myth: States Can’t Regulate Out-of-State Shippers
State regulators often argue that DtC shipping should be banned because it’s difficult for them to enforce, noting that jurisdictional issues prevent them from prosecuting distance sellers who violate their laws. This goes against the last 15 years of DtC maritime regulations.
The model DtC law that most states have adopted for domestic wineries explicitly requires them to accept the jurisdictional authority of the states in which they obtain a license. States from Texas to Massachusetts have relied on these agreements to enforce their laws, from collecting taxes to limiting shipping volume.
States may find it difficult to prosecute unlicensed shippers, who clearly violate state laws (although Michigan a long way), but the solution to this would be to expand the ranks of companies that can obtain licenses – and therefore accept state authority over them – rather than restricting the permissions of DtC shipping. One of the main lessons of prohibition that regulators should keep in mind is that illegality thrives in the shadows; creating an open field for DtC companies allows the state to monitor the market and enforce its laws.
Myth: DtC shipping is full of counterfeits
Opponents of DtC shipping also say the channel is teeming with counterfeit products – that bypassing wholesalers means there is no control over what the consumer buys. This is one of the most ridiculous claims made by naysayers.
Counterfeiting can be a concern for some sectors of the alcoholic beverage industry, but it is largely limited to private dealer sales among wealthy collectors. Conversely, most DtC shipments involve buying directly from the producer of the product, which seems to be the best way to avoid counterfeits. After all, what cellar would fill its bottles with fake products?
And when DtC shipping involves purchasing from a retailer, that retailer would have had to purchase their products through their local three-tier system, which apparently would also guarantee those products.
While consumers should be wary of too-good-to-be-true auctions and private sales, stopping established producers and retailers from shipping DtC is not the way to fight counterfeiting.
Myth: DtC shipping is a job killer
It is also often claimed that allowing remote businesses to sell into a state’s market will hurt local retailers and lead to job losses. This is one of the most egregious examples of protectionism that opponents of DtC utter, and it only serves to harm local consumers and reduce the ability of local businesses to compete in an open market.
Any real advantage DtC shippers might have is limited to their access to products and brands that are not widely distributed. Otherwise, DtC shippers have to pay the same taxes as local businesses, manage a complex regulatory scheme, and manage the costly and labor-intensive shipping process.
The claim that DtC shipping creates unfair competition in the industry is also not supported by evidence. Bureau of Labor Statistics data for the New York market shows that there has been a net job growth for retailers and wholesalers since 2005 (when the state opened DtC National Wine Shipping).
Retailers are resilient and able to meet consumer demand. If states really wanted to support their local retailers, they might instead seek to liberalize their distribution laws rather than try to stop DtC shipments.
Why not DtC dispatch?
Ultimately, alcohol DtC shipping happens because it’s popular. Today’s consumers are used to buying everything online and expect the same from their alcoholic beverage choices. As long as demand continues, companies will strive to meet this need. States had better establish clear, effective and manageable laws on how alcohol can be shipped within their borders.
The adverse claims opponents raise — that DtC shipping is unmanageable, states lose tax revenue, miners abuse it with impunity — wither under any real scrutiny. Beyond those who oppose all alcohol consumption, protectionism is the only real driver of opposition to DtC shipping. States must not allow fear of external competition to prevail. Instead, they should create effective pathways for consumers to safely get what they want.
Alex Koral is general regulatory counsel for Sovos ShipCompliant. He actively studies alcoholic beverage regulations and market developments to inform the development of Sovos’ ShipCompliant product and help educate the industry on compliance issues. Alex has been with the company since 2015, after earning his JD from the University of Colorado Law School.