Op-Ed: In New York, a David & Goliath Story Unfolds

Editor's Note: This op-ed comes from our own Mark Grimaldi who works for Michael Skurnik Wines as a sales representative. Skurnik is one of the smaller distributors that could be harmed by the proposed legislation discussed within. As such this is a representation of how smaller distributors feel about this issue.

By Mark Grimaldi

There's a war going on with wine in New York State. Two of the largest distributors, Southern Wines & Spirits and Empire Wine Merchants, are lobbying for an "At Rest" amendment to the 2012 SLA budget.

Currently, almost every small distributor of fine wines warehouses their product in New Jersey. This has been done for years. There is more warehouse space, it is more cost-effective, and the imported wines come into port not far from the warehouses. These two giant companies who both have warehousing in new York State, are lobbying to pass a law that all distributors selling wine in New York State must "rest" their product in a warehouse in New York State for a minimum of 48 hours before it can be shipped out to their retail and restaurant customers. This means that a minimum of three days would go by before wine orders can be received.

There is an alliance that has been around for years, called the "New York Alliance of Fine Wine Wholesalers," a group of 11 importers/distributors that includes Admiral Wine Merchants, BNP Distributing Co., David Bowler Wine, Opici Wine Co., Polaner Selections, Martin Scott Wines, Michael Skurnik Wines, Monsieur Touton Selections, Verity Wines, Winebow and T. Edward Wines. There is a memo going around within this alliance explaining the details and facts of what this amendment would do to the fine wine industry in New York State. It reads:

“‘At rest" language in either the budget or legislation would be detrimental not only to almost every wholesaler in the state other than the two largest, Southern Wine & Spirits and Empire Merchants, but also the state itself, in lost taxable revenues, lost license fees, lost excise taxes and lost jobs. We, the New York Alliance of Fine Wine Wholesalers, believe that “at rest” would force the closure of more than a hundred of the New York licensed wholesalers who are currently warehousing in New Jersey due to many logistics issues and costs that would arise, making it impossible for them to continue doing business.”

Truth, not fiction:

• Approximately 79% of the 235 NY licensed wholesalers operate out of warehouses in NJ (185). The only significant operating wholesalers warehousing in NY are the two biggest: Southern Wine & Spirits and Empire Merchants.
• Every NY licensed wholesaler already has an office in NY, and thus has NY employees and pays local taxes.
• All 11 members of the Alliance are Small Business!
• Should “at rest” pass, we would not willingly give up our share of the market, but rather suffer an economic hardship that some of us could not survive.
• Warehousing in NY has higher costs than NJ. Not only would freight-in costs skyrocket, as containers would have to go through multiple stops to unload and travel much further than from the docks to nearby New Jersey warehouses, but also the warehousing, storage and delivery costs would be prohibitively higher.
• By virtue of higher: real estate costs in NY, electricity costs, labor costs, insurance, fuel, tolls, local fees, and the costs per case to warehouse and deliver, would increase exponentially. Fond Du Lac Cold (in NJ) storage recently conducted an economic assessment of how much more per case it would cost to provide services in NY over NJ and found that it would cost approximately $5 extra per case of wine!
• Although “at rest” would simply mean “leasing or renting” warehouse space, there is NOT ample space located within a radius of NY that would allow for daily deliveries by all of these companies in existence, nor is there space available that is properly retrofitted to accommodate temperature and other specific needs for storing fine wines.
• Having to manage two inventories, in NJ and NY, would mean holding more stock, which would hurt our cash flow.
• Having a second warehouse would require another layer of IT, thereby increasing costs to the wholesalers.

How would the passing of “at rest” would affect the consumer?

• Brands would be forced to leave New York, and so would the revenues from their sales. Currently, NYS is considered the most important wine market in the U.S. with almost 25,000 different wines available, which is largely due to the number of wholesalers. Decrease the number of wholesalers and the number of available wines will follow.
• The retail costs of wine would most certainly increase, due to our costs and due to the decrease in competition.

What can we do about it? More details follow including instructions on how to contact your senator:

"A critical issue to the very existence of the fine wine industry in New York has been brought to our attention and we wanted to make you aware of it. One of the largest liquor wholesalers is lobbying the State Senate to include an “at rest” provision in their 2012 budget. The practical effect of “at rest” means that only those distributors delivering product out of New York warehouses could legally sell you wine. Legislation such as this would affect essentially every wholesaler currently in operation other than the two biggest ones, since they almost all warehouse in New Jersey, including our company.

Imagine a landscape with only the two largest wholesalers remaining to work with. Selections would become painfully limited. Prices would most certainly rise. Service would plummet. Their pro-“at rest” argument (union warehouse jobs and revenue) is simply a veiled attempt by this wholesaler to destroy all of the fine wine wholesale competition, because most of your valued New York wholesalers would undoubtedly be forced to close their doors. We have contacted our State Senators to tell them that we oppose “at rest” in either legislation or budget language. We urge you to do the same before FRIDAY, MARCH 9. Please contact your Senator to tell them you oppose “at rest.” The procedure is quick and simple. Please just click on the link: http://www.nysenate.gov/senators. Type in your address and zip code under “FIND MY SENATOR” and hit submit. Fill out the online form with your information (ignoring the drop down box), type “At Rest” in the Subject Line and either craft your own statement or feel free to copy and paste the paragraph below. We thank you for your time, your attention, and most of all your support."

Dear Senator,

It has come to our attention that two large wine & spirit wholesalers are lobbying you to include “at rest” in the 2012 budget. They are claiming “at rest” will create revenue for the State. But, as a licensed, small business that buys from many wine distributors, I do not agree that it would create revenue. Instead, I believe that “At rest” would result in hundreds of closed businesses, including both wholesalers and retailers, and at least a thousand unemployed New Yorkers. As such the State would lose hundreds of millions in taxable revenues from passing this bill. The volume of wine sold in the State (and the accompanying beverage excise tax revenue) would severely decrease. Consumer selection would be limited and the price of wine would escalate with the costs inevitably passed on to the consumer. Moreover, the ancillary effects of the resultant higher unemployment, lower sales and income tax revenues collected, would further exacerbate the current economic position of the state, not improve it. With the above in mind, we urge you NOT to vote for “at rest” either in legislation or in the budget language.

So you see, there is a lot at stake.

This is an action being taken by big businesses to wipe out the smaller ones in hopes of monopolizing the industry. We see what this means for New York State consumers and small distributors and the imported/domestic wines they sell, but what does it mean for New York State wineries?

Some are distributed by these two large companies that obviously only have their best interests at heart. Is this a conflict of interest for them? Do they care that essentially, they are being sold through the "Wal-Mart" of wine distribution?

What about those New York State wineries that are distributed by the small companies that are part of the 99%? How are they dealing with the possible loss of distribution in New York State? Does this "big business" mentality really mesh with the mentality of the New York State wineries that are currently sold through Southern and Empire?

Comments

[Rick Rainey]

Very well done Mark. Informative and truthful, regarding the battles that small to mid-sized companies face from the "big boys" who have unlimited cash resources and I would imagine, lobbying power, to push their agenda forward.

Do you see any relationship to this battle and its motivation and for the one for wine in supermarkets?

[Mark]

Wonder where the WSWA stands on this issue. Guess these guys won't be hanging with the Southern Boys at this years WSWA conference.

[Carlo DeVito]

Very well done piece. Examines what's become an important topic, though it shouldn;t have been. If the state is in so much trouble, why isn't the legislature about buiding business? This is a waste of time of the legislature.

[Michael McKeon]

Retailers from around the state have joined with the Fine Wine Alliance to oppose this legislation. All of the major retailer associations have made their opposition to this bill in Albany known to legislators.

[Clay Harpending]

Well done, Mark. I wrote my senator (Valesky, Syracuse) & stressed how it could negatively impact small NY state wineries, some of whom who currently distribute through my Alliance competitors (i work for Polaner).
And though we do not handle a NY winery, I think these folks (some of whom I count as friends) should be VERY aware of the implications of this type of legislation...

It's interesting to note that one of the bill's sponsors (Maziarz) is from Lockport.

[Mary Sippel]

Great article. I just found out about this issue this past week in an e-mail from Doug Polaner and yesterday in a letter from Michael Skurnik Wines. It is incredible that New York State would even entertain the mere notion of this proposal.

I own a small liquor and wine shop and currently do business with at least 6 of the companies in the New York Alliance of Fine Wine Wholesalers. It would be extremely detrimental to my business should this plan be implemented.

I have written to Senator Maziarz (my home district senator) and Cathy Young (senator for Chautauqua County where my store is located. I hope all other retail store owners also communicate their opposition to this proposal.

[Bill - Loving Long Island]

I'm not clear on the reason for the March 9 deadline. Was there a vote on Friday? Is it too late to fight this now?

[Steven Van Haren]

It's not too late to fight. The "AT REST" language could still make it into the final version of the budget before April. There were procedural votes on March 12 (or was it 13?).

This is an ongoing campaign to protect jobs throughout the wine business, from distributors to importers to retailers to drivers to harvest workers. Workers are in solidarity with owners on this issue.