When we discussed
Canadian Icewine in class, it was mentioned that the wine industry in Canada is
heavily governed by the government and provincial governments around the
country. In the United States, the alcohol industry is also heavily governed at
the state-level, making the country a patchwork of liquor laws that could
confound consumers and business owners alike.
I ran into such an
issue last quarter. I was living in Boston from August to early December - I'm
a joint degree at HKS and was doing my semester there. I ordered something online (it was probably a
sweater or something fleece-lined to help me deal with the Boston winter), and
received in the package a voucher for $100 a case of wine from the start-up
Naked Wines. This seemed too good to be true - I got on the Naked Wines website
and put in the voucher details, and it was indeed $100 off a case of 12-15
bottles of wine from small winemakers around the US! This brought the total
cost of the case to about $60, so a pretty good deal.
Here's the catch -
because I was living in Massachusetts, and Massachusetts has some rather strict
alcohol distribution laws, they could not send me the discounted case of wine.
The most they could do if I wanted the case sent to MA was give me 15% off the
total cost - not nearly as good of a deal. Thankfully, I have friends back in
sunny California that were willing to receive and hold the package for me until
I got back, so I did end up getting the great deal on the case of wine. California, apparently, has a regulatory regime that had no trouble with me receiving a discounted case of wine. But, I
can only imagine the complications at play for a business owner or entrepreneur
attempting to start and grow a business in this industry. You probably need a
lot of legal advice and a fair amount of grit to make it anywhere.
I definitely agree! I've talked to many small wineries who say it's a real challenge to enable online sales, for example, because laws are regulated at the state-level and change so often. There is actually a interesting company called ShipCompliant which is a B2B software company that wineries can partner with to verify that they are shipping wine in compliance with ever-changing state laws. They are now private equity owned by Vista Equity Partners (after being bought by Sovos compliance). Interestingly, they are the only provider in this space. The wineries find the product very cumbersome but all feel obliged to buy and use it because of the regulatory risk they face. Perhaps this would be an interesting start-up idea for someone out there!
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