B.Y.O.B. : State Crackdown Focuses on Wine Freebies to Retailers

California’s prestigious wine trade is nervous about a crackdown on long-ignored industry practices that include providing abundant free samples for formal tastings at wine shops.

Suppliers have routinely--and illegally, in some cases--furnished ample quantities of wines to shop owners for tastings, and “the ABC has looked the other way,” said Randy Kemner, owner of Wine Country, a Signal Hill retailer.

No longer. The ABC is the California Department of Alcoholic Beverage Control, which in January warned that “rigorous” enforcement of post-Prohibition-era laws governing the industry had become a priority with its newly expanded staff.

The laws, among many other things, generally prohibit suppliers from furnishing alcoholic beverages free to retailers. However, suppliers seeking to sell their products to a retailer typically can provide one sample bottle of wine for each vintage, one bottle or can of beer or one bottle of distilled spirits per product. Recently, though, increased competition and hot consumer demand have tempted some wineries and retailers to step over the line.

Complaints have come from, among others, suppliers who “felt they were being held up by certain retailers” to give away goods or face being squeezed off shelves, according to Don Decious, chief of the ABC’s business practices division.

Five new agents hired by the agency’s business practices division have been conducting interviews with wineries, brokers, wholesalers and retailers to ferret out possible violations. In addition to sampling practices, they are also scrutinizing everything from abuses of credit purchases by retailers to wineries’ unlawful investments in retail businesses to secret rebates to retail employees. No fines have yet been levied, and the department said it has no sense of how rampant any abuses might be.

Decious said regulators are merely responding to lawmakers’ orders and market conditions. “The Legislature told us to add more staff, and we started responding to industry complaints,” he said.

The sudden surge in enforcement has shaken up the industry and sent many individuals scurrying to their lawyers for guidance in this murky area. Some wineries have hastily canceled participation in tastings at retail shops. Reflecting his higher costs for buying bottles for samplings, Kemner has raised the price he charges customers to cover the costs of his frequent tastings (to $8 to $12 per event, from $5). The change, he said, has had a chilling effect on business. One recent Saturday, post-tasting sales were down a steep 25% from typical levels.

“Everybody’s nervous because they don’t understand what the rules are,” said John Hinman, a San Francisco attorney for a group called Family Winemakers of California, which includes 300 wineries large and small.

Wendell Lee, San Francisco counsel for the Wine Institute, a trade group, said the enforcement mandate is prompting more than the usual calls from worried members. “It scares a lot of people into over-complying but really isn’t doing much to educate the industry,” he said.

Lori Hirsch Stokoe, a Rancho Palos Verdes broker who represents 12 California wineries, said the state and its agencies should support the wine trade as a profitable, job-producing industry. The business, she noted, has changed drastically from the days when the laws were imposed.

“We know of no other way to sell our product than to let our customers taste the wine,” she said.

Complicating matters is the array of exceptions that lawmakers have passed over the years. Those have produced a passel of inconsistent laws and policies that the Department of Alcoholic Beverage Control’s own staff counsel, John Peirce, describes as a Gordian knot.

Wineries, for example, have won approval to open tasting rooms and restaurants.

The department is also attacking cross-merchandising promotions, which have become more popular with wineries and brewers in recent years. For example, a brewer may not offer a coupon for a free bag of pretzels with the purchase of a six-pack. Such practices are commonly allowed in other states.

Crazy for Nuts

California’s almond production is expected to climb a whopping 39% to 710 million pounds this year, according to a preliminary forecast from the California Agricultural Statistics Service. The number of blooms on the state’s almond trees was high, and that should lead to a bumper crop. California is the world’s leader in almond production with a 1996 crop worth about $1 billion.

Three of the last four years, though, have had disastrous to mediocre crops, said Dave Baker, director of member relations for Blue Diamond Growers, a 3,700-member cooperative in Salida, the world’s largest almond processor. There haven’t been enough almonds to go around to satisfy a global appetite that has grown to 830 million pounds.

A crop like this year’s, Baker said, will help moderate prices and give marketers an opportunity to expand product lines again. Blue Diamond, for one, has just introduced Nut Thins, a crispy snack cracker.

“We have so many almonds planted in California,” Baker said, “that we have to practice selling big crops.”

Looking to the Future Shake

Things are looking up for Odwalla Inc., the Half Moon Bay juice maker pummeled by investors last fall after an outbreak of E. coli illness was linked to its unpasteurized apple juice.

After being yanked from Starbucks six months ago, Odwalla juices were reinstated in the chain’s coffee outlets in April. And Odwalla recently introduced its first new product since the cash-draining trauma--Vanilla Al’mondo, a creamy mix of almond, soy and organic oat milks, flavored with Madagascar vanilla, banana and mango. Additional flavors planned for this new “meal replacement” line, called Future Shake, include Mocha Motion. Odwalla calls Future Shake its version of “what fast food should be.”

Hank Wilson, an analyst with Hambrecht & Quist in San Francisco, said the introduction of a product other than a fruit juice is a milestone for the beleaguered company. The next goal, he said, will be a return to profitability.

Martha Groves can be reached by e-mail at [email protected] or by fax at (213) 237-7837.

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The ABCs of Liquor Law

Here are some examples of activities outlawed by the state’s Alcoholic Beverage Control Act:

* Suppliers providing credit to retail accounts for more than 30 days without the account being placed on a C.O.D. status for new purchases.

* Suppliers furnishing money, free goods (including alcoholic beverages) or other items of value to retail licensees.

* Supplier representatives providing cash or secret rebates to licensed retail accounts or to employees of those accounts.

* Any supplier paying, crediting or compensating a retailer for advertising.

* Suppliers furnishing “samples” in excess of one bottle of wine, one bottle or can of beer or one bottle of distilled spirits for a retail account.

Source: California Department of Alcoholic Beverage Control