More on the Commerce Clause

 One of my favorite podcasts, More Perfect, just came out with a podcast on the Commerce clause that I found particularly interesting given our discussion in class. I'm linking the podcast below - it's a really interesting listen!

The commerce clause itself is shockingly short - just 16 words. For reference - this is the entirety of the commerce clause: The US Congress will have the power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."

We learned in class about how the Granholm case (https://en.wikipedia.org/wiki/Granholm_v._Heald for more detail) invoked the Commerce Clause in it's argument, which was at least a small victory for wine shipments against the rigid 3 tier system. I thought it would be interesting to share a bit more context on the commerce clause, as it seems that there could be legal standing for further action on behalf of wineries and the wine industry as a whole (I'm not a legal scholar, and heavily biased wine lover, but still..).

This podcast shed more light on the history of how the commerce clause has been used. The first major case that invoked the commerce clause was Gibbons v. Ogden - essentially saying that the commerce clause prevents states (NY in this case) from discriminating against other states' companies' use to favor local companies. In this case, NY was regulating the use of their port such that out of state shipping companies either couldn't use the port or had to pay massive tariffs in order to support a NY based company. This seems like a pretty straightforward application in 1824.

The next case they bring up was in 1942, and expands the use of the commerce clause quite a bit. For background, the US was in the middle of the great depression and the dust bowl, and in order to support the economy, Congress began regulating the wheat market. They guaranteed the price of wheat, and capped farmers at farming 11.1 acres of wheat (so as to not flood the supply with the guaranteed price).

Filburn was a farmer in Ohio who grew all sorts of things, including wheat. He grew his allotted 11.1 acres to sell, then a few more (well, quite a few more) acres to feed the animals on his farm. A government official inspected his farm, and fined him for the additional acres. Stating that these acres were for private use, and not for sale on the market, Filburn sued the federal government.

Now, since we've all taken micro here at the GSB I think we understand why the government wanted to regulate this guy. If every farmer just grew the wheat they needed in addition to what they sold instead of buying it on the market, many big buyers (aka farmers with animals to feed) wouldn't buy wheat and the government wouldn't be able to effectively regulate the market. That being said, this was one of the first times (according to the podcast, I'm not a legal historian myself) that the government regulated private conduct in this way. Some argued that if the government could regulate wheat grown for private consumption, could they not regulate the dress a mother and child sewed together? Or even prosecute for child labor? Stay tuned for how this applies to to the ACA at the end..

The government won, and we're past the Marshall court era. This decision expanded the commerce clause's power a fair deal, but nothing compared to what's to come in the Warren court.

Then in 1964, the commerce clause saw a whole new arena - civil rights. In 1964 many restaurants were still segregated, even after the passage of the Civil Rights Act of 1964. For whatever reason (not the job of this post to go into...), integration of restaurants and other establishments just wasn't happening in many places. Katzenbach v. McClung saw Ollie McClung, the owner of a barbecue joint in Birmingham sued for not serving African-American customers in the dining room (only through the take-away business). How does this connect to the commerce clause? The primary two arguments were as follows: 1) This was not a local business, it was an interstate one and thus subject to regulation under the commerce clause. While Ollie's may think they are local shop, they buy most of their meat from a company that sources from all over the country. Their salt? Ketchup? Same thing. Their product is created from a long chain of interstate commerce. 2) By refusing to serve customers of a certain race, these establishments significantly hindered interstate commerce by restricting flow of certain people from state to state.

This raises two questions for me in regards to wineries and the 3 tier system. First of all, is there a case to be made that by not allowing wineries to distribute in a more direct manner, that the 3 tier system is inhibiting interstate commerce of the inputs of wine that are not local grapes? Specifically, could it be argued that the 3 tier system is forcefully reducing production of wineries and therefore reducing how much they would engage in interstate commerce if they could produce more? (Admittedly a bit of a stretch, but hey - look at Katzenbach v McClung!). Second, if the commerce clause in McClung is essentially saying "you can't restrict service/sales to certain groups, that will impede the free flow of interstate travel and interstate commerce", could that not be said too for out of state winery visitors who want to purchase and ship wine home from that winery? Okay, I'm clearly stretching my legal training, which is entirely via podcast, but the parallels were interesting nonetheless.

For what it's worth, though, it seems the commerce clause is losing some steam with more conservative contemporary court constructions. This use of the commerce clause was again revisited in regards to the ACA - does the commerce clause have the ability to compel a private citizen to participate in commerce (via the individual mandate)? This is ever so slightly nuanced from Filburn.

Here's the episode for those interested! http://www.radiolab.org/story/radiolab-presents-more-perfect-one-nation-under-money/

K&L Wine Merchants

Professor Rapp has previously mentioned K&L in class, and I wanted to write a bit more about it because it's a store I went to a few times in San Francisco and was consistently impressed by its quality.

First, I was surprised by their selection of older-vintage wines at affordable prices, particularly for Bordeaux and certain Napa cabs. I previously thought drinking older wine was only for fancy people -- those who purchased wine at auction, or stored vintages themselves for a long time. If you're interested in trying out older wine, K&L seems like a good place to start.

Second, I was impressed by the selection and quality of champagnes K&L offered. I previously thought that drinking "nice" champagne meant paying a lot for a brand like Dom Perignon or Crystal,  but K&L seems to offer many interesting vintage champagnes for a lot cheaper than those brands.

Third, I felt that there was a strong commitment to wine education at the store. Rather than being consistently upsold on product, salespeople I've interacted with consistently steered me to wines both slightly below and slightly above my initial price point, and helped me discover interesting new regions and varietals. They also offer wine storage on-site, for folks who may not have enough space, or the right conditions, to store wine in the Bay Area.

Fourth, although K&L only has physical stores in the Bay Area and Los Angeles, they offer a pretty well-designed website and affordable shipping rates to customers in other areas. I'd be curious what their split of wine sales is between online and in-store.

Two other interesting tidbits about wine shipping: first, the USPS will not ship alcohol under any circumstances, so K&L only uses FedEx and UPS. Second, it is a little more expensive to ship champagne with K&L than other types of wine (about $0.50/bottle or $6/case). I'm not sure whether this has to do with the size/shape of champagne bottles, or the conditions needed to properly ship champagne -- this may be the topic of the next blog post!

CIRQ. Deconstructing a Wine Label.

After Terry’s talk last week I found myself reflecting on the wine brands (and other products) that have stuck with me over the years. I realized that they all had a strong storytelling component, reinforcing Terry’s point that successful brands are all about telling an authentic, sticky story.

One salient example I thought I’d share with the class is Michael Browne’s label CIRQ. Michael Browne is best known for being the winemaker at Kosta Browne, an ultra premium California Pinot Noir producer. I was given a bottle of Kosta Browne Pinot by my boss as a present after a promotion and I was floored. I had never tasted a wine that spoke to me like this one did.

I naively went online to try and join their wine list, before I learned one does not simply join the Kosta Browne wine list. They have a waiting list of 3-5 years (!) to get an allocation of their single vineyard Pinots. Years later, I was lucky enough to get to visit Kosta Browne with a small group as part of a silent auction prize. Who did we see walking around the winery but Michael Browne! I ended up chatting with him for a bit, and he started bringing out wines to open for us (no this was not a dream!).

He absolutely lit up when he started talking about CIRQ, his foray into viniculture. While this wine is part of the “Kosta Browne family,” it is a separate brand. Kosta Browne sources the very best grapes from the best vineyards in Russian River Valley, while CIRQ is Michael Browne’s new side project to become a winegrower himself. He spent years finding two new sites in the western edges of Russian River Valley for this new venture, and the land he found is extremely special to him. Michael told us about his time performing in the circus in Wentachee, Washington as a young child, and how he learned to master several stunts to entertain his audience, making parallels between the physical and mental training required for both performing in the show and for mastering winemaking. And thus, CIRQ was born.

In thinking back to that story now, I realize that 1) it’s interesting he decided to make CIRQ a standalone brand and 2) you can easily see how a circus theme could have gone horribly wrong. On the first point while it might be tempting to leverage the strong Kosta Browne name for his new project, Browne was really taking a risk to try his hand at viniculture. As we’ve learned in class, a reputation takes years to build and can be destroyed in an instant. On the second point, it’s clear that Browne went through great pains to carefully think about branding and packaging for this wine to keep it out of gimmicky territory.

“CIRQ is a performance that happens once per year. A show that we are constantly rehearsing, sharpening our skills for and anticipating delighting you with.” - Michael Browne

The back label is made to look like an old time circus ticket, signed and numbered by Michael Brown himself. He has also turned his own handwriting into a font, and the label has a craft, hand-made quality to it. He explained that the small thin line under the name of vintage was color matched to the very unique soil in each location, emphasizing the importance of the terroir. He's created high quality videos that tell the story of each region and of the brand, tying everything together. Each allocation of wine also comes with a handwritten note from Browne and beautiful packaging. These small details stuck with me, and made me a convert before I even tasted the wine.

Piedmont's Barbarescos and Barolos

The Barolos always happen to be on the top shelf, an aspirational wine from Italy's Piedmont region. On rare occasions my fiancee and I will splurge on a Barbaresco from TJs or a local wine store, but we had never gone big for the Barolo.

Luckily one of these local wine stores was having a Nebbiolo focused tasting (the grape found in Barbaresco and Barolo), and we jumped at the opportunity to finally try some of each, side by side.

The first 5 wines were from 2013, 1 Barbaresco and 4 Barolos. The difference between the Barbaresco and the 4 Barolos was incredible, especially for wines produced from the same grape and grown within 10 miles of each other. The Barbaresco was bright and approachable, while the Barolos were incredibly dry at first. As the wine sat on the table for a longer period of time, the Barolos seemed to soften. This might be what's known as "opening up"?

However, the final wine was a 2009 Barolo, and it was one of the first times I've realized that aging wine really does help. Some of the posts on the blog have mentioned aging, and this seems like another data point to add to the conversation. It was an entirely different experience from the younger wines, and was one of the most exciting glasses of wine I've been lucky enough to try. I don't think it's going to become our table wine anytime soon, but it's nice to have a new idea for special occasions.

Amazon is conquering logistics, then wine

In a world in which Amazon seems to be taking over, it seems noteworthy when the company backs down from a challenge. This is what happened with wine – at least for the time being.

Amazon Wine was launched in 2012 and shut down just recently, at the end of 2017. Its history is well summarized by Tech Crunch (https://techcrunch.com/2017/10/23/amazon-wine-is-shutting-down/). The story boils down to the company not being able to deal with the restrictive regulations around wine that we discussed in class – a classic case of what a conservative-minded person might point to as “overregulation of the markets”. But this isn’t the first time Amazon has run into regulations (take, for example, their battle with the FAA on drones http://fortune.com/2015/04/29/drones-amazon-letter-faa/). So why is it giving up on its own wine marketplace?

Instead, Amazon seems to be abandoning its wine platform while doubling down on its logistics services, such as Amazon Fresh and and Prime now. Right now, it’s rolling these services out in new cities, including deliveries of alcohol (mostly beer). At the same time, the Whole Foods acquisition seems to be part of the picture. Now that Amazon has a nation-wide brick-and-mortar presence throughout the US with stores that are already licensed to sell beer and wine, it may be able to leverage its logistics advantage into capturing the market that Amazon Wine could not. After all, its ability to deliver wine more quickly (via Amazon Prime) may trump a platform that delivers variety (such as Wine.com, which has not been doing so well either). 

Duane Stanford, executive editor at Beverage Digest, noted in an interview:  "The three-tier alcohol distribution system is a complicated web of state-by-state laws that make it tough to scale online delivery… If anyone can apply pressure and creativity to the problem, however, it's Amazon, and Whole Foods gives Bezos yet another paint brush.” (https://www.cnbc.com/2017/09/17/getting-alcohol-delivery-on-amazon--will-whole-foods-help.html). Will Amazon use some of its creativity and political capital to change the regulatory structure? Will the company be the savior of anti-regulation advocates in the industry by using its might to simplify the system? Is the wine industry worth fighting for among all of Amazon's other priorities? 

Interview with Wine Tasmania

When researching my midterm paper I recently I got the opportunity to correspond with Sheralee Davies, CEO of Wine Tasmania. Wine Tasmania is an independent, non-profit organization, financed by its member businesses, that promotes the interest of Tasmanian wine. Below are a few key excerpts I thought would be worth sharing with the class, and very much related to Terry’s talk on brand building. Visiting Tasmania I felt a strong sense of community, craft, and a common story. Making wine on an isolated island provides challenges around profitability and export potential, but also provides an opportunity for tourism and a unique brand identity. Wine producers in Tasmania have done an incredible job coming together and leveraging the Tasmanian brand as an asset. I left wanting to promote Tasmanian wine but also the place itself, and feeling that the two were inextricably linked.  

Sarah: What are Tasmania's "unfair advantages" when it comes to wine?

Sheralee: Some are natural - in a cool climate, vintage variability is significant. Yields may vary by as much as 50% year on year and this makes it challenging, particularly from a profitability perspective. As a cool climate, our risks are elevated, with fruit hanging on the vine for a long term as it develops its intensity of flavour and structure. Also, as an island there are logistical challenges and costs associated with transporting wine, equipment, bottles (etc.) to and from the island. We often talk about 'high risk, high reward'.

Sarah: What is the "Tasmanian brand" and how is that an asset?

Sheralee: We have developed a specific Tasmanian Wine Brand platform, which is aligned to the Tasmanian Tourism Brand. I can't share the full details with you, as it's been developed to provide a commercial benefit to Tasmanian wine producers. In summary, it positions us as an adolescent, in light of our relatively short history, and all that goes with it - anti-establishment, confident, wacky, unbridled, rebellious. The key benefits are that it allows us to differentiate Tasmania from other wine regions, unifies producers and is aligned to encouraging tourism. Tasmania is the first thing we talk about in promoting our wines - not just our wines, but the place, the people, the produce, the experience (etc.) - it's incredibly important and powerful.

Sarah: How do Tasmanian wineries plan to build brand equity internationally?

Sheralee: Collaboratively. It starts with regional promotion of Tasmania, then each wine producer can share their own stories and grow their own markets. The promotion of Tasmania includes collaboration not just between wine producers, but also with other Tasmanian produce, tourism offerings, attractions and experiences.

Sarah: I would love to hear more about the potential for and pain points of exporting Tasmanian wine, and inroads made here.

Sheralee: There is significant global interest in Tasmanian wine and recognition of its quality due the very significant and long term efforts of wine producers. However, we only produce the rough annual equivalent of 630,000 dozen (9L) and most of our wine businesses are micro or small. Additionally, our cool climate creates significant vintage variation, meaning that availability of wine to sell changes year by year. Many Tasmanian wine producers are therefore best to focus on the domestic market, particularly through cellar door and direct sales - this helps their bottom line as well as their relationship with customers. Exporting comes with a need to service markets, to label wines differently, to obtain an export license, local importer (etc.) - if wine businesses can sell in the domestic market, this makes the best sense for many. There are approximately 15 'active' Tasmanian wine exporters, who are doing an excellent job of promoting the island's wines. Key current markets are the UK, USA, mainland China, Finland and Hong Kong - the major focus for export is the value per litre, rather than volumes.

Sarah: Where do you see the Tasmanian wine market in ten years? What most excites you about the future?

Sheralee: I expect Tasmanian wine to be far more prominent in key export markets, for people to have more knowledge about Tasmania, its wines and wine styles. I also expect that more wine lovers will be visiting Tasmania to seek out more of our wines, and that Tasmania will be recognised as one of the leading wine regions for quality and excitement. There is so much change and development occurring - more people moving to Tasmania to grow grapes and make wine, different clones and varieties being planted, different winemaking techniques (etc) - the innovation and where it will take Tasmanian wine is what is exciting.