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Illegal Shipments of Wine Anger Arkansas Retailers, WholesalersLock Icon

6 min read

The online wine clubs’ come-ons are seductive: Shop at home, discover hard-to-find wines, get great discounts, click, wait a few days, open the box deposited at your door, pour, enjoy.

Unfortunately, that delicious wine may be illegal. Arkansas law prohibits off-site direct-to-consumer wine sales.

There is one exception: Act 483 of 2013 permits out-of-state wineries that have a state permit to ship up to one case of wine per calendar quarter to an Arkansas consumer who bought the wine on the premises of the winery. In other words, if you visit, say, a Napa Valley winery and love its product, you can ask the winery to ship you some, as long as it registers with the Arkansas Alcoholic Beverage Control Division and collects the applicable taxes.

But alcohol retailers and wholesalers in Arkansas say wine clubs and other retailers are regularly flouting the law, and the chief of the state ABC acknowledges that wine clubs are “problematic” and that Arkansans who receive wine shipments may be violating the law as well.

More than $2 million in wine was shipped from wineries to Arkansas in 2017, according to the 2018 Direct-to-Consumer Wine Shipping Report issued by Sovos Shipcompliant, which provides sales and fulfillment software to the alcoholic beverage industry, and Wines & Vines, a trade publication.

Those sales were legal; Sovos Shipcompliant, after all, helps wineries navigate the nation’s complicated liquor laws. But one Arkansas veteran of the wholesale liquor industry, who asked that his name not be used, thinks the real total of wine shipped into the state is much higher.

“There’s laws in place that aren’t being followed,” he said. “Who knows what the real number is that’s actually being shipped into the state? I think it’s pretty substantial. I think it’s a lot more than $2 million.”

One afternoon earlier this month, John Akins, co-owner of Legacy Wine & Spirits of Little Rock and president of the United Beverage Retailers of Arkansas, showed off cardboard boxes containing bottles of wine he had ordered from a couple of heavily advertised wine clubs, Firstleaf and Wine.com.

Akins said such shipments are illegal and they’re cutting into the business of Arkansas package liquor store owners.

Stan Hastings, chief executive officer of the family-owned alcohol wholesalers Moon Distributors and Central Distributors, both of Little Rock, said the shipments are “a problem because it’s business I’m losing,” but “the biggest single issue is the lack of controls on minors ordering alcohol.

“And a lot of people like to play this that the only thing sold online is high-end wines and limited edition stuff and all, and I don’t think that’s true. I think that, having kids, young kids that are now all of legal age but were in college just a few years ago, this is how a lot of young people are getting their alcohol today.

“And then there’s the issue beyond that of the state not collecting taxes, loss of sales, all kinds of other things. The single biggest issue to me as an industry member, though, is minors and access.”

Mary Robin Casteel, director of the state Alcoholic Beverage Control Division, was unable to do an interview with Arkansas Business last week, according to a spokesman, but did issue a statement acknowledging the problem.

“This is an issue ABC is very much aware of as we have spoken to numerous industry members regarding the concerns surrounding it,” Casteel said in the emailed statement. “The focus of the conversations was potential legislation that would tighten and strengthen our laws regarding illegal shipments of alcohol.

“We aren’t certain whether this issue will be raised in the upcoming session but, as it stands now, ‘wine clubs’ are problematic for all facets of the alcohol industry in Arkansas. As current laws are written, it would be difficult to punish the illegal, out of state shippers. Additionally, this is a potential criminal issue for Arkansans receiving the product as it is untaxed liquor.”

An Enthusiastic ‘Yes!’
It was that hazard of potentially committing a crime that stopped an Arkansas Business reporter from following through on an order from Firstleaf. Nevertheless, the wine club emailed several times to ask why she hadn’t gone ahead and joined. In addition, Firstleaf’s website explicitly states the company ships to Arkansas.

And a “chat” operator on Wine.com, when asked — on two separate occasions — whether the company shipped to Arkansas, enthusiastically answered “Yes!”

Nevertheless, Scott Hardin, an ABC spokesman, said neither company was permitted to ship wine to Arkansas. “There are not any circumstances under which an out-of-state wine club or other out-of-state alcohol retailer (not a winery) can ship alcoholic beverages to Arkansas,” Hardin said.

An email to FirstLeaf asking how it could legally ship to the state was unanswered as of press time. A spokesman for Wine.com maintained it did have licensing to ship to Arkansas.

Hastings said the issue of direct-to-consumer and online sales was bigger than just wine. “Everybody likes to talk about wine sales,” he said. “And wine sales are kind of the generic term for all of it. But it’s equally as big for spirits.”

And, Hastings added, it’s nothing new. Illegal shipments of alcohol to the state have been a problem for the last 15 or 20 years, he said. “I don’t think there’s any stomach, appetite, whatever at the state level to crack down or address it,” Hastings said.

The problem persists despite a supposed crackdown by carriers like United Parcel Service and FedEx on shipments of alcoholic beverages. The New York Times reported on Oct. 23, 2017, that the carriers “have told retailers that they will no longer accept out-of-state shipments of alcoholic beverages unless they are bound for one of 14 states (along with Washington, D.C.) that explicitly permit such interstate commerce.”

But as Hastings and others noted, “It’s still happening.”

The Online Challenge
Ultimately, the problem of illegal alcohol shipments to Arkansas is part of a much larger issue for liquor store owners and distributors, an issue faced by almost all retailers: the increasing popularity of online shopping. An entire generation has come of age that shops primarily online, that expects to be able to shop the world at all hours of the day or night and have their products delivered to their door with a few clicks.

In addition, the expanded sale of wine in grocery stores, which took effect Oct. 1, 2017, has already cut into sales at the state’s package liquor stores. A report in July said total sales had fallen an average of 5.5 percent, and stores whose wine sales represent more than 40 percent of total sales saw an average decrease of 15 percent to 28 percent.

Akins, of Legacy Wine & Spirits, said, “Our biggest concern is that we have all these big corporations, Walmart and Kroger, heck, even Amazon — we’re afraid of Amazon coming in and taking over — if we don’t get ahead of the curve and figure out how to make up for all this lost revenue, we’re going to be in real trouble if Amazon comes in.”

That veteran of the wholesale liquor industry in Arkansas knows that online is “where retail is headed, if you look at the examples of Blockbuster or Toys R Us. The difference is this is a regulated product.”

Hastings, the alcohol distributor, echoed the sentiment: “We’re not toilet paper. We aren’t paper towels. We are a controlled substance.”

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