NOVEMBER 28, 2017
Prohibition died in 1933, but alcohol-related cronyism is alive and well.
“Chicago’s retail wine scene is hopping,” the Wall Street Journal trumpeted this month. As part of a series exploring Midwestern wine culture, the Windy City was extolled as the “Great Retail Wine Town.”
But legislation signed into law in 2016 could put a damper on Chicago’s retail wine market.
In addition to raising liquor license fees across the board, Public Act 99-0904, which was signed into law by Gov. Bruce Rauner in August 2016, “enhances penalties on those illegally shipping or transporting alcohol into the state,” according to the Chicago Tribune. The law makes unauthorized interstate alcohol sales a Class 4 felony, in league with aggravated assault and petty theft of government property, which can be punishable by up to three years in prison.
The liquor industry’s wholesale sector has long bristled at out-of-state retailers’ ability to sidestep the traditional “three-tier” manufacturer-distributor-retailer chain and market directly to consumers. The rise of e-commerce and online shopping have played a key part in diminishing the wholesaler’s role in the system. While this has benefited retailers and consumers in the form of a wider customer base, more product options and lower prices, wholesalers have supported efforts to limit these developments. Sure enough, PA 99-0904 was backed by the Wine and Spirits Distributors of Illinois, or WSDI, a trade group underwritten by Illinois’ two largest wholesale distributors of alcohol. The organization, records show, gives generously to political campaigns.
And the politicians, it seems, have given back.
While the WSDI has denied that the rule is anti-competitive, the law, which took effect Jan. 1, 2017, has had harmful repercussions for Illinois retailers that previously conducted business with out-of-state customers.
Indeed, states home to wine retailers who previously enjoyed a trading relationship with Illinois have responded to the new regulation in kind. “[A]s Illinois has shut down its borders to retailers from those states seeking to do business in Illinois, the principle of reciprocity has taken hold,” Crain’s Chicago Business reported. “[I]n sum, if we can’t do business in your state, then you can’t do business in our state.”
As a matter of principle, erecting barriers against other states’ exports will likely provoke those states to erect trade barriers of their own in retaliation. The result: Competition is compromised, and the consumer suffers.
Crain’s report highlights Johnson Ho, a suburban wine shop proprietor, who received a “warning letter from liquor control authorities in Maine” instructing him to cease all pending shipments to the state.
But punishing Illinois consumers’ demand for wine sold by out-of-state retail merchants isn’t just ill-advised for its counter-productive protectionism. The state, by repelling imports, will also forego millions in potential tax revenues, the National Association of Wine Retailers estimates.
At a time when Illinois ought to be working to attract businesses and facilitate commerce, it instead joins the group of states hostile to out-of-state alcohol shipping.
Retailers in other states are fighting back against the sweeping interstate prohibition trend, including in Illinois. An Indiana-based wine merchant has several lawsuits on file challenging the constitutionality of state alcohol import prohibitions, according to Crain’s. While one suit was dismissed by a U.S. District Court judge in Chicago, the merchant’s lawyer disclosed plans to appeal.