Bill to Squeeze ‘Gray Market’ in Wine Gains

SACRAMENTO â€”  Turning aside protests from the attorney general, consumer groups and large retailers, a key Assembly committee on Tuesday approved legislation to curb a flourishing “gray marketâ€� that has brought fine European wines into California at bargain-basement prices.

The measure, already passed by the state Senate, is being pushed by some California wineries and a few official importers of French wines who have seen their profits decline in the face of cheap imports brought here through legal, but unconventional, channels.

The heavily lobbied bill, approved by the Assembly’s Governmental Operations Committee on a 9-3 vote, would allow only those firms that are officially designated by brand owners to import wines. Similar protections were granted to the hard liquor industry several years ago.

The action was taken after the bill’s sponsor, Sen. Ralph C. Dills (D-Gardena), agreed to drop beer imports from the measure.

Little Practical Effect

That move, however, is seen as having little practical effect because few beers are being brought into California by other than official importers.

The debate on Tuesday boiled down to a choice between protecting California’s wine industry from inexpensive imports and protecting the interests of California consumers, who are able to buy some of the world’s best wines at half their normal prices.

Robert Hartzell, president of the California Assn. of Wine Grape Growers, said the wine industry has been hit hard in recent years by low prices and flat sales figures, made worse by the recent burst of inexpensive imports. “Frankly, we are hurting and this bill is a step in the right direction,� he said.

Opponents countered that there are only a few California wineries directly competing with the fine European wines that are now making their way to local supermarket shelves. “The legislation has only one purpose--that is to raise prices,� said San Francisco attorney William Kinzler.

The recent bargains have been made possible in part by the dollar’s growing strength overseas and in part because of a two-tiered price structure that French wineries have maintained for their top wines--a lower price for European consumers and a higher price for Americans, who are viewed as able to pay more.

That has enabled so-called gray marketeers to buy from secondhand sources in Europe, pay for shipping to the United States and still undercut the prices of official importers by as much as 50%.

California Atty. Gen. John K. Van de Kamp recently charged that the bill would establish “state-mandated monopolies� by requiring all imports to be handled by firms officially designated by brand owners. Consumer groups and chain liquor store owners contend that the immediate effect will be a dramatic increase in the prices of these prestige wines.

In arguing for his bill on Tuesday, Dills said large chains have used the low prices on European wines as loss leaders to entice consumers into their stores. Ultimately, he said, they earn their profits by getting their customers to buy other products at higher prices.

Expected to Lose

Opponents of the measure expected to lose Tuesday because the alcoholic beverage industry has a long history of successes in the Governmental Operations Committee. Lobbyists for the gray marketeers and large retail liquor outlets say they intend to press their fight on the Assembly floor.

The committee last week approved another Dills measure that would carve out exclusive territories for beer distributors within the state, making it difficult for chain liquor stores and other large retailers to take advantage of reduced prices offered by some volume distributors.