Digital Veraision, Leader
Let’s face it, Pat Kuleto makes wine. He also is one of the most formidable restaurateurs in the country. Why wouldn’t he be able to offer his wine brand in all of his restaurants? American society is built on the concept of entrepreneurialism, capitalism and greed. Why penalize the guy for being smart, thrifty or resourceful? I bet if Burger King had it’s own brand of wine; there’d be no trouble in allowing them to sell it in EVERY Burger King in the US.
Furthermore, why is the wine industry, (a declining 2B dollar a year business) being managed country wide by arcane laws that need a big revamp so everyone has a chance to participate, sell their wine or try and make a living? I’ve noticed lately that oil, Texas oil, Louisianna oil, Alaskan oil…US oil isn’t kept from being sold to anyone…yeah, you can’t drink it, but, proceeds from the sale affects so many deep pockets that they (they=the tired old men running your state that have too much to lose for their home) surely won’t legislate to make it difficult to purchase.
Just imagine, Arkansas government saying you could only buy Texas oil and anyone purchasing gas from refineries that have used anything but Texas oil….we are going to shut you down. That’s right, the two gas stations for fifty miles that bought a US made product are going to be shut down because EVERYONE didn’t ‘just offer’ Texas borne and bred gas. What if gas made from Louisiana oil was cheaper that week? Wouldn’t you as a business man in the United States of America want to make a few extra pennies? Of course you would.
In order to move forward, steps need to be taken to separate the laws that govern wine and spirits. Let’s start by dividing the two categories. Wine can and should stand alone from a legal stand point, unless you know some 17 year old kids that are out there ordering Lafite, Kuleto or any other wine for their next house party. That’s right I said it. When I was 17, I can remember those days sitting on the couch with my old man watching Sunday afternoon football and Lafite Rothschild used to have those great commercials with ’scantily clad’ busty chicks and the lonely guy that was only more masculine when drinking Lafite. I digress.
Kuleto is a good man; he makes a nice wine and has some outlets to sell it. What’s the harm in him trying to maximize profit or offering his family brand in his restaurants? It seems second nature, to me.
San Francisco, Calif. — Pat Kuleto, a well-known vintner and one of San Francisco’s most prominent restaurateurs, has been fined and restricted after running afoul of California’s confusing tied-house laws.
“Tied-house” laws regulate how alcoholic beverages are marketed and how manufacturers, wholesalers and retailers interact. The term originated in England to refer to a bar “tied” by ownership or contract to a specific beer or liquor manufacturer.
Pat Kuleto Prior to Prohibition this practice was allowed in the United States, but critics complained that it encouraged overconsumption of alcohol, as tied houses offered “free lunch” if you bought a drink to promote business.
To prevent this common ownership, tied-house laws were passed establishing the three-tier system, in which alcoholic beverages are sold by producers or importers to wholesalers, and by wholesalers to retailers. The laws were also designed to prevent a few alcohol-beverage suppliers from tying up bars and dominating the market (as has been true for beer in the United Kingdom).
Under these tied-house laws, the tiers are distinct: Wineries generally cannot own retailers (including restaurants), and neither can distributors (wholesalers), although within California, wineries may directly sell to both wholesalers and retailers as well as to consumers. That’s not true in most states.
The laws sometimes seem arbitrary and can be confusing and apparently contradictory at times. James M. Seff, who heads the winery law practice at Pillsbury Winthrop Shaw Pittman in San Francisco, says, “The laws have mostly outlived their usefulness and don’t take into account the way modern business operates.” that the tied house laws are confusing and make little sense in today’s context.
One impact of the tied-house laws, however, is to support distributors, who are important politically and discourage direct sales to restaurants and retailers.
Many winery owners and partners also have invested in restaurants and other retailers, including Don and Rhonda Carano, who own Vintners Inn in Santa Rosa, Leslie Rudd with Press (and Dean & LeLuca and Oakville Grocery), Tim Mondavi, Michael Mondavi (including his Folio Enoteca in Napa’s Oxbow Market), Chris Williams, Koerner Rombauer, Michael Moon, Garen and Shari Staglin, Bob Trinchero. Pat Kuleto says he knows of about 100 vintners who invest in restaurants, including some in his restaurants.
Kuleto started Kuleto Estate Winery in Napa Valley (he sold 70% to Foley Estates this year) and is a significant and managing partner in seven restaurants including new Epic Roadhouse and Waterbar in San Francisco, as well as Nick’s Cove on Tomales Bay, Farallon, Boulevard and Jardiniere in San Francisco as well as Martini House in St. Helena.
The part of the law that tripped up Kulteo is that a winery can sell his wine in only two restaurants in which he has an interest in California, and the winery cannot supply more than 15% of the alcoholic beverages served there. And, unless the winery sells less than 125,000 gallons of its own brands annually in California, they must supply wine to their own restaurants through a licensed wholesaler.
If a winery has interest in more than two restaurants, it must not to sell its own wine in the additional establishments.
(By contrast, microbreweries have no limits on the amount of their own beverage they can sell, and they can even sell wine and spirits without an expensive license.)
By law, Kuleto wasn’t supposed to sell his Kuleto Estate Winery wines in more than two of his eateries. This also applies to minority owners of wineries and, likewise, to vintners who are minority partners in restaurants.
Like many other alcohol-beverage laws, tied-house laws had not been enforced consistently by the ABC. The understaffed bureau also typically doesn’t pursue most infractions (other than serving minors, for example) unless there are complaints.
Kuleto was cited for selling his wines at more than two restaurants, and first he ws offered Draconian punishments: Closing Farallon, Boulevard and Nick’s Cove (and Kuleto Estate Winery) for three months (or not serving alcoholic beverages, which could amount to almost the same thing), plus a $300,000 fine. Kuleto says this could have put the restaurants out of business.
After extensive and expensive negotiating, he was fined about $80,000 and says he paid the fine personally (legal fees were also extensive).
The three restaurants were put on probation for 30 months, and fans now can only buy Kuleto’s wines at two of his restaurants, presently Waterbar and Epic Roadhouse. He intends to switch from Waterbar to Martini House, so that people in St. Helena, where his winery is located, can again enjoy his wines.
Pat says that many of the vintners have filed to the ABC to legalize their investments. In addition, Seff points out that more than 40 exceptions to the laws have been passed, some to benefit specific companies.
Kuleto believes that the law could easily be made reasonable and serve its real intent if it were just to require that no more than 15 percent of the wine in any restaurant come from someone with interest in a winery and that the restaurant buys through a distributor. “This would protect the distributor and accomplish its spirit.”
He says that he and other restaurants in this position all buy from distributors and don’t try to bypass them. “We’re not some giant chain trying to cut the distributors out,” he says.
Seff agrees: “All Pat wants is to be able to sell his wines in his restaurants, and also let other winery owners invest in his restaurants and sell their wines there.” He adds that the ABC is inflexible. “They say, ‘We’re here to enforce the laws. If you don’t like them, go to the legislature to change them,’ ignoring the political difficulty of making changes.”
Other wineries, restaurants and special event organizers report that the ABC is being increasingly aggressive in enforcing the laws, and also that they’re receiving increasing complaints from individuals trying to force enforcement of existing rules.
Filed under: Wine, distributor management, luxury brands , kuleto, law, oil, wine industry
