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products to retailers and restaurants through a distributor. One of the exceptions, but only in about three dozen states, is self-distribution, where wineries can sell directly to retailers and restaurants in their home states under specific sets of circumstances. "It's all part of the 50 laws for 50 states," said Cary Greene, an attorney at Davis Wright Tremaine LLP in Washington, D.C., and the outside counsel for WineAmerica. "Each state has different laws, and the states that allow self-distribution have different ways of doing it." Under the three-tier system, a winery can legally sell to consumers in one of three ways, assuming that the method is legal in its state: through its tasting room; directly to consumers through something like a wine club; and through selfdistribution. The first two methods are relatively straightforward; selfdistribution almost never is. "Wineries that self-distribute should not assume that they have all the rights and privileges of distributors," noted attorney Lou Bright, general counsel for the Texas Wine and Grape Growers Association and the former general counsel for the Texas Alcoholic Beverage Commis- AT A GLANCE + Self-distribution's hurdles are not only legal, but also economic. + Startups can learn important lessons about how their businesses work from selfdistribution. + There's more to effective pricing than keeping the distributor's markup. + Brand management plays into deciding whether to selfdistribute. + Hybrid forms of self-distribution are becoming more common. w w w. v w m m e d i a.com owner of Kiepersol Estates winery in East Texas, which has selfdistributed off and on for the past decade. "Keep up with the regulations, and file your paperwork when it needs to be filed." MAKING BUSINESS SENSE Lou Bright, general counsel for the Texas Wine and Grape Growers Association, points out that self-distributors do not have the same legal rights as outside distributors. Equal in importance to following the legal requirements is determining whether or not self-distribution makes financial sense for your winery. The advantages, which include better margins, must be balanced against the disadvantages. For example, does your company have the resources and ability to deal with the logistics of self-distribution? It's often difficult for wineries, especially small ones, to understand that self-distribution involves a lot more than just calling on local retailers and restaurants. Wineries see the higher margins available in self-distribution – mostly from add- sion. "It can be a very different kind of relationship. It's very state-specific and state-law driven, and it's a complicated process, even if you are allowed to do it." The first question to answer is whether self-distribution is legal in your state; your local alcohol beverage control agency can answer that and outline the basic reporting, licensing and financial requirements. Complying with self-distribution regulations will require some extra homework for those who are new to the process. For example, Colorado doesn't allow producers to extend credit to customers who are more than 30 days overdue; a small winery with no self-distribution experience wouldn't necessarily be aware of that. It's also important to note that state regulations regarding promotions, tastings and demonstrations can be different for self-distributors than they are for traditional distributors, according to Bright. For example, a winery may not be allowed to sample retailers the same way that a distributor can. "The legal part is straightforward, if you keep up with it from day one," said Pierre de Wet, J a n - Feb 2014 | V INE YA RD & W INE RY M A NAG EM EN T 129