Why are wine prices higher in Texas than in New York or California?
We Texans pay more for our alcohol than folks in some other states. Historically, I blamed the Texas Alcoholic Beverage Commission (TABC) for our elevated prices. I assumed that a state-imposed excise tax was responsible.
However, I recently visited a site that lists the excise tax imposed by each state on wine. It turns out that Texas has one of the lowest excise taxes in the US, at $0.20 per gallon. Only New York ($0.19/gal) and Louisiana ($0.11/gal) have lower wine taxes. So what gives?
My next thought was that the higher wine prices in Texas might be related to transportation costs. Almost all wine has to travel from somewhere else to get to Texas, and transportation might account for our higher wine prices.
Imagine my surprise when on a recent trip to San Francisco, I found bottles of French and Argentinean wines for less than I can get them in Austin. Californian wines were also cheaper, but that was not a surprise — they don’t have to travel very far. But what about the lower cost of the French and Argentinean wine? California is further than Texas from either of these countries.
Surveying Prices with wine-searcher.com
When I got home, I opened up wine-searcher.com and surveyed wine prices in New York, California, and Texas. The wines used in the survey are shown below along with the lowest prices in each state returned by wine-searcher.com. (These are the same wines used in our Austin wine shop pricing survey.)
Eight of the 18 wines were cheapest in California. All of these wines, except for Moet White Star Champagne (France), were California wines. Seven of the 18 cheapest wine prices were in New York. These wines came from Europe, South America, and Australia. Only once was a price in Texas equal to or less than the prices returned for California or New York. The wine Texas has to be proud of is Jim Jim Shiraz, which (according to wine-searcher.com) can be purchased in Texas or California for $9.99.
Almost all wine is more expensive in Texas
At first glance, these data appear to suggest that the higher prices we pay in Texas might be the result of transportation costs. However, if you compare the Texas prices for Californian wine to New York prices for Californian wine, you will see that Californian wine is cheaper in New York every time! Wine that goes from California to New York must pass by Texas, yet somehow higher transportation costs are not reflected in prices returned by wine-searcher.com for wines in New York.
Comparing the price we pay in Texas for imported wines to the prices paid in California show similar results. Wines from Europe and South America are cheaper in California than they are in Texas. If these wines are imported along the east coast, they pass by Texas on the way to California.
Direct imports vs. Texas’ three tier system
To help understand these puzzling results, I called friends in the wine business in Texas and in California and asked them what they thought. The first thing mentioned was that both New York and California state laws allow for “direct imports”. This means that a wine shop in New York or California can import wine and then sell it directly to retail clients, like me.
In Texas, we employ a “Three Tier System” for selling and distributing alcohol, which was set-up after the repeal of prohibition. In summary, the three tier system consists of (1) producers, (2) distributors, and (3) retailers. Producers can include wineries, breweries, distilleries, and importers. Producers sell to distributors. Distributors then sell to retailers, and the general public buys their wine (and all other alcohol) from retailers. The major exception to this rule allows micro breweries and wineries (producers) to sell directly to the public without using a distributor.
In short: Texas laws require another layer of people making money in between you and the wine you want to buy compared to some operations, as in New York or California.
No wine is imported directly to Texas
But this is not the only reason for the differences in prices. Most imported wine is shipped and enters the US either through California or ports on the east coast. Thus, the east and west coast represent the shortest distance between two points for most imported wine. These ports have climate controlled facilities to store wine and in general these areas are not as hot as Texas, making it easier to handle the wine. This means Texans get their imported wine from either the east coast or the west coast, and we have to pay for the cost of getting the wine from there to here.
California and New York compete in each other’s markets
Market forces also appear to play a role. If a Californian winery wants to sell wine in New York, it must compete with the “cheap” imports. Similarly, imported wines from the east coast that want to sell in California must be priced to compete with the wine produced there.
How can we bring Texas’ wine prices down?
What can we do to bring our wine prices down toward the prices that they pay in New York and California? The shortest answer is to work to change alcohol laws in Texas.
Our current three tier system does not reflect modern distribution practices, such as direct sales by wineries or internet wine buying. Additionally, the three tier system increases the price Texans pay for wine by requiring an additional step in the distribution process. Allowing direct imports would reduce the number of hands in the distribution chain, and it would encourage people outside the US to ship wine directly to Texas.
Next time you see the price of your favorite wine go up, it may not be because of the Euro or gasoline prices, but rather the result of archaic Texas laws.
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One additional factor that you did not consider is wine allocation. Smaller production wine is released more readily to some markets while others may only get a few cases. Less wine available = higher prices. That said, most of the wines listed above wouldn’t really fall into that category.
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