Friday, April 06, 2007

Mixed reviews

A compromise bill that gives Virginia farm wineries a method of self-distribution is getting ...
The Roanoke Times
By Christina Rogers

State lawmakers uncorked new legislation Wednesday that restores some measure of self-distribution to Virginia's farm wineries while keeping them in line with the industry's three-tier alcohol distribution system.

In a one-day veto session, the General Assembly approved Gov. Tim Kaine's amendments to a wine distribution bill, in effect clearing the way for the creation of a state-run, nonprofit corporation that will offer wholesale services to Virginia wineries for up to 3,000 cases a year. The law is effective immediately.

Meanwhile, the Virginia Department of Agriculture and Consumer Services has already created a five-member board to oversee the wholesale operation, and more than $260,000 has been included in the state budget for the new service, said Terri Cofer-Beirne, counsel and lobbyist for the Virginia Wineries Association.

"The wineries are already feeling the squeeze from last July," she said, adding there is a sense of urgency to start the service.

Nearly a year has passed since the state ended the decades-old practice of allowing Virginia farm wineries to distribute their bottles directly to retailers and restaurants. The wineries were left with the choice of selling through an alcoholic-beverage distributor -- with a typical markup of about 30 percent or more -- or halting their off-premises sales.

The state ended self-distribution to comply with a 2005 federal court ruling that deemed the practice unconstitutional because it gave in-state wineries an advantage over their out-of-state counterparts.

But it also shut off a major revenue stream for many wineries that don't produce enough cases annually to make using a private distributor financially feasible, said industry observers. Many farm wineries both regionally and statewide feared the change would push them out of the business.

The new law is the result of a compromise between the state's winemakers and distributors, Cofer-Beirne said. It gives state wineries another option for distribution at markups that lawmakers say will be lower than those offered by private-sector distributors.

The state-run wholesaler will not warehouse wine. To keep costs low, wineries will be responsible for marketing, storing and delivering their wine, but the wholesaler will handle all the monetary transactions and paperwork, such as paying taxes and processing the orders.

"That's how it has to work under the law," Cofer-Beirne said. "It ensures wholesalers have a place in the process."

The service will be provided for a fee, but the financial details are still being worked out, Cofer-Beirne said. The board that will oversee the wholesale operation includes two representatives from each industry -- the farm wineries and the private distributors-- and a commissioner from the VDACS, she said. The estimated $260,000 set aside by the General Assembly will be used to fund startup costs and two new staff positions within the VDACS for the service.

The bill met little resistance in the House and the Senate this year -- a marked turnaround from efforts made in 2006 to restore the right of self-distribution to in-state wineries in a limited way and extend limited rights to out-of-state wineries as well.

That legislation was killed partly because of opposition from wholesalers who said their livelihood would be threatened if out-of-state wineries were no longer required to use their services.

The right to self-distribute was first put in place in 1980 to give the state's then fledging wine industry a boost. Since then, the industry has grown from six wineries in 1979 to more than 100 today, with some of that expansion being felt locally. In 2006, for instance, three new wineries opened in Bedford County.

Many of those wineries say they are relieved to find there is an alternative to the private-sector distributors who may tack on a hefty markup.

"It is going to keep a lot of us from going out of business," said Roger Furrow, who runs Hickory Hill Winery in Moneta.

But he also acknowledged that the legislation is not ideal. "It solved the problem in an awkward way by setting up additional bureaucracy," he said, noting that there will be "a little bit of red tape" involved with sending the paperwork back and forth for his winery which produces about 1,500 cases a year.

At the same time, about 20 percent to 25 percent of the winery's sales had come from selling directly to market, and he's eager to recapture that revenue source. "In general, the legislation is certainly better than nothing," he said.

David Sawyer, owner of Fincastle Vineyard & Winery, also said he's thrilled to see another route to get his bottles to market. "To have [had] it and to have lost it was very financially troubling to us, so even to get part of it back, I am grateful for," he said, adding that it's been a good year for on-premises sales at the winery -- in part because of all the recent media coverage on Virginia wineries -- but it's not enough to sustain the business on its own. Wholesale, he said, was supposed to be about 50 percent or more of the business.

But not every winery is ready to toast the new legislative measure. Debra Vascik, co-owner of Valhalla Vineyards, said the new system isn't really a true compromise.

"I don't see the state's system of paying them as a virtual distributorship as being beneficial," she said.

The Roanoke County vineyard and winery plans to continue working with its private wholesaler, CB Distributing, which Colin Brown runs out of his Roanoke County home.

Last year, Brown got his wholesalers license -- for about $180 -- to help the owners of Valhalla Vineyards out of the distribution bind. He now sells exclusively for the winery, charging them the bare minimum and delivering cases from his Ford Taurus, he said.

"It's going to be an absolute mess," Brown said of the new state-run system. "Basically, when you boil it down to the nuts and bolts, it's not much different from self-distribution," he said, but with more steps in the process. "The more steps you have the more problems you get."

While there are still some logistical kinks to be worked out, Cofer-Beirne said, the agriculture department hopes to have the wholesale corporation up and running by July. It will then notify wineries of its existence and the details of its operating agreement.

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