Friday, November 24, 2006
Virginia wineries want level playing field
From the RoundTable blog
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Randle Phillips
Phillips owns and operates Cave Ridge Vineyard in Mt. Jackson.
When I began planting my vineyard almost six years ago I had visions of someday harvesting the grapes, making quality wine and selling the wine at a few local stores and restaurants.
However, I had no idea that in order for my small farm winery to be successful, and for me to get my wine into the marketplace, I would have to make numerous trips to Richmond to attend hearings in the House of Delegates, visit the offices of elected officials and write letters in response to misleading articles such as the one written by Robert Archer of Blue Ridge Beverage Co.
Archer attempts in his Oct. 23 commentary to paint Virginia farm wineries as having "sour grapes" over losing their "competitive advantage" by being able to self-distribute to shops and restaurants and their attempt to "weaken the rules" to solve problems raised by the federal courts.
This is completely misleading. The Virginia wine industry supports leveling the playing field for all wineries, both in-state and out-of-state, and wants to open up Virginia markets to out-of-state wineries to retain some of its in-state distribution privileges.
It is surprising anyone connected with alcohol distribution in Virginia would suggest that Virginia farm wineries receive preferential treatment under the law when it is the wholesalers -- the middlemen -- in Virginia's three-tier system of alcohol distribution that have laws ensuring their place in the middle of the chain of distribution.
Most consumers I talk to are unaware that alcohol beverage distributors are given preferential treatment under two separate laws, the Virginia three-tier structure, which Archer mentioned in his letter, and the Franchise Act, which he failed to mention.
In short, the Franchise Act prevents a winery from selling the same brand to two wholesalers in the same territory. I believe this limits market forces from a competitive situation that could potentially save consumers money on a bottle of wine.
It is remarkable that Archer would suggest that an open market approach to wine distribution for small wineries would have devastating consequences for wine distributors, because the Virginia wineries have been self-distributing for 25 years without harming wholesalers.
Also, it is important to note that once a winery grows to a certain size, it becomes efficient for it to use a distributor. For example, today, the larger Virginia wineries, about one-third of them, currently distribute most, if not all, of their wines through distributors.
It is hard to imagine a West Coast winery loading up some trucks with its wines, driving thousands of miles across country and peddling the wines to individual stores and restaurants in Virginia rather than using the services of a wholesaler.
The General Assembly did not decide to "keep the rules that maintain Virginia's alcohol business on an even keel," as Archer stated in his letter.
The General Assembly never got the opportunity to decide whether Virginia farm wineries should be able to continue to distribute their wines. The self-distribution bill was defeated in subcommittee and never allowed to go forward for consideration by the General Assembly.
As a result of the loss of self-distribution, small farm wineries are losing 25 percent to 30 percent of their sales. A number of Virginia's nearly 300 vineyards that grow grapes for wineries have had contracts canceled, threatening the future viability of their farming operations.
The solution for Virginia wineries to continue self-distribution as suggested by Archer is illegal. Virginia farm wineries cannot merely purchase a "low-cost" wholesale license.
Virginia's antiquated three-tier system prohibits a winery from having an ownership interest in either of the other two tiers (production and retail).
The commonwealth of Virginia developed policies more than 25 years ago by passing the Farm Winery Act to grow an industry that has been incredibly successful. From six wineries in 1979 to nearly 120 today, Virginia's farm wineries are gaining national recognition.
They provide significant travel and tourism benefits to Virginia, maintain land in agriculture use where housing developments might exist otherwise and create a positive image for rural Virginia.
In 2005, the alcohol beverage distributors/brokers contributed in excess of $900,000 to Virginia political campaigns, according to the Virginia Public Access Project.
Supporters of farm wineries need to demand favorable winery policies from elected officials to ensure that political contributions are not driving public decision-making.
The access and influence that large contributions provide is not easily overcome.
However, it has been demonstrated time and time again that, right or wrong, public opinion will ultimately prevail.
