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Virginia wineries are still waiting

January 6, 2008 12:36 am

Mitzi Batterson thought small Virginia wineries' distribution worries were over once the General Assembly passed emergency legislation last March.

The bill, submitted after the state's wineries lost the right to self-distribute, called for the formation of a private, nonprofit state wholesaler that would help them get up to 3,000 cases each to market annually.

"We thought that was a solution, but nothing tangible has happened," said Batterson, who manages James River Cellars in Ashland. "That was a huge hit, not to be able to distribute my wine in the last quarter of this year."

Virginia wineries stopped distributing their chardonays, cabernet francs and other wines after the U.S. Supreme Court ruled that state laws allowing in-state wineries, but not out-of-state businesses, to deliver products themselves was discriminatory. States had to level the playing field, and Virginia decided not to allow wineries to sell directly to stores or restaurants.

That hurt the many small wineries throughout the state that don't have enough wine to attract or afford a distributor, who typically marks up bottles 30 to 40 percent, or who were delivering small orders to retailers and restaurants.

Batterson, for example, used to deliver about six bottles at a time to a wine shop near James River Cellars that stayed open three hours after the winery closed. The arrangement was useful for customers who showed up too late to buy wine at James River.

The General Assembly's solution was to create the Virginia Winery Distribution Corporation, but no funding was available to get it rolling until July 1, when the current fiscal year began, said David King, who chairs the non-profit's five-member board and is an owner of King Family Vineyards in Crozet.

Since then, the VWDC has been incorporated, and its board has determined how the operation will work and purchased the necessary software. Now members are waiting for the U.S. Alcohol and Tobacco Tax and Trade Bureau to determine if it needs a federal license because it's a private non-profit or is exempt because it's a state agency.

"That's the million dollar question," said Terri Cofer Beirne, the board's lawyer. "We're a public instrumentality, but we have a charter from Virginia's State Corporation Commission as a private, nonprofit corporation. We're truly a unique animal, honestly."

Board members were so worried that they hadn't heard anything by their Dec. 13 meeting that Beirne went ahead and applied for a license in case it's needed.

"We have 56 wineries that have expressed an interest in being VWDC's customers," she said. "We just couldn't wait."

While the cost of the license is nominal, having to get one may mean that wineries will have to amend the floor plans they submitted for permits to show the spaces in their bonded warehouses that will be leased to VWDC.

"It's more of a paperwork hassle than anything," Beirne said.

Bureau spokesman Art Resnick said the application is being studied by legal counsel, and an determination should be made in about a week.

Whatever is decided, the VWDC will operate like this once it's up and running.

A winery owner will enter orders from a business into the VWDC computer system, which will send him a purchase order. The winery owner will then become a temporary VWDC employee, go into the bonded area of his business and move the order into the bonded area leased to VWDC.

He'll put the order into his vehicle, which will temporarily become a VWDC vehicle, deliver it and pick up a check made out to the VWDC. The purchase order and check will be sent to the corporation, which will deposit the money in its account, deduct the amount needed for state and federal taxes, and send the rest back to the winery minus a $5 transaction fee.

"The whole purpose of the wholesale system is to make sure the government gets its money," said King. "It's the cheapest alternative available that gets the functional equivalent of self-distribution."

He's already served as a guinea pig during a dry run of the software, even though King Family Vineyards sells most of its wine at the winery.

"What most of the wineries will tell you is that they sell within 10, 20 or 30 miles," King said. "This allows you to go out and effectively put your brand out in front of the local market by getting wine to wine shops and restaurants that are most likely to recommend them to tourists and local customers. It's most needed for wineries that are just getting started."

Cindi Causey, co-owner of the six-months-old Potomac Point Vineyard & Winery in Stafford County, said she's using Southern Oceans Trading as a backup wholesaler until VWDC comes online.

"We're waiting until this thing comes through and then we're going to look at different places across Virginia," she said. "Being new, you still have to have enough for all your events. But I'd like to get it out there more."