Out of Their Hands

Out of Their Hands

Sunday afternoon, Doug Fabbioli drove through his Leesburg vineyard in an open golf cart. The sun beat down and dried leaves and grass crunched under the tires of the cart as he maneuvered through the rows and rows of grape vines. The leaves of the vines rippled from both his speed and day's light breeze.

In the middle of one row he stopped the cart, got out and inspected a bunch, pointing out the color and firmness of the grapes.

"These are almost perfect," he said. "They'll be ready soon."

Minutes later, Fabbioli was in the basement of his home, which also serves as a tasting room, storage room and fermenting room for his small vineyard.

Fabbioli is the owner of Fabbioli Cellars, a small, family winery located on Limestone School Road north of Leesburg. Fabbioli moved onto the 25-acre site with his family in 2000 and began planting merlot grapes in 2001. As a small winery, Fabbioli Cellars makes three blended wines, including a raspberry merlot that he makes with raspberries grown on his own property.

FABBIOLI CELLARS, along with the more than 100 other Virginia vineyards, is having to change the way it does business. Beginning July 1, the state began enforcing a law that prohibits Virginia wineries from distributing their own wines to stores and restaurants and requires they use an outside distribution company.

Self-distribution was one of the main ways smaller vineyards got their products out to the public for a lower price, both for the vineyard, the retailer and the consumer.

The move came six months after the General Assembly tabled House Bill 1288 Jan. 31. If it passed, the bill would have allowed smaller vineyards to self-distribute to wine shops, restaurants and grocery stores.

"Most wineries in Virginia are below 6,000 cases," Ann Heidig, president of the Virginia Wineries Association and Lake Anna Winery in Spotsylvania, said. "This could really hurt the smaller vineyards."

The battle over self-distribution began several years ago, Heidig said, when consumers and out-of-state wineries filed suit in Virginia court, stating they were at a disadvantage because they could not self-distribute. Last year, federal courts ruled that allowing Virginia wineries to sell their wine directly was unconstitutional.

House Bill 1288, which never came out of subcommittee, would have allowed for a small producer distribution license, giving wineries producing less than a certain number of cases per year the ability to sell their product without a distributor.

"We started at 100,000 cases," Heidig said. "We were willing to negotiate for a smaller number but no one was willing to negotiate with us. The bill was dead on arrival."

THE NEW DISTRIBUTION regulations create a complicated problem for many wine makers. Vineyards, such as Fabbioli Cellars, which produces around 1,000 cases per year, are not large enough to attract the interest of most distribution companies.

"Smaller wineries are really in a pickle," Jennifer McCloud, owner of Chrysalis Vineyards in Middleburg and member of the Virginia Wine Board, said. "They are squeezed because they are not large wine makers and the size of their production is not large enough to warrant wide distribution."

If the smaller wineries are able to attract a distributor, there is no guarantee that the distributor will promote the vineyards' wines.

"The distributor says they'll only take 30 percent, but 30 percent of a larger production is worth a lot more to them than what a smaller vineyard can offer," Fabbioli said.

Direct customer interaction and selling is a large part of what has given smaller wineries the chance to succeed, Fabbioli said.

"We want to build our relationships with those guys directly," he said. "This adds a layer and with every layer, it's an expense and we're getting hit."

McCloud, who does work with a distributor, agreed that a great deal of what sets a smaller vineyard apart is the fact that the wine makers are the ones promoting their wine.

"You expect [the distributor] to be presenting your wine to customers and working in consort with the wineries to promote the brand name," she said. "However, awareness of brands is the ultimate responsibility of the wine maker."

MCCLOUD SAID on average wineries that self-distribute make approximately 66 cents for every dollar they spend. When a distribution company is added, wine producers make approximately 50 cents on the dollar.

"When you compound that with the fact that distributors aren't going to put much attention on the small wineries," she said, "I think it is kind of a step backwards."

"These small wineries have a profit margin that is so thin that any loss of profit really hurts them," Heidig said. "And a new winery doesn't have the brand recognition so they have to be priced competitively on the shelves."

When wineries lost self-distribution, they lost all access to the consumer, Heidig said.

"It makes it difficult to grow a business when you have no market access," she said.

Many small vineyards are realizing they might have to raise their prices in order to make up the money they will have to pay to the distributors, Heidig said. She added that it is nearly impossible for a vineyard to raise the number of cases they produce every year because wineries need to have the money to buy additional tanks, presses and grapes themselves.

"You have to have the capital investment at each level to expand," she said, "and it is very hard to get that if your profit margin is dwindling."

IT IS NOT only the wine makers that might feel the effects of the new distribution policy, but sellers as well, particularly those who cater to local vineyards.

Janet Carper, owner of Ye Olde Dominion Wine Shoppe in Occoquan, a store that carries only Virginia wines, said the new policy is "very frustrating."

"At first I was literally in fear that we were going to lose one-third to half of the wine that we carry," she said. "Now we are just waiting to see how the wineries deal with it." The number of cases retailers must purchase in one order goes up when a distributor is involved, Carper said. She added that with alcohol, purchases must be paid for up front, so buying in bulk becomes a "cash flow issue" for smaller stores like hers.

"If the money ain't here, it ain't here," she said. "I can’t buy a lot at one time just because it might save me money in the long run."

Carper, who has been in Richmond to show her support for the wineries, says she does not understand why the law even took effect since it does not benefit anyone involved.

"I could understand if this was costing distributors money, but it was costing them nothing to have these wineries self-distribute," she said. "It is a shame that everyone has to go through this for no real, good reason. They need to look at what Virginia wine has done for the state over the last 10 to 15 years."

NO ONE IS quite sure what the coming months and years will mean for smaller Virginia vineyards and many vineyards are trying to decide what their next step will be depending on what they see happening in their own winery.

"It may take a while for the trickle-down effect," Heidig said. "Most wineries are just trying to figure out strategies for possible scenarios."

Some, she said, are attempting to establish unrelated wholesalers, or co-ops, to sell their wine. Others are looking into getting remote license to open their own store separate from their winery. A remote license, Heidig said, is what allows vineyards to sell their wine at festivals.

"A permanent remote license would allow them to sell at a separate site every weekend," she said.

While Heidig says she understands limiting direct sales is strictly a business decision, she and the Virginia Wineries Association are looking towards the future.

"We're now looking to seek redress for the next General Assembly session," she said. "We want to find something that everyone can live with so we can get past this and people can get on with making wine."

Some wine makers, like Fabbioli, are considering reducing how much they sell outside their own vineyards if nothing is done about the distribution laws.

"We are thinking about limiting what we sell," he said, "hunkering in and selling at our tasting room. We don't want to do that because for the industry to thrive and survive we need to sell the shops and restaurants because that's where people drink wine."

Fabbioli has started to work with a very small distributor, someone he says he hopes will do right by his small vineyard, but he hopes that if he is once again allowed to distribute directly, he will not be tied to the distributor.

"A lot of these distributors have a franchise act," he said. "I hope I don't get stuck, but they could easily say they have every right to continue to distribute my wine no matter if the law changes."

Fabbioli said he does not believe the wineries’ fight is with the distributor directly, but instead with the state government who has supported developing a Virginia wine industry, but who are now taking away that support.

"With this set up [the government] has not helped people who grow grapes at all," he said. "On one hand the government has really helped to build this industry, but now it is not helping us."