Local wineries boast of a 'potential to compete with anybody'

ABINGDON, Va. – When a tourist stops by Wines of Distinction for a nice gift to take home from a trip to Southwest Virginia, Katherine Rose points to a display showcasing the dozen Abingdon Vineyard and Winery wines she sells at her Main Street store.

She also gives those customers directions to the Abingdon vineyard’s main location in Alvarado, a community off U.S. Highway 58 between Abingdon and Damascus, where they can spend an afternoon sampling the vineyard’s other wines.

“We’re one of their best customers,” said Rose, who also sells wines produced by the Coltsfoot Winery in Abingdon and wineries that are based out of Floyd County, Va., and other parts of the state. “We sell a lot of Virginia wines.”

Rose’s store is one of seven places in Southwest Virginia that use the Virginia Winery Distribution Co. to sell Abingdon Vineyard’s wines. Created in 2006, this state-sponsored entity lets winery owners sell directly to restaurants and stores in the state.

“It’s provided us with an outlet to the local retailers that we didn’t have,” said Bob Carlson, owner of the Abingdon Vineyard and Winery.

Through the distribution company, Carlson is able to sell 150 to 200 cases of his wines to such restaurants as the Harvest Table in Meadowview, the Wildflour Bakery and the Trail Café in Abingdon, and the Town House restaurant in Chilhowie.

He’s also sold through Inari Wines, a wine and gourmet store in Bristol, Va., and is in the middle of forming a new partnership with a retail establishment in White Top, Va.

In hopes of seeing the same level of success their Virginia counterparts enjoy, small winery owners in Tennessee are hoping to change their state’s laws so they too can sell their wares at an off-site location without having to deal with a wholesale distributor.

“We’ve got the potential to compete with anybody,” said Kevin Corey, who runs the Corey Ippolito Winery in Blountville, Tenn. “If they would change the laws in Tennessee then we would double the number of our wineries in two to three years.”

The wineries

After running a motel in Florida for a few years, retired telecommunications executives Janet Lee Nordin and Bob Carlson bought 53 acres of land in Washington County, Va., and started planting their 10-acre vineyard in 1997.

The couple made the Abingdon Vineyard and Winery’s first batch of wine using grapes from their 2000 harvest, and opened a tasting room to sell their wines in June 2001.

About the same time, Kevin Corey and his wife started planting grapes on land surrounding a bed and breakfast they own near Tri-Cities Regional Airport in Blountville, Tenn.

The couple behind Corey Ippolito Winery started selling their wines in 1999 and now manage an 8.5-acre vineyard on their property, which is less than 60 miles from Alvarado.

Because of the short distance, the winery owners enjoy the same weather patterns, soil conditions and terrain that are perfect for certain types of grapes, such as traminette, used to make white wines, and cabernet franc, used in red wines.

“This was a good year for the grapes,” Corey said, adding that the long spells of hot, dry weather this summer ended with a harvest so productive that the grapes had to be picked a little early this year.

And because they grow the same grapes in their vineyards – the two wineries end up with very similar types of wines as the finished product they sell to local residents as well as tourists passing through the region along Interstate 81.

But that’s where the similarities end – because of the significant ways their respective state governments view and treat the wine industries, particularly when it comes to small operations.

Virginia saw a 130 percent increase in its number of wineries and wine producers in the nine years since the Abingdon Vineyard and Winery opened its tasting room.

The state was home to 88 wineries in December 2001 and 205 wineries in December 2009, according to the federal Alcohol and Tobacco Trade and Taxation Bureau, a branch of the U.S. Treasury Department that’s responsible for regulating the country’s beer, wine liquor and tobacco industries.

North Carolina saw a 230 percent increase in its total number of wineries, according to the bureau, from 30 in December 2001 to 112 in December 2009. The number of wineries in Kentucky also increased by 230 percent during those eight years, going from 17 in 2001 to 56 in 2009.

But as its neighboring states saw increases of 100 percent or more, Tennessee saw its total number of wine producers grow by only 64 percent – from 25 wineries in 2001 to 41 wineries in 2009.

Corey blames the lackluster growth on a series of state regulations that he claims make it difficult for small wine producers to get their goods to market.

“Needless to say, [Virginia and North Carolina] are No. 9 and No. 10 in terms of wine produced and sold in the United States, while Tennessee is nowhere to be found,” Corey said as he looked at how wineries in his neighboring states have fared this year.

The biggest obstacle is a rule requiring any Tennessee winery to use a wholesale distributor to sell their wines to an outside market. Virginia’s wineries were thrust into a similar situation nearly four years ago when a federal court struck down a rule that let them sell their wines directly to retailers and restaurants.

But thanks to a last-minute compromise worked out by state lawmakers, small wineries like the Abingdon Vineyard and Winery found a way to reach outside markets. That compromise formed the Virginia Wine Distribution Co.

The compromise

Virginia’s wineries drew nearly one million tourists to the rural parts of the state where they are located, said Annette Boyd, spokeswoman for the Virginia Wine Board, a state agency that’s promoted wineries and vineyards since 1985.

Small wineries also help preserve open space in these areas, she said, because they give rural landowners a way to generate money from their property without developing it and selling the land for residential or other uses.

Finally, Boyd said, access to good, locally produced wine often attracts fine dining restaurants and other cultural institutions to a particular area. These institutions in turn bring people who come to the region as visitors or even as more permanent guests.

“Luckily we have a governor and a state legislature that shares this view,” Boyd said, making a statement many small winery owners in Tennessee wish they could make about their home state.

That commitment to small wineries became obvious in 2007, Boyd said, when it rushed to solve a dispute that put the wineries at odds with distributors after the U.S. Fourth Circuit Court of Appeals ruled that an existing distribution policy was unconstitutional.

When the Virginia General Assembly adopted the Farm Winery Act of 1980, it allowed wineries that produce less than 36,000 bottles a year to sell directly to retailers without using a distributor and paying the 30 percent to 40 percent mark-up distributors typically charge.

But the privilege was not extended to small wineries in other states, which were still forced to use distributors to sell their wines at Virginia restaurants and retailers.

When a group of out-of-state wineries took their case to the federal appeals court, it sided with the out-of-state wine producers in 2006 – ruling that the policy gave Virginia small wineries an unfair advantage in their marketplace and thus violated the commerce clause of the U.S. Constitution.

Virginia’s small wineries responded by asking the General Assembly to extend the self-distribution rights they enjoyed under the Farm Wine Act to small wineries in other states – a request that drew fierce opposition from the state’s wholesale distributors.

To settle the dispute, the state’s legislators created the Virginia Winery Distribution Co., a state-sponsored entity they claim has the same rights the appeals court gave to Virginia’s ABC stores under the ruling and could choose their customers.

In other words, it could choose to sell only wines produced by small wineries in Virginia and charge a mark-up of only $5 a case – far less than what the wineries would have to pay if they sold through a wholesale distributor.

“What you find with the Virginia Wine Distribution Co. is that it gives small wineries options,” Boyd said.

“A tough bill”

Managing a small and large winery has given Dan Collier, chairman of the Tennessee Viticultural Advisory Board, an ability to see the advantages and disadvantages of dealing with wholesale distributors.

“It’s a tough bill,” said Collier, who owns Tennessee’s largest winery, the Mountain Valley Vineyards in Pigeon Forge. He also has a management agreement with the Apple Barn Winery, a much smaller facility in Sevierville.

Collier said distributors play a valuable role in the state’s wine industry, because they give winery owners in one part of the state access to retailers in other parts of the state by supplying the trucks and staff needed to deliver the products and stock the shelves.

Large wineries rely on this level of access, Collier said, because without it they would exceed the demand coming from customers in their local markets and could end up in a situation where they’d have to downgrade their production if not stop it entirely.

But distributors are not a viable option for small wineries, Collier said, because on the wholesale market these businesses usually must sell their wines for $4.50 a bottle to keep their prices competitive with Tennessee’s large wineries and with those from out of state.

“He’s making roughly 32 cents a bottle,” Collier said, estimating the profit small winery owners might see after their production costs are taken out of the wholesale price. “He’s barely paying the light bill.”

To further complicate the situation, Collier said, many wholesale distributors don’t want to deal with small wineries because those wineries often fall short of the production levels distributors need to keep their retail client’s shelves full throughout the year.

Carlson and the Abingdon Vineyard and Winery ran into the exact situation in 2006.

After the Fourth Circuit Court of Appeals took away a winery owner’s ability to self-distribute, Carlson said, sales representatives from several distribution companies in the area started calling wineries in droves hoping to sell their wines – that is, except for his.

“We’re too small for a distribution company to want to worry about us,” he said, explaining why he never received a call through a distribution company.

But there are small wineries in Northeast Tennessee that are able to use a distributor. One of those is Countryside Vineyards and Winery, which is one of the state’s oldest and is located about a mile away from the Corey Ippolito Vineyards in Blountville.

“I’m happy with the situation the way that it is right now, because I don’t have to get into trucks and distribution,” Countryside’s owner Jim Thomas said when asked about working with a wholesale distributor.

But Thomas also said that the distributor, the Knoxville Beverage Co., sells only one-tenth of the 30,000 to 36,000 bottles of wine he produces each year. The remaining 90 percent of his sales go directly to customers who buy their bottles directly from his winery.

Room to grow

Like Corey, Collier claims that changing certain parts of Tennessee’s wine laws – specifically when they pertain to a small vineyard’s distribution rights – is necessary if the state wants its wine industry to blossom like those based in Virginia and other states.

“It makes economic sense for Tennessee,” Collier said, adding that supporting the state’s wineries can easily trickle down to another part of the state’s agricultural economy.

Last year, the state’s 41 wine producers consumed 94 percent of the grapes grown by its 100 commercial grape-growers, he said, so it’s safe to assume that increasing the demand for Tennessee wines would spur a similar increase in the demand for Tennessee grapes.

Though he claims the state government overall has “basically been indifferent to the Tennessee wine industry,” Collier said many legislators are beginning to embrace the value the state’s wineries – especially its small wineries – play in its economy.

One of the most promising pieces of legislation that came before the legislature last year, he said, would have allowed Tennessee wineries to run up to two sales rooms that were not located on their winery’s physical grounds.

Small wineries could use the sales rooms to open a retail store of their own near an interstate that would give them access to customers and tourists driving through the community without requiring a lengthy detour to the vineyard.

Virginia already has a similar law, allowing the state’s small wineries to sell their wines at three off-site locations, Boyd said, such as a retail store of their own or at one of the many wine festivals Virginia has seen over the past few years.

The Abingdon Vineyard and Winery and the Coltsfoot Winery use their off-site permits to sell at the Abingdon Farmers Market.

Last week, Vincent’s Vineyard in Lebanon took things a step further when it used one of its off-site permits to run a tasting booth and sell wines to the thousands of people at Bristol’s Rhythm & Roots Reunion music festival.

And though they’ve proven to be successful in a neighboring state, Collier said, the legislation that would allow these off-site sales rooms in Tennessee never made it out of committee. Neither did other bills that would have expanded the market for Tennessee wines.

That hasn’t deterred Collier’s organization, which plans to find someone to sponsor this legislation again when the Tennessee General Assembly reconvenes in January.

Collier said Tennessee’s wine industry could blossom just like those in neighboring states if it only had the right tools.

“People are more than willing to support a small winery,” he said, “if you just give them the opportunity.”

gmclean@brisolnews.com | (276) 645-2518