Wineries Push to Avoid Middlemen

3rd-Party Requirement Looms Unless Bills Pass

For 20 years, Leesburg winemakers Lew and Amy Parker have driven their product to market in a Volvo sedan. The trunk holds 17 cases, and the drive to the local wine shop or restaurant takes about 10 minutes.

Such a simple system worked for many small wineries in the Washington area for decades. But last year a federal district court in Virginia and last month the Maryland comptroller said in-state wineries should not be allowed to distribute wine without going through middlemen. In both cases, the practice was deemed unconstitutional in response to lawsuits by out-of-state wineries that were denied the same privilege.

Wineries in both states have turned to the legislatures for help. In Maryland, House and Senate committees considered bills last week that would preserve in-state wineries' ability to sell to retailers by putting out-of-state wineries on equal footing. Without a legislative solution, the deadline to stop distributing wine is May 31. In Virginia, a similar bill died in committee a month ago, and loading up the family car is no longer a legal method of distribution.

In a landmark case about shipping wine directly to consumers, the U.S. Supreme Court ruled last year that distribution laws have to be consistent for in-state and out-of-state wineries. What was initially seen as a boon to small wineries has spelled trouble. Some states chose to eliminate shipping privileges entirely, which threatened the economic viability of some small wineries. Wholesale distribution privileges came under scrutiny, too.

"The wine industry is in a state of chaos," said Lew Parker, owner of Willowcroft Farm Vineyards and vice president of the Virginia Wineries Association. "The benefits of the Supreme Court decision are not being felt anywhere."

Parker said sales of wine to restaurants and stores account for 32 percent of his business. If he goes through a wholesaler, he said, he faces a charge of $30 or more per $100 case of chardonnay, or half his profit.

Many states established a three-tier system to distribute alcohol after Prohibition was repealed in the 1930s. Decades later, legislatures relaxed the regulations for wineries because they wanted to nurture a new agricultural industry.

It worked. In Virginia, where wineries were permitted to ship to consumers and distribute to retailers, the industry grew from six wineries in 1979 to 107 last year, netting more than $45 million in retail sales.

In Maryland, where distribution to retailers has been allowed but direct shipping to consumers remains a felony, the growth has been slower. Today, there are 22 licensed wineries with annual sales of $8 million, according to the Maryland Wineries Association.

"Maryland is a late bloomer in the local and regional wine industries," said Kevin Atticks, executive director of the association. But he said the number of wineries has doubled from three years ago as more farm owners look for ways to keep their land in production and out of developers' hands.

At a House hearing Monday and a Senate hearing Tuesday, winemakers, grape growers, wholesalers, economic development officials and retailers spoke for and against bills that would preserve wineries' ability to sell to retailers and a wholesaler-backed bill that would require all alcohol, including wine, to go through them.

In Virginia, the discussion has turned to alternatives to selling directly to retailers. Wholesalers suggested that wineries establish cooperatives that could apply for distributor licenses.

Wineries are concerned about the extra costs and work involved in establishing a distribution business, which would require separate storage facilities and vehicles, said Terri Beirne, attorney for the Virginia Wineries Association. And she said the state attorney general's office is considering whether it is legal.

Parker called the idea a "quasi-solution," but he said Virginia winemakers may have to try it. "Right now we have no solution at all."