Columnist, Food

Customers drink in the view during a tasting at Larkmead Vineyards in Calistoga, Calif. (Bob McClenahan/Larkmead Vineyards)

Napa Valley is once again debating how to strike a proper balance between its core identity as an agricultural region specializing in wine and its alter ego as a glitzy tourist destination. The Napa County Board of Supervisors and the county’s Planning Commission met March 10 to discuss potential limits on new wineries and the number of visitors each winery can welcome. More debate and controversy are expected in the months ahead.

This issue is not new. James Conaway chronicled the agriculture-vs.-development fight of the 1990s in “The Far Side of Eden,” published in 2002. Similar debates have raged in Virginia, Maryland and Oregon, as localities consider limiting winery events such as weddings, concerts and even wine tastings to reduce the noise and traffic that impinge on rural life. (Vineyards and Amish country are the only places where tourists go to watch farmers at work.)

But this time, there’s a twist. The current debate in Napa is being driven by smaller wineries seeking to increase the number of visitors they can welcome to their tasting rooms and events. Visitors form a relationship with a winery and often order the wines when they get home. Those direct-to-consumer sales are increasingly important for smaller wineries in a competitive market that may deny them access to store shelves or restaurant wine lists.

Agriculture vs. Disneyland might sound like the same old argument, but this round is a reflection of how our alcohol beverage distribution system is changing. Since the repeal of Prohibition, distribution has been through a three-tier system: producer to wholesale distributor to retailer or restaurant. Over the past two decades, however, consolidation in the wholesale industry has dramatically reduced the number of distributors, while the number of wineries has exploded and consumer demand has increased. Wineries have sought ways to circumvent the three-tier system and sell their wines directly to their customers.

A 2005 Supreme Court ruling opened the door for direct-to-consumer sales, but progress has been slow — until recently. Last year, U.S. wineries shipped 3.95 million cases, or 47 million bottles of wine, directly to consumers. Those sales totaled $1.82 billion, up a whopping 15.5 percent from the previous year. Those numbers are from an annual report issued in February by ShipCompliant, a company that helps wineries navigate the morass of state regulations on direct-to-consumer shipping, and Wines & Vines, an industry publication. Direct shipping is now legal in some form or another to customers in 40 states and the District of Columbia.

“It used to be direct consumer sales was the cherry on top of the sundae for wineries in the Napa Valley,” Rex Stults, spokesman for the Napa Valley Vintners, a trade association, told the Napa Valley Register. “Now it’s the ice cream.”

Stults wasn’t so hungry when I contacted him a few days later. “We have an hourglass situation, with producers and importers at the top putting more wines in the market

and consumer demand expanding at the bottom,” he said. “But the middle — the wholesaler tier — is constricted, so it’s difficult for that production at the top to filter through to its market.”

Napa Valley Vintners has 510 member wineries, and 78 percent of those produce fewer than 10,000 cases a year, Stults explained. “These are the wineries harmed by the constraints in the wholesale market,” he said. “They rely on direct shipping.”  

Steve Gross, vice president of the Wine Institute, the California-wide trade association, agrees. “Direct contact with people who visit your winery is such a great brand-building tool,” he said. “We would hate to have legislatures take that away.”

Yet some wineries are bumping up against limits set in their county-issued use permits on the number of visitors they can welcome each year. They want to raise those limits to increase sales.

“I can predict five years of sales based on our mailing list,” said Colin MacPhail, general manager of Larkmead Vineyards in Calistoga. That dedicated customer base proved helpful in the 2011 vintage, when an unusually rainy season kept yields low, he said.

The three-tier system of alcoholic beverage distribution will be around for a while longer. But the direct-to-consumer channel is here to stay and is growing in importance each year. It has entwined itself, like a vine tendril on a trellis wire, into the essence of the wine industry.

McIntyre blogs at dmwineline.com. On Twitter: @dmwine.