The Grey Lady Takes Notice of the Virginia Wine Business.

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Virginia Wine Above the Fold – Screen Shot from The New York Times Online Edition.

This is old news by now, but on 7 July 2013 that great Grey Lady, The New York Times published a fascinating profile of Barboursville Vineyards, their ever so charming winemaker, Luca Paschina, and the Virginia wine industry entitled “Virginia Wines: In the Old Dominion, a New Terroir,” by Adrienne Carter.  We note that it appeared in the Business section rather than the customary placement of “less serious” articles about Virginia wine, which usually appear in either the Travel section or Food & Wine.  Another observer of the wine business also took note of this, but addressed the broader issue of regional wine getting its due and cleverly omits mention that the article was about Virginia (“The New York Times gives its seal of approval to regional wine“, The Wine Curmudgeon (11 July 2013).  Dave McIntyre, wine correspondent for The Washington Post and co-founder of Drink Local Wine also took note of it yesterday in a blog post on his Wineline (“Regional Wine Becomes Mainstream – Mission Accomplished?“).

Barboursville Vineyards is a natural for such a profile, being one of the largest producers in the Commonwealth at 38,000 cases, and one of the oldest (dating from 1976) and probably best financed, being a property owned by the Zonin family, which owns one of the largest private winemaking companies in Italy.

Virginia is usually characterized by the press as an “emerging” wine region.  It begs the question — when is a region “established”?  This author doesn’t have an answer, but when a section is dedicated to it in each edition of the wine buying guide of The Wine Spectator, perhaps we’ll know.  This attention brings to mind two issues for this writer — (1) the question of brand identity, that brand being the region; and (2) the issues associated with economies of scale in the wine business.

Brand Identity

While not directly addressed in The New York Times article, the foremost problem (or blessing) for Virginia wine is looking at the place where the wine is produced as a brand.  The place where the product is made affects the way consumers react to it.  After all, the romance of it, the mystique is associated with the land, the soil, the climate — all those things that taken together are referred to as terroir, imbuing the wine with unique characteristics.  After all, traditional old world wine producers focus on the where the wine comes from, not what variety is in the bottle, so unlike the new world wine producers who label the bottle with its contents, although in the United States this may in part be attributed to labeling and advertising laws.

The so called “established” new world wine regions do their best to differentiate themselves similarly to the European model — hence the fierce protection of, say, “Napa Valley” as a brand.  We have the American Viticultural Areas (AVAs) to try replicate the European model, but seemingly with little success, since most consumers appear to care little about them, though some wine publications do use them as an organizing principle.  For example, Wine Enthusiast magazine recently profiled two Virginia wine regions by focusing on two AVAs, Monticello and Middleburg (“The Old Dominion’s Upswing,” by Andrew Hoover (15 February 2013)), but this approach has the unfortunate effect of making it look like wines produced outside of an AVA is somehow inferior.

The challenge for marketers and winegrowers is to establish in the mind of consumers that a particular place IS  the brand and associate those places with high quality products.  The Europeans recognize this and have established Protected Geographical Indications for specific products, especially wine.  Some may roll their eyes at the relentless protection of Champagne, for example, but its a valuable brand worth protecting in the world market.  While thinking about this issue we came across an article published in the Journal of Product & Brand Management, called “Dimensions of wine region equity and their impact on consumer preferences,” by Ulrich R. Orth, Marianne McGarry Wolf and Tim H. Dodd (2005) that sought to identify wine equity in terms of the benefits sought by consumers in wine.  they found that marketers could segment predicted consumer preferences based on lifestyle choices and preferences, and found “five dimensions of wine equity: quality, price, social acceptance, emotional value, and environmental value benefits.”  The lifestyle segment that enjoyed watching soap operas, for example, also had a strong aversion to social activities.  This group did not focus on quality, but sought social value and preferred wine from California, New Zealand and Oregon.  Another segment that enjoyed “cultivated” activities, such as going to art galleries but did not enjoy television game shows sought quality and cared little for social acceptance, showing a preference for wines from France but a low preference for wines from California.  All segments are worth marketing to — the challenge is tailoring your marketing communication to each segment.  The latter should have messages that display consuming wine as sophisticated and cultivated; the former showing that the origin of the wine is “hip” or “fashionable.”

One supposes there should be some discussion of what, exactly, is the “Virginia brand” –the gentle rolling hills depicted on so many of our wine labels?  The allure of horse country nestled next to picturesque wineries, a crossroads of American history, home of Presidents?

Economies of Scale

The second question goes to the scale of particular wineries, or more specifically, the notion of economies of scale.  Most of the other wineries mentioned in the article are on the large side (for Virginia), such as Linden Vineyards with 18 acres planted in the estate vineyard (and an additional nine acres farmed nearby), and RdV Vineyards with 16 acres planted.  One of our friends on the Southern Virginia Wine Trail, The Homeplace Vineyard, also got a mention (for being a family farm that transitioned from tobacco to wine grapes), but they have nine acres planted.  Larger production usually means larger distribution (or rather, the attention of distributors), and scale also impacts land use and development issues, always a thorny issue in wine regions, whether established or emerging (we visited the issue a year ago in the context of a local zoning controversy in Fauquier County, Virginia, “How’s That Zoning Ordinance Working For Ya?“).  We’ve been thinking about the tension between “established” and “emerging”, and thought it would be interesting to re-visit the issue in the context of one “established” new world wine region, Oregon — how does Oregon manage this balancing act?

The Example of Oregon Winery Zoning

Why Oregon?  Their approach is very straightforward.  Oregon’s approach to agricultural land protection focuses on protecting and preserving high value farm land in large tracts that are efficient to farming, while commercial, industrial and residential uses are concentrated in urban areas.  Farmer’s are then able to farm their land secure in the knowledge that their neighbor’s farm, for example, will not turn into a residential subdivision overnight with neighbors who don’t appreciate, say, fungicide spraying or barnyards full of animals.  It makes sense — factories, restaurants, shopping centers and the like are placed where it is most efficient to provide essential services like utilities and police and fire protection.  Oregon calls these zones “Exclusive Farm Use” zones, and are taxed accordingly (and cannot subdivide easily), with assessments remaining stable and low.  If not for this approach, prime farmland would likely have been made into residential subdivision and blighted with the dreaded McMansion one sees all over, for example, the eastern reaches of Loudoun County, Virginia.

Oregon Winegrowers have a special status in these EFU zones.  They must have 15 acres of grapes planted (or own and lease the equivalent) in order to build a winery (an industrial processing facility) with the right to sell wine out of a tasting room (a commercial activity).  No other crop has similar rights.  Recent legislation expanded these rights for a short period — two years — as a “test” of their long-term feasibility.

Oregon House Bill 3280-B, passed in 2011, affected only wineries located in EFU zones with 15 or more acres of grapes planted.  All wineries in such zones are allowed unlimited activities “conducted for the primary purpose of promoting wine produced in conjunction with the winery.”  This includes wine tastings, tours, and wine clubs, and allows the sale of items related to the promotion of wine, such as the sale of pre-packaged food and beverages.

Wineries are allowed 25 event days for private events — dinners, birthday parties, etc.  Wineries may also feature outdoor concerts and facility rentals for “celebratory events” (weddings), if the county where the winery is located had previously allowed such events.  The gross income form such incidental activities cannot exceed 25 percent of the gross income from on-site wine sales.

The bill allows the largest wineries to establish a full-service restaurant, similar to Palladio at Barboursville.  The bar is rather high — to qualify, the winery must be sited on a minimum 80-acre parcel with at least 50 acres in vines; the winery must also own an additional 80 acres planted in vineyards anywhere in Oregon, and produce at least 150,000 gallons of wine (63,000 cases).  The winery can be open only 25 days a year unless the winery acquires a county permit.  When the law passed in 2011, only four wineries in the state qualified to have restaurants.

The restaurant rule is an interesting one, and is contrary to the earlier stated legislative intent of concentrating restaurants and the like in cities that have the services to support them.  What if Virginia created such a rule?  Albemarle county zoning already prohibits it, and few wineries, if any, would qualify (surely if there were an attempt the acreage requirement would be different).  Of the larger wineries in the Commonwealth whose acreage planted is easily available or known to this writer, The Williamsburg Winery has 50 acres planted and leases 12 other vineyards throughout the Virginia (according to their website), and Ingleside Vineyards has 58 acres under vine.   New on the scene is Grace Estate Winery with 63 acres.  Breaux Vineyards has a healthy 104 acres, and Trump Winery has an astonishing (for Virginia) 160 acres planted.  This information was gleaned from news reports on the Kluge foreclosure; it does not appear in the Trump Winery website.  It appears that only Trump would meet the Oregon test for having a restaurant, but their distribution at Trump properties around the country show that they have no need for such a venture.  A couple of wineries do have their own restaurants, like Barboursville’s Palladio; Williamsburg has the Gabriel Archer Tavern, for example, and Chateau Morrisette has their unnamed restaurant.  Several wineries offer overnight accommodations, but that part of the business is beyond the scope of this post — perhaps we’ll address that another time.  Suffice to say this is evidence of a need to diversify in order to attract wine buyers, a consequence of reliance on the tourist trade.

The Oregon legislation acknowledged a second tier for wineries of fewer than 15 acres.  Those with fewer than 15 acres must obtain a conditional use permit from the county to open a tasting room, and they can conduct tastings only by appointment.  If a winery has more than 15 acres planted, then having a tasting room is allowed “by right.”

This is a roundabout way to getting to the issue that has been voiced by many observers of the Virginia wine business: we need to plant more, because current production is not meeting local demand.  And if local demand is not being met, how can we expect to supply buyers outside of our border?

Is There a Lesson Here?

Our conclusion is a simple one: Virginia needs larger wineries to compete on the world stage and  in order to gain wider distribution and recognition by the wine press and the public.  There are numerous reports that there is a shortage of grapes in the Commonwealth and the price for fruit is rising, which is a great thing for growers, not so great for winemakers, because the biggest problem on the wholesale level is our price relative to offerings from around the globe.  If a chef or sommelier is presented with a choice between a well-made French wine for $9./bottle and a Virginia wine for $15./bottle or $25./bottle (an unhappy result of the customary distributor markup), which is he going to choose?  The cost of production has to come down somehow, and the easy answer is increase production, but the caveat being that it costs about $15,000/acre to plant a vineyard, not including the cost of the land itself.  Assuming it’s a good site.  Add to that the challenge of finding affordable skilled labor.

On the brand identity front, the groundwork should be laid now to establish additional AVAs so that the various regions can have a leg-up to differentiate themselves when the rest of the country realizes what we know here: that Virginia produces world-class wines worthy of a place at the table on the world stage.  Many commentators will tell you that most consumers care little about the AVAs or even notice them, but an increasingly educated wine consuming public is beginning to take notice, which means that they will matter.

The common marketing trope that we hear so often that “we are a small, family owned winery” just doesn’t cut it anymore.  There’s room for that, certainly, but Virginia hasn’t reached the level of Burgundy, where the terroir is sliced and diced to the vineyard row level.  At least not yet — give us another 500 years to catch up.

One Comment on “The Grey Lady Takes Notice of the Virginia Wine Business.

  1. Pingback: Free the Grapes! Some Thoughts on Direct Shipping. | Bottled Poetry.

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