- Report Published -
|Assessment of the Profitability and Viability of Virginia Wineries (Part II)|
|Secretary of Agriculture and Forestry|
|Chapter 794 Enactment Clause 2. (Regular Session, 2006)|
|At the current time, we believe a majority of Virginia wineries are profitable and viable. In fact, based on our limited but representative sample, over 50% of wineries in Virginia could be considered viable.|
There are many reasons to be optimistic in evaluating the future potential viability of these businesses. There has been a rising demand for wine among US consumers over the last several years. Positive factors include changing demographics favoring wine, health issues and a rise in preference for premium products at all income levels. In Virginia alone, wine consumption has increased 3.6% from 2004 to 2005 and 22% since 2000. Wine quality continues to improve in all areas with better access to technology and expertise. In Virginia, the increasing number of wineries is a positive development for the industry, as a growing concentration of wineries tends to attract more visitors and more suppliers to the community. The identification of varietals that perform particularly well in Virginia such as Viognier and Cabernet Franc has helped to carve out a wine identity for the state. Virginia is being recognized in the national media for the quality of its wines. Additionally, many wineries in Virginia are being run very well as businesses.
However, there are also reasons to be concerned. The loss of winery self distribution to retailers and restaurants was a significant blow to the profitability of smaller wineries in the state. Although there are some ways around this issue, it still has created a large negative effect on the industry. Furthermore, if Virginia wineries also lose the ability to sell direct to consumers, there may be few options to keep small wineries profitable and viable.
Some wineries are concerned about county use permits and related restrictions placed on wineries which could impact volume of business, but this seems to impact only certain communities. While nearly all, if not all, of the wineries contacted depend significantly on visitors for their survival, there may be a question about the relative scale of winery versus hospitality activities for some wineries.
There are definitely some wineries which are currently struggling, some of which are up for sale. There also appears to be limited expertise, especially among some of the smaller wineries, in the financial and capital requirements of operating a winery and in developing sufficient business and financial plans. This is not surprising, given the relative short history of Virginia’s modern wine industry, and is not unusual among the emerging wine industries we have seen around the country. The limited expertise is reflected as perhaps over-diversification of varietals and in location decisions which often and understandably grew out of long term land ownership and the complexity of the wine market. Many of these issues can be remedied over time.