Small wineries fight for survival in Legislature
Sunday, October 9, 2005
PARMA TOWNSHIP, Mich. (AP) - John Burtka is passionate about making world-class wine. After his day job at a Novi auto parts manufacturer, the 47-year-old drives 80 miles to his small winery in Jackson County.
One night he stacks French oak barrels of fermenting wine inside the warehouse area behind his tasting room. Another night his family helps bottle an award-winning cabernet sauvignon.
Three years after opening, Cherry Creek Cellars is growing 12 percent a year - with Burtka using all the revenue to buy land, upgrade equipment and expand the business.
"We're not going to get rich off this little shop," he says. "But we're doing what our passion is."
These days, though, Burtka worries about surviving as much as he does prospering. Legislation approved by the state House would ban Michigan vintners from shipping their wine straight to restaurants or shops, as they have done for 35 years. Direct sales to retailers account for 14 percent of Cherry Creek's revenue.
"If that legislation passes the way it is, we're going to be out of business," Burtka says.
Since June, when the U.S. Supreme Court ruled Michigan law discriminates against out-of-state wineries by banning them from shipping directly to consumers, lawmakers have been debating how to regulate wine sales. The court said wineries inside and outside Michigan must be on an equal footing.
Some legislators initially proposed an outright ban on direct sales to consumers, citing concerns about underage drinking and collecting taxes on out-of-state sales.
But after the House passed a bill letting all wineries ship 500 cases a year to Michigan residents, the debate has become less about consumers' rights and more about competition - specifically from the West Coast, home to the country's top two wine-producing states.
Michigan beer and wine distributors, the middlemen who buy from wine makers and sell to licensed retailers, are fiercely protective of the state's system regulating alcohol shipments. If Michigan wineries continue shipping straight to Michigan retailers, then out-of-state vintners likely will get direct access to the Michigan market, too.
The real concern is that California wineries such as E&J Gallo, the world's largest, could undercut Michigan wholesalers and give volume discounts to Costco, Meijer or Sam's Club. The in-state distributors cannot give price breaks to compete with those discounts.
"We're a Michigan industry," says Bill Nowling, spokesman for the powerful 75-member Michigan Beer & Wine Wholesalers Association. "We don't want to take anything away from the wineries. But we're an industry that's been around a long time and we're going to be negatively impacted if they let anyone come in and distribute directly to retailers."
The ban on direct sales to retailers wouldn't affect sales much at four big Michigan wineries - St. Julian Winery, Leelanau Wine Cellers, Chateau Grand Traverse and Tabor Hill Winery - that sell mainly through wholesalers or tasting rooms. But 34 small wineries would lose 23 percent of their business, while four mid-sized wineries would lose about 10 percent, according to WineMichigan, a group representing the state's 42 wineries. Some smaller wineries strive to get their products picked up by distributors but complain they can't generate much interest, partly because they don't produce large quantities and Michigan wholesalers already carry about 15,000 brands.
"A wholesaler by necessity gives the most attention and seeks the most distribution for brands that are well-established and most recognized by consumers," says Donald Coe, owner of Black Star Farms in Suttons Bay and president of WineMichigan. "The big wineries get bigger and the little ones just disappear."
The wine legislation now awaits action in the state Senate, where Republican Majority Leader Ken Sikkema of Wyoming wants to see a compromise between vintners and wholesalers.
Sen. Michelle McManus, a Lake Leelanau Republican whose district includes a number of wineries, has proposed limiting consumer shipments to 24 cases per person. She and Sikkema also say banning direct sales to restaurants and stores would jeopardize Michigan wineries.
The bill should be "narrow enough for wholesalers but wide enough for small wineries," McManus says.
One possibility would be to cap the number of cases vintners can ship to retailers, setting the number high enough that Michigan wineries aren't hurt while limiting big wineries out west so they can't eat up wholesalers' profits.
Distributors are cautious about that kind of approach.
"You have to be careful," Nowling says. "If you set a limit that means only out-of-state wineries don't qualify, they've got cause to come back to court."
Another component of the issue is the beer and wine wholesalers' legislative influence. The group's political action committee ranked 10th in the state in campaign donations during the 2003-2004 election cycle.
Mike Beck, president of Uncle John's Fruit House Winery in St. Johns, says he was dumbfounded the wineries couldn't build more support in the House, which passed its bill limiting wine sales, 84-22.
"I don't have money," he says, referring to the wholesalers. "All I have is my face. I guess it doesn't go very far." Nowling, however, argues the distributors did not "buy" legislation because the House passed a compromise allowing for direct shipments to residents' homes - something the wholesalers opposed. Lobbyists had to pull out all the stops to protect distributors' interests, Nowling says.
"If we hadn't done anything, we felt we might have gotten rolled in the gutter on this," he adds.
The approved wine shipments bill is House Bill 4959; other wine shipments bills are Senate Bills 625-28 and House Bills 4987-90.
-By David Eggert, The Associated Press