Fruits of Their Labor
Co-op winegrowing takes root in North Carolina
By Bruce Pleasant
Business Programs Specialist
USDA Rural Development/North
Carolina
efore Prohibition in the
1920s, North Carolina
was the nation’s leading
wine-producing state,
with Muscadine and
Scuppernong wines dominating its
industry. But that all changed with
Prohibition, which lasted longer in the
South than in most other parts of the
nation. Combined with low prices for
table grapes, most vines were ripped out
or left to die, says Margo Knight, executive
director of the North Carolina
Wine and Grape Council.
While California’s wine crown is in
no danger of being lost, winegrowing is
steadily making a comeback in North
Carolina, which currently ranks 12th
among the states for wine production.
Interest in wine grapes has been fueled
in part by declines in the state’s textile,
tobacco and furniture industries, which
once dominated the region’s economy.
Data compiled in 2003 indicates that
1,000 jobs and $84 million are directly
related to wine production in North
Carolina. While the ultimate economic
impact wine has on the state’s economy
has not been determined, Knight
believes that it is significantly higher
than the $84 million estimate. A new
study has been commissioned to measure
the economic impact with certainty,
which should be completed this April.
Old
North
State
Winegrowers
Cooperative
Association
(ONSW) in Mt. Airy,
N.C., was incorporated in 2001, and is
currently the only co-op among the
state’s 52 wineries. When ONSW started,
there were only 22 wineries, which
provides some idea of the burgeoning
wine industry in North Carolina.
Cooperative members have pooled
resources to take advantage of
economies of scale and marketing
opportunities not available to small
independent growers. ONSW has
members from nine counties, so the
impact of the winery reaches at least as
far as their member vineyards.
Look for the co-op label
When ONSW bottled its first wine,
the label chosen by the co-op was
“Carolina Harvest,” reflecting the pride
the members had in North Carolina-grown
wine. After a year of marketing
the brand, the co-op made a bold move
by changing its brand to “38 Vines” for
its 38 charter members.
The label change was suggested by a
team of MBA students at Wake Forest
Babcock School of Management to
make the wine appealing to out-of-state
markets. Each bottle now tells the story
of the cooperative and explains the significance
of the brand name.
The Wake Forest MBA students
were the winning team responsible for
developing a new marketing plan for
the cooperative winery.
“It was the best thing that happened,
and it was the worst thing that happened
to us,” says Gray Draughn, president
and general manager of the cooperative.
After a year of marketing, they
had to start from scratch to gain brand
recognition. However, as they have
expanded, the co-op’s new brand has
gained recognition. This year, the co-op’s
Chardonnay took a double gold
medal in the state fair wine competition.
Capitalization and growing pains
Managing growth can be a welcome
problem to have, but it has also caused
some pitfalls for the ONSW cooperative.
One of the biggest challenges the
cooperative has faced has been raising
capital.
Most members are small producers
who must make substantial up-front
investment in their vineyards, with a 2-
to 3-year waiting period before generating
any income from a harvest, says
Doug Thomas, treasurer of the
Winegrowers Association. “As a result,
the membership is limited as to how
much additional capital it has to invest
into the cooperative.”
The cooperative structure has been
both an impediment and an avenue for
financing their facility and operations.
Cooperative members have one vote
regardless of vineyard size. To meet the
need for more capital, the members
voted to assess themselves each $7,500.
In addition, each member pays a fee of
$1 per vine, with a 250-vine minimum.
The vineyards range in size from 250 to
6,500 vines, which represents from
about 1/3 to 10 acres. There are about
54,000 vines planted by cooperative
members.
The cooperative did not have a sales
staff that could service a wide geographic
area, so it contracted with a wine distributor
to expand its market. Expanding
the markets and distribution of the
“38 Vines” brand into new geographic
markets is essential, given the number
of wineries in the Yadkin Valley region,
according to Thomas.
However, their first attempt to
obtain a distributor failed after one
backed out on a deal. At this point, the
co-op was left with excess product that
could not be moved quickly enough to
free capacity. This past year, the cooperative
dedicated more capacity to custom
crushing for other wineries and for
its members who wanted to bottle wine
under their own labels.
Growth has outstripped the capacity
to process wine. The inability to take
equity when they leave the cooperative
has hindered member investment. This
has prompted the board to consider
converting from a cooperative status to
a stockholder corporation that would
allow producers to recover their equity
in the entity. However, the board
tabled any proposed entity change, but
will revisit it again in 2006.
Key help from USDA, N.C.
The cooperative has benefited from
a number of grants. It has used business/cooperative programs of USDA
Rural Development and has obtained
funding from other state and private
foundations as well. To assist with the
renovation of the building, the Old
North State Winegrowers Foundation
received a $200,000 grant from the
Appalachian Regional Commission, a
federal-state partnership.
In 2002, the town of Mt. Airy
received two $99,000 Rural Business
Enterprise Grants to purchase bottling
equipment and renovate the buildings,
that would in turn be leased to the
cooperative. In 2003, the Winegrowers
Foundation obtained the building with
an $829,000 loan guarantee from
USDA Rural Development through the
North Carolina Agricultural Finance
Authority. NCAFA also provided the
cooperative a $525,000 loan for working
capital, which was also guaranteed
by USDA Rural Development.
In 2004, the co-op’s application for a
zero percent Rural Economic
Development Loan of $210,000 was
selected for funding. However, because
of the liens placed in connection with
the Business and Industry Loan
Guarantees from USDA, the co-op was
unable to use the zero percent interest
loan for start-up expenses, but the
majority of the co-op’s working capital
needs had already been met by the
NCAFA loan. This past September, the
cooperative was awarded a Value-Added
Producer Grant of $150,000 for working
capital to market its wine. This grant
will be used to purchase inventory and
supplies as well as to cover marketing
expenses associated with sales staff salary.
Member assets
As with most cooperatives, every
member brings something to the table.
Renovating an old building to make it
suitable for a winery and restaurant
required many resources. One member
who is an iron worker furnished the
wrought iron railing and gate for the
tasting room. The decorative railing is
functional as well since alcohol laws
require separation between the tasting
room and other parts of the winery.
The sprinkler system for the building
was provided by a member who has
a fire protection business. Another
member who is a restaurant owner
helped the cooperative purchase “gently
used” restaurant equipment at auction
for about 10 percent of the cost of new
equipment.
One cooperative member is a musician
who has lined up bands for festivals
and events for the winery. Other members
volunteer time in the bottling
room or assist with wine tastings in the
tasting room or at festivals.
While the Old North State
Winegrowers Cooperative winery got
off the ground with help from USDA,
it has been the members who have volunteered
their time and money that will
make this cooperative venture successful.
Though the cooperative faces many
of the same, and some unique, challenges
as most cooperatives, the cooperative
members will continue to pool
their financial and strategic resources to
exploit their strengths in an industry
that has been reborn in North Carolina.
Location, location, location
The ONSW winery is located in the heart of downtown Mt. Airy — a
town of about 8,500 in the foothills just south of the Virginia border. It is
not unusual to see tour buses dropping off passengers to visit any number of
places of interest in this tourist-friendly town.
Mt. Airy is the boyhood home of actor Andy Griffith, and is believed to
be the basis for the fictional town of “Mayberry” from the Andy Griffith TV
show. The “Mayberry” theme and nostalgia are evident all over town.
Mt. Airy holds two festivals annually: Mayberry Days and Autumn
Leaves. These are two big weekends for the cooperative, as the festivals
draw nearly a quarter of a million visitors to the area. This is in addition to
the 78,000 visitors who signed the guest register at the town’s visitor center
in 2004.
Located in a three-story, 26,000-square-foot mercantile building constructed
in the 1890s, the winery has a “vintage” (no pun intended) look,
with oak floors and decorative tin ceilings. The winery is complete with a
tasting room, gift shop and restaurant. The building is owned by the Old
North State Winegrowers Foundation, a nonprofit organization that leases
the facility to the cooperative.
Yadkin Valley Wine Bar “takes off” at Charlotte airport
By Bruce Pleasant
Editor’s note: Pleasant is a business programs specialist
for USDA Rural Development in North Carolina.
As with many wineries, the members of the Yadkin
Valley Winegrowers Association (YVWA) in North Carolina
are constantly looking for new ways to add value to their
grapes. The processing of grapes into wine will yield 10
times more than grapes sold in bulk. While that comparison
is somewhat misleading (since there is much expense
associated with operating a winery), production of wine
nonetheless results in greater returns to grape growers.
In 2004, the YVWA received a Value-Added Producer
Grant from USDA Rural Development for working capital to
market wines of member wineries through a retail wine
store at the Charlotte-Douglas International Airport. Buddy
Norwood, YVWA vice president and manager of the Yadkin
Valley Wine Bar, says the store would not have opened
without the $250,000 working capital grant received from
USDA in 2004. The store was only one of two such airport
stores in the country when it opened in March, 2005.
But the idea is apparently catching on. A wine-tasting
bar has since opened at Virginia’s Dulles Airport in suburban
Washington, D.C., and other airports have plans to add
wine-tasting bars. The Wall Street Journal (WSJ) recently
included an article on airport wine sales, which featured
the North Carolina wine bar. “With people spending more
time at airports — Americans took 633 million domestic
trips last year, according to the Bureau of Transportation
Statistics — this gives weary travelers something to do.
It’s a great way to promote local wines,” the WSJ wrote.
“Isn’t everybody always looking for a last-minute present
at the airport? What could be a better and more interesting
present than a bottle of local wine?”
The revenues generated at the North Carolina airport
wine bar help support the nine member wineries, including
a cooperatively owned winery with 38 charter members in
some of the most rural counties in the state. The store is
an extension of the tasting rooms of the member wineries,
reaching a customer base that they would never otherwise
tap.
Supreme Court ruling impacts local wineries
The Yadkin Valley Wine Bar has enjoyed remarkable
success since opening in March of 2005. Visitors from
other states and abroad can taste and purchase Yadkin
Valley Wines and take them
home or send them as gifts.
In March, the Supreme
Court ruled that it is unconstitutional
to prohibit interstate
wine shipment to
states that allow wine to be
shipped within their borders.
Since the Supreme Court ruling,
the Yadkin Valley Wine
Bar has noticed brisk
increases in out-of-state
shipments. Most go to
Florida or New York because
of their popularity as travel
destinations from the
Charlotte airport.
However, the ruling did
not necessarily mean that
wine can now be shipped to
all parts of the country. One
state, Louisiana, responded
to the court ruling by enacting legislation to prohibit
intrastate shipping previously permitted, effectively blocking
the shipment of wine into the state. Of the remaining
states, only nine do not allow interstate wine shipments,
primarily because they do not permit any wine shipping at
all.
Ultimately, the Supreme Court decision should open
new markets for North Carolina wineries.
More incremental returns for producers
Wine bar traffic is directly proportional to the traffic in
the airport, Norwood says, with afternoons on Wednesday
through Friday being the busiest time. The store also does
good business with vacation travelers on Saturdays.
The wine bar is on track to sell over 13,000 bottles this
year. Norwood says, “it’s remarkable how close we have
come to our sales projections.” The average price per bottle
is actually $3 higher than projected, due to the number of
tastings sold and the amount
of wine sold by the glass. The
average bottle of wine sells
for around $15. Tastings generate
$18 per bottle while
wine sold by the glass generates
$23 per bottle.
The requirements of the
store are minimal. At 600
square feet of retail space,
the $400 per-square-foot
annualized sales compare
favorably with the $300-$400
average for most retailers at
the airport. Typically, most
travelers expect to pay more
for food and other items within
an airport.
However, the prices of
members’ wine are the same
as they are in a grocery store
or at the winery. Visitors to the Yadkin Valley Wine Bar may
be greeted by a winemaker or owner of any one of the nine
member wineries, each of whom work about 2 days per
month at the airport store. These representatives provide
an enormous amount of goodwill in addition to staffing for
the store, Norwood says. Their presence at the wine bar
usually results in a spike of their own label. “If a customer
asks for a recommendation of a good Chardonnay, they are
expected to push their own,” Norwood notes.
Yadkin Valley wine designation
California has its Napa Valley, but North Carolina has its
Yadkin Valley, thanks to a new designation that recognizes
the unique climate and soils of the valley that are beneficial
to growing wine grapes. This designation was granted
in February 2003 by the Treasury Department’s Alcohol and
Tobacco Tax and Trade Bureau, a process that took 2
years.
With the designation, all wines marketed as Yadkin
Valley wines must contain 85 percent grapes grown in the
Yadkin Valley region. This designation is important to area
wineries because it creates interest and helps establish
the region as a wine destination.
Margo Knight, executive director North Carolina Wine
and Grape Council, says having that designation is a key
point in the growth of the state’s wine industry because it
helps develop a “sense of place” for wines of the region.
Unlike wineries scattered across a wide area, a number of
wineries in an area encourages tourism.
“Then it becomes a critical mass,” according to Knight.
Many will make a day trip to visit several wineries but
would not travel to visit just
one. While applications for
other designations are in
process, Yadkin Valley is
currently the only designated
appellation in the state.
In addition to becoming
acquainted to Yadkin Valley
wines, visitors to the
“Yadkin Valley Wine Bar”
can receive complimentary
passes for tours and tastings
at member wineries.
Visitors can also obtain
maps and brochures that
will direct them to each of
the wineries in the Yadkin
Valley.
Value of VAPGs
While the airport store
still is a relatively fresh concept, it appears to have been
very successful for the YVWA. The airport wine bar is a
good example of how, through the assistance of a USDA
Value-Added Producer Grant, agricultural producers were
able to start a new venture that would not have been possible
otherwise.
“The Value-Added Grant Program helps North Carolina
farmers transition from tobacco and other crops to grapes
which yield a greater return per acre,” says John Cooper,
state director for USDA Rural Development in North
Carolina. “I look for this venture to be the start of a trend
which will “take off” at airports across the country.”
