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The Next Step for San Diego Wine Growers

As published in the San Diego Daily Transcript

by Vince Vasquez

Friday, July 30, 2010

On Wednesday, August 4th, the San Diego County Board of Supervisors will be asked to approve legislation that will literally open the doors of our region’s wineries to the public.

At issue is the proposed San Diego winery ordinance, a four-tiered zoning framework that streamlines the approval process for the operation of wineries in the County’s unincorporated area. The passage of the winery ordinance would be a major victory for local vintners, who have spent the last four and half years working with county officials to establish a reasonable process for green-lighting on-site wine sales. Under the new rules, which would become effective later this September, boutique wineries (those limited to bottling 12,000 gallons of wine each year) will be able to open up tasting rooms and have retail sales by right of zoning, and small wineries (those limited to bottling 120,000 gallons of wine each year) can apply for the same freedoms through an administrative use permit. This is a significant shift from the status quo, as winery owners can already grow grapes, produce wine, and ship them off for third-party sales – but fewer than a dozen have tasting rooms or on-site wine sales. Why? The current regulatory regime for winery owners is complex, risky, and prohibitively expensive.

It’s important for the public to understand that the bureaucratic demands and red tape of the current ministerial permit process have been devastating to San Diego’s wine grower community. Wineries have reportedly spent $230,000 – 260,000 each on preliminary fees, permits, studies and property improvements required by county planning officials before receiving a final major use permit to sell wine. Of three known wineries that have paid this princely sum, two ultimately aborted their efforts, underscoring the excessive regulatory uncertainty confronting these small business owners.

On-site retail sales are the linchpin to success for wineries; there is no acceptable substitute. Brand loyalty, patronage, and strong reputations always begin with the positive personal experience of visiting a winery, meeting its owners, and sampling the wine. Though the Internet marketplace is wide open to local San Diego vintners, products such as wine must first be personally introduced to be marketable and successful on the World Wide Web. Selling wine to wholesalers, though an option available today, significantly cuts away at profit margins, as wholesalers typically take 1/3 to ½ of the sales price, depriving wineries of the greater capital they need to reinvest in their products.

One particular area in San Diego’s back country seems primed for success under the new ordinance. Of the sixteen bonded wineries in the 89,000 acre Ramona Valley (an area that was recognized as an American Viticultural Area (AVA) in 2006), only two have permits for tasting rooms. Growers in the Ramona Valley are mostly estate wineries, meaning they grow, process and bottle all of their own wine – a rare and special phenomenon in the industry. Wine tourism may be trickling today in the region (only one small motel exists in Ramona) but a key study finds that the vino business could be booming in the future, advancing our regional economic growth.

According to a 2007 analysis by MKF Research, the economic impact of the greater San Luis Obispo County wine industry is an estimated $1.785 billion. The industry produces 8,114 full-time equivalent jobs, and pays $86 million in state and local taxes (combined). With regard to tourism, MKF Research found that the county attracts 1.2 million tourists annually for winery visits, spurring $113 million in tourism-related expenditures. Winery tourism is particularly lucrative, as research suggests that enophiles are mostly high-income individuals that stay at quality lodging, purchase leisurely goods and have high rates of return visits.

To be sure, San Diego’s wine tourism is today in its infancy; in 2008, the County recorded 365 acres of wine grapes, producing 621 tons worth $633,531. Compare this with neighboring Riverside County, which in the same year planted 2,365 acres of wine grapes, producing 4,005 tons worth $4.48 million. Both areas are dwarfed by the wine industry booming in Northern California. Though getting from here to there may seem like a pipe dream, San Diego County doesn’t need to become a high-volume wine producing region to strike success; rather, it should focus on refining the competitive advantages that distinguish it from the pack.

The quaintness and charm of San Diego’s boutique wineries evoke the simpler days of Napa and Sonoma before mass commercialization. Promotional literature and marketing efforts should target enophiles that are interested in quieter, more intimate winery tours that our region can provide. Simple steps should also be made towards building greater cross-border gastronomic tourism, including informational websites and a binational winery map. Most Baja wineries are small, family-owned operations that produce 5,000 or less cases per year, and could benefit from the exposure, especially to those who have been hesitant of visiting the Baja region. With skilled industry labor scarce in California, local degree-granting institutions should welcome vintner collaboration in developing certificate programs in viticulture and enology.

Allowing more wineries to invite the public onto their property to taste and purchase wine will spur the need for hundreds of jobs, and give local small business owners a chance to compete in the marketplace. Regulatory reform can have a powerful impact on expanding economic opportunity, something which all San Diego lawmakers should consider as we continue to search for solutions to our recessionary turmoil.