Santa Barbara Vintners' latest Wine BID Proposal

A Business Improvement District (BID) was created in the middle of the last century by merchants to build and maintain parking lots for their customers in towns that could not afford to build them. In the later part of the last century the hotel folks created BIDS to raise funds to promote tourism. The hotel guest paid either a percentage of their hotel bill or a fixed fee per night which the Hotels used to promote tourism. The Santa Barbara Vintners originally proposed to create a Wine BID charging 2% on all sales of wine by wineries in SB County. Not unsurprisingly, there was some serious push back from wine club members about paying for winery marketing. The SB Vintners regrouped and conducted a survey, of which they will only release the results, that said 60% of the SB wineries wanted to charge 1 1/2% on tasting room sales which would include wine, merchandise, but neither wine club sales nor trade sales. Many of you know that there are wineries whose revenue is 40-80% from trade sales and they would pay nothing on those sales. Similarly there are wineries with very robust wine clubs who would pay nothing on those sales, many of these folks do not have tasting rooms. The small wine and pop wineries producing 10,000 cases or less and with a tasting room would pay the 1 1/2% tax. The Wine BID funds for five years are to be used for: Promotion to the Trade and consumers --$3,324,832 --62% Protection(their word not mine) --advocacy to, but not lobbying, elected officials–$1,217,651–23% and Community support–$836,649–15%. No surprise, the large wineries many of which are headquartered outside SB County, some outside the state, want the small mom and pop wineries to pay for their marketing to the trade. There is one millionaire owned winery who produces millions of cases and has several large wineries in SB County and because of the weighted vote will have north of 15% of the vote. Refreshingly, there are several millionaire owned wineries who recognize the discriminatory nature of the SB Vintners Wine BID who are opposed to it. Unfortunately, they produce 10,000s of thousands of cases of SB Wine not the hundreds of thousands of cases of SB Wine that the out of County folks do. The SB County BOS will decide the matter in the next two months.

You are a funny man, Mr. Pepe.

First off, what is your connection to retails sales or any other sales of SB County wines at this point? I thought I understood that the entire vineyard that you own is now being leased to Walt Wines, based out of Napa? Are they members of the SBC Vintner’s Association? Are you?

Second, there is quite a bit of misinformation in your statement above. Let’s go through actual facts:

  1. All retail sales through the tasting room, including wine club sales made at the tasting room, are included. Therefore, those mega-wineries what have tasting rooms in our area, including Bill Foley, Constellation and Gallo, will be contributing to the BID, but not in the same way a mom and pop will that does almost all of their sales through the tasting rooms.

  2. There are many many smaller ‘mom and pop’ wineries that do not have tasting rooms at all - and they will not be contributing at all - but may be required to ‘buy in’ for a small fee to be a part of the newly reformed Vintner’s Association.

  3. There are many many ‘mom and pop’ wineries with tasting rooms that are in favor of the BID proposal, for they realize the concept of ‘rising tides’ is a positive for everyone.

  4. This will not go to the Board of Supervisors for approval - the approval process will be by the wineries affected.

Happy to have a more in depth discussion about this if anyone out there would like to - most likely ‘offline’ as I’m not sure this is the appropriate venue to do so, but am willing to as well . . .

Cheers.

Hi Larry. Our connection is to the health and welfare of the SB Wine Industry. Cathy and I practiced law for 60 years and used our life savings to purchase 40 acres in 1994 in what would become the Sta. Rita Hills. No trust funds, or coupon clipping or inheritance or rich relatives-- just our life savings. Skipping over the cost of the land, folks on this board know what its costs to plant 29 acres, buy vineyard equipment and farm the vineyard for three years before you receive any income. We were one of the Founding Members of the Sta. Rita Hills Wine Alliance. We along with help from our neighbors were the principal draftspersons for the Sta. Rita Hills AVA. We served on the Board of the SRH Wine Alliance and the SB Vintners. Even after we leased our vineyard we stayed members of both the SRH Wine Alliance and the SB Vintners. It was only after the new leadership of the SB Vintners strayed from its purpose did we resign from the SB Vintners. We are still members of the SRH Wine alliance. There are 270+/- bonded wineries in SB County. The SB Vintners’ website lists only 78 folks so it looks like a lot of other wineries have voted with their feet.
Our connection is very simple, if the value of SB Wines increases, the value of our grapes and vineyard will increase. If someone runs the SB Wine brand into the ground, the value of our grapes and vineyard will diminish.
Now to your specifics.

  1. You missed the point. Larry you are correct to say “All retail sales through the tasting room including wine club sales made at the tasting room, are included.” You know, as do all the wineries reading this, that only the FIRST wine club sale is made at the tasting room. All the subsequent wine club shipments will be from the winery and not taxed. It is to avoid taxing the wine club sales that the Vintners dropped their original proposal to tax all wine sales at 1% and shifted to using the tasting room sales. This avoids antagonizing their wine club members. Sales to the trade will not be taxed. The small wine and pop wineries 1 1/1/2% tax on their tasting room sales will be used by the Wine BID to pay for promotion to the trade. The large wineries will have their trade marketing paid for by the small mom and pop wineries’ 1 1/2% tax on tasting room sales. There was a recent newspaper article stating that Foxen’s trade sales were 40% of their income. Surprise surprise --Foxen is a big supporter of the Wine BID.
  2. You are partially correct. There are also several highly regarded wineries who sell 90% of their wine to their wine club and they have no tasting room. They will pay zero, while the mom and pop tasting rooms will be taxing their customers 1/1/2%.
  3. Time will tell if your assertion of “many” is correct. Once the mom and pop wineries with tasting rooms find out that their 1 1/2% tax on their tasting room sales will be used to fund the large wineries trade sales they may see that raising their canoe will also be raising the large wineries yachts.
  4. You are wrong. The Board of Supervisors must approve the tax. At the Supervisors’ meeting on Tuesday one of the Supervisors noted he did not want a majority he wanted a consensus. The County Counsel noted that the BOS has “discretion.” It is the BOS that is authorizing the tax, not the wineries.
  5. I can see why you suggest discussing this off line. Who wants to defend the large wineries not paying their fair share for promotions to the trade and being subsidized by the mom and pop wineries tasting room sales.

I’d just like to say that Loring Clos Pepe (And Sta Rita Hills in general) is our house wine and it’s an honor to have Mr. Pepe in this thread. Thanks for great grapes.

Thanks Matthew. Brian was one of the first wineries to purchase our fruit when no one had heard of us. He stayed with us through out our run. He claims his great insight was to follow Uncle Sid-Adam Lee. Brian always did a great job with our fruit. He was a class act to work with for our fruit.

Stephen,

Thanks for the reply - and I know you enjoy the back and forth so here goes . . .

  1. Point not missed at all - of course the first wine club purchase, which is usually picked up, will be charged at the tasting room. But it is short sighted for you to think that wine club members do not visit member wineries often, and purchase things other than their wine club purchases when they do. This happens in my tasting room all of the time and I’m sure many many others do as well. And I know for a fact that when you had your winery and hosted tastings at your site, you did lots of sales that were charged on the spot to wine club members during your events - and those are what we are talking about here.

  2. I am partially correct - just as you are, my friend . . .

  3. Right back at you - time will tell which ‘assertion’ is correct. No reason to assume you are right, either.

  4. You are theoretically correct, but from what I understand, it is nearly a ‘done deal’ for them to sign off on it and allow the wineries to decide whether to progress or not.

  5. It’s difficult to get at the nuances of the ‘battles’ going on here - and it oftentimes becomes more philosophical than anything else. I am more than happy to continue this online as well - and let folks know that this more than one opinion on the issue - and that there are plenty of ‘mom and pop’ wineries who do not fall into the categories that you suggest.

Cheers.

Hi Larry. I will resist the temptation to return volley. I made my points. I am more interested in the folks on the Board’s reaction. I understand that with harvest and the fires they have far more important things to do.

Stephen,

Yep a busy time indeed - but not too busy to continue to discuss this very important topic. I’ll be checking in to see what others have to say as well.

Cheers.

Setting aside the allocation of who funds it, how effective are these kinds of regional wine tourism promotional campaigns, especially in the internet age?

It feels like a somewhat dated concept, but I’m certainly no expert on this stuff.

What are the pros/cons to consumers (wine tasting visitors, wine club members, people who purchase from the winery)
What are the pros/cons to wineries (with tasting rooms, without tasting rooms)
Who is opposed/in favor of this, and why and who benefits most?
If there’s unfairness for either (consumer/wineries), please expand from the standpoint of someone who falls into neither of the two groups above and wouldn’t be biased for any reason (not assuming there’s bias, but should throw that in for good measure)
thx

Not dated at all - as in the use of all types of marketing require funds to carry out. In addition, some of these funds will be used for government advocacy to preserve what we already have.

Cheers.

Great questions - and somewhat difficult to answer without tons of background information but I’ll give it a shot:

  1. The cons to consumers is that they will end up paying a small fee (1.5% of sales made at the winery/tasting room itself) on their purchases and tasting fees during visits. These fees will not apply to wine club purchases that are shipped or possibly made in advance to pick up at the winery. The ‘pros’ are that these visitors are helping to fund a Vintner’s Association that will more adquately help to market and protect our area, which will benefit everyone.

  2. The pros to wineries are that they will have a stronger association that will be fully staffed and able to better represent our area to consumers, to the trade, to the media, etc. The cons to wineries is that they will be either requiring their customers to pay this small fee or eat it themselves.

  3. Stephen laid out who he felt was for and against this, but I’m not sure it’s as ‘clear cut’ as he mentioned. There are plenty of ‘mom and pop’ wineries like mine that are very much in favor of this process, and there are some larger more ‘corporate’ wineries that are not in favor of it.

Unfairness is a relative term - I’ll let others speak up.

The bottom line - our area does not have tons of large wineries that contribute tons of money in order to create a more ‘professional’ organization that can better represent us. We currently have 2 full team employees vs. 5-6 for Paso, 8-10 for Sonoma, and therefore are always challenged to ‘compete’ with other regions. Our organization has always been ‘handcuffed’ due to funds to represent us - AND we have a ‘splintered’ region where some only want to ‘fight for’ their individual AVAs. In some ways, we need to go backwards marketing wise in order to move forward.

Cheers!

Business must be doing well there to hike prices for consumers during the worst recession since the 30’s !

I don’t feel informed enough to take a stand on this proposal, but I will say that I’ve been highly impressed with the SB Vintners’ Association. High quality website with relevant, up-to-date information; good digital ad targeting (as a marketer, I appreciate well-targeted ads. Ha); interesting virtual tasting lineup during COVID; and sell fantastic vineyard maps. On the map front - these have echos of the classic Cote d’Or Map Set and I’ve yet to find any other California wine region with the quality these SB maps.

Hi Alex. Pros/cons are in the judgment of of the beholder.
For the consumer- the tasting room consumer will pay 1 1/1/2% on all wine, wine merchandise and meals purchased at the tasting room. The wine club consumer and the hotels, restaurants, grocery stores and wine shops will not pay the 1 1/2%.
The tasting room 1 1/2% will be used to pay the marketing costs to the hotels, restaurants, grocery stores, wine shops and wine club members.
Those wineries in favor are most of the large wineries because they will have their hotel, restaurant, grocery store, wine shop and wine club marketing paid for by the 1 1/2% tasting room tax. Refreshingly, there are a few large wineries who see the unfairness of asking the small mom and pop 10,000 case wineries with a tasting room to pay for the large wineries marketing costs to the trade- grocery stores etc. and wine club folks.
Those wineries without a tasting room or who sell their wine by an allocation list or wine club will not any of the marketing costs to the consumer or the trade- grocery stores etc.

Stephen,

ALL consumers will pay 1.5% at the tasting room, including wine club members.

And the proceeds will be used for much more than marketing - government relations, education, etc. Please don’t gloss over the facts to out only a few things to try to ‘state your case’…

Cheers.

If I understand, the basic point is who is doing the funding and who benefits from the funding. Stephen lays it out as the funding will mostly come from small wineries and benefit the large wineries. Larry is saying it’s not clear it will work out that way. Do I have that right?

I guess Larry could also be saying Stephen is right to first order, but the second order benefit to the region outweigh the first order concerns.

Alex,

That covers some of it. There’s plenty of ‘unspoken’ issues here - for instance, Stephen and many others simply do not like the idea of a ‘Vintner’s Association’ because it has not been as effective as possible in the past - mainly due to monetary constraints . . . but there’s also the issue that many wineries in SB County seem to not understand the concept of ‘rising tides’ but instead prefer to be ‘renegades’ and only think of themselves and their own businesses.

Our region and our wines are not even heavily understood and sought after in our own backyard - if you ask most consumers in LA if they have heard of the Sta. Rita Hills, for instance, they will say yes - but have zero idea that it is in SB County.

In addition, we live in a county that makes it difficult for hotels to be built and for wineries to offer places to stay, but on the flip side, recently banned short term rentals . . . but never took into account the needs of consumers visiting the area for tourism or what might be important for wineries. If we had a full time government relations person, we’d be able to ‘better advocate’ for our industry, which in turn, would be awesome for consumers.

Again, it’s complicated . . . [snort.gif]

Cheers.

There was an active thread earlier on a somewhat different variant of the BID proposal. Some of the details have changed, but many of the questions and concerns are the same.

From your recent post:

but there’s also the issue that many wineries in SB County seem to not understand the concept of ‘rising tides’ but instead prefer to be ‘renegades’ and only think of themselves and their own businesses.

This is the crux of the argument. Those wineries apparently should not be allowed to decide for themselves whether to support a voluntary vintners association and willingly pay dues, so you believe there is nothing else to be done but to pass regulations to coerce their contributions. After all, the wineries who support the fee apparently know what’s best for those who don’t.

I don’t own a winery in SBC, but it seems very problematic to me that there is only a very loose correlation between the amount charged to the sales of a winery and the benefit they accrue. This is quite different from BID fees in other business areas. It also seems borderline disingenuous to argue about whether predominantly mailing list wineries would pay the fees, relying on the point that they pay them when new customers sign up and buy their first shipment at the tasting room or visit and buy merchandise. It obfuscates the argument about the distribution of costs vs the benefit.

TBH, if I did own a winery in SBC, I’d seriously look at moving some operations outside the county.

You didn’t actually mention any pros for the consumer, who will be the ones directly paying the fees. What you mentioned was that “these visitors are helping to fund a Vintner’s Association that will more adquately help to market and protect our area, which will benefit everyone”. That sounds like a benefit to the vintners rather than the consumers.

It has been suggested that this fee is analogous to hotel BID fees. I’m pretty sure I don’t know a single person who has stayed in a San Francisco hotel (just an example) who thinks the add-on fee they paid was for their benefit.

-Al

So are you proposing that all shipments to wine club members be treated as having been from the tasting room, and taxed accordingly?