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Home  »  Ag Sectors

Cutting distribution effort raises profits

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Regulatory burden pushes winery to liquidate distributor


By MATEUSZ PERKOWSKI


Capital Press


An Oregon winery has boosted its profits by closing its distribution arm.


Willamette Valley Vineyards of Turner, Ore., has reported that its net income rose more than sixfold, to $186,000, during the first quarter of 2012 compared to the prior year.


Jim Bernau, the company's founder, said the higher profits largely resulted from the decision to wind down its Bacchus Fine Wines distribution business, which significantly reduced expenses.


Although the distributor remained profitable, the costs associated with reporting its finances to the U.S. Securities and Exchange Commission proved too high for Willamette Valley Vineyards, a publicly traded company, Bernau said.


"Our audit fees skyrocketed," he said. "It will create a more profitable business once you remove those accounting and legal expenses."


Willamette Valley Vineyards began offering shares to the public in 1988, about five years after Bernau founded the company, to raise capital for its growth.


Complying with regulations has become tougher in the past decade since the passage of the Sarbanes-Oxley Act in 2002, Bernau said.


The law increased scrutiny of publicly traded companies in the aftermath of scandals at Enron and other large firms.


Compared to the winery, financial disclosures for Bacchus Fine Wines were more complex because the business handled product for other companies, he said.


"The regulatory environment for public companies has become more expensive over the years," Bernau said.


The company began distributing its own wines around the time it went public and eventually began marketing wines for other companies, leading to the creation of Bacchus Fine Wines, Bernau said.


The distribution arm had about 40 employees, most of whom have found jobs at other distributors or similar businesses, he said. Most of the Bacchus assets and distribution agreements have been sold and the company is expected to liquidate its inventories later this year.


Bernau anticipates the closure will cause a lull in the winery's total sales, since the company will now sell its products at a lower price to another distributor.


It will no longer sell wine for other firms and the new distributor will need to re-establish connections with some retailers and restaurants that sold Willamette Valley Vineyards wine, further impacting revenues, he said.


During the first quarter of 2012, the company's sales dropped nearly 12 percent, to $3.2 million.


However, its cost of materials dropped 15 percent, to $1.6 million, while its administrative expenses fell nearly 21 percent, to $1.3 million, which contributed to the company's stronger bottom line.


Over the long term, Bernau is optimistic about the sales prospects for his company and other Oregon wineries.


"Definitely, the market is strengthening," he said.



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