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Author: Richard L. Thomas [All articles by this author]
July, 2007 Issue

So far this summer, I've tried analyzing a couple of perplexing problems that seem to have been around for a long time; one money, as usual is heating up again.

I keep listening to winery principles saying they have to charge at least $40 per bottle to try to break even. Small boutique wineries, scattered throughout the North Coast, are learning the wine industry isn't as much fun as they thought it would be. When you only make about 500 to 1,000 cases, no "business plan" can show a big profit. Selling to restaurants and getting on wine lists is great for the ego, but you generally don't sell a lot through that channel. Also, you're selling at about one-third less than full retail and that adds up to less gross but at least you get the old ego stroked. Another real problem is that, just because it costs $40 or more, that doesn't mean it's good. It's very difficult to make excellent quality wines the first few years (until the winemaker gets familiar with the fruit), so generally, the first few releases aren't great. Sometimes I think they're trying to pay off the winery in the first couple of years.

If you're really serious about getting into the wine business, it's generally better to custom crush and ferment in another winery. The need for custom crush is currently very high. It gives winery owners a chance to spread costs out and make some money at the same time. The money is good, and if the winery providing the service is smart, it'll get full payment prior to crush to prevent the prospective owner from backing out and leaving behind a bunch of unwanted wine. It's happened all too frequently in the past.

It's difficult to put completely accurate numbers on the cost of winemaking, because there are so many variables. But for general purposes, $25 to $40 per case is in the ballpark. Additional oak aging will influence that, as will the type and quality of bottles and corks. The other major cost is the fruit. There are about 700 bottles per ton, so at $1,400 per ton, that's $2 worth of fruit; at $2,100, it's $3 per bottle and so on. So if it costs $3.50 per bottle for winemaking and another $3 for the fruit, we would have $6.50 per bottle costs. Of course, that doesn't include any building costs.

If you just built your winery as a tourist attraction (and an ego stroke), it'll take years to amortize that cost at 1,000 cases per year. Somehow, somebody isn't realizing that great wine can be made in a steel butler building, and that bells and whistles don't add flavor.

Several articles have appeared in papers across the nation saying quite truthfully that buying or establishing a winery in Sonoma and Napa counties is buying a lifestyle. It doesn't take long to learn that growing the grapes and making the wine is the easy part. There isn't a person in the industry who won't agree that marketing is, by far, the most difficult task one faces. With more than 2,000 labels in California alone, it's difficult if not nearly impossible to crack that tough nut. You may think it's going to be easy, but selling that second bottle can be equally difficult if the first wasn't worth the high price put on it. You may have a lot of rich friends who'll buy your wine, but try to cold-sell to a restaurant, and you may well find out how easily your ego bruises. Now's the time to hire a marketing person to take those lumps for you.

OK, a lot of wineries aren't making money and really don't care, since it's considered the price you pay for the lifestyle (that can also stop being fun). What about grape growers? Napa has more winery/winegrower life stylists than Sonoma, but even the growers without their own winery are saying they aren't making money.




In this Issue

Going Solo

 The simple definition of an entrepreneur is a person who organizes and operates a business or businesses, taking on greater than normal financial risk to do so, according to the New Oxford Ameri...

Going Solo

 The simple definition of an entrepreneur is a person who organizes and operates a business or businesses, taking on greater than normal financial risk to do so, according to the New Oxford Ameri...

Wine and Weather

There’s no argument that the wine in your glass showcases the skill of the winemaker. Yet it was Mother Nature who engineered the growing season that made it all possible. Rain at the right ti...

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