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

So far this summer, Ive tried analyzing a couple of perplexing problems that seem to have been around for a long time; onemoney, as usualis 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 isnt 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 dont sell a lot through that channel. Also, youre selling at about one-third less than full retail and that adds up to less grossbut at least you get the old ego stroked. Another real problem is that, just because it costs $40 or more, that doesnt mean its good. Its 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 arent great. Sometimes I think theyre trying to pay off the winery in the first couple of years.

If youre really serious about getting into the wine business, its 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, itll get full payment prior to crush to prevent the prospective owner from backing out and leaving behind a bunch of unwanted wine. Its happened all too frequently in the past.

Its 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, thats $2 worth of fruit; at $2,100, its $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 doesnt include any building costs.

If you just built your winery as a tourist attraction (and an ego stroke), itll take years to amortize that cost at 1,000 cases per year. Somehow, somebody isnt realizing that great wine can be made in a steel butler building, and that bells and whistles dont add flavor.

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

OK, a lot of wineries arent making moneyand really dont care, since its 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 arent making money.

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