So, You Want To Get In The Wine Business?

Note:  This article is a combination of "What does it cost to produce a glass of wine (updated September 2009) and Vineyard Values (2009)

John Bergman & David Ashcraft

There are all sorts of reasons why people wish to get into the wine making business. Reasons range from “My wine making business has out grown the garage,” to “It’s Romantic,” to “I like wine,” to “I’m drawn to it,” to “Make money,” to“I want to change my lifestyle,” to “It looks like fun,” or “I want to add another winery to my portfolio.”  You can see there are many different reasons to get into the wine business  Calls come in from people all over the world that say, “I want to buy a winery”. The first question is… why? Most say, so that I can make some wine. The next question is… Do you have any experience in wine making. The answers range from No, or I am involved with wine making and wish to branch out on my own, or I already have a brand name and it is growing so I feel I need a location and a home for my winery, or I own a winery or two already and wish to expand my portfolio.

Another important question… What is your budget and how much are you willing to invest? The answers run from several hundred thousand up to hundreds of millions of dollars. After some discussion, they realize that there are numerous different approaches to the wine business depending largely on budget, knowledge, contacts, and abilities etc… It is not uncommon that their perception and direction towards the wine business changes dramatically.  The options range from the winery dreamer with little money who may start with a virtual winery. A virtual winery is where he/she owns nothing but a phone, has some good contacts to buy the grapes, sends them to a custom crush facility where the wine is made, bottled and placed in storage in order to be sold and shipped.  The other end of the spectrum goes all the way to the sophisticated winery owner. This person wants to add on to an already existing winery or chain of wineries where money is of no concern. Then there are those in-between.  These folks have a dream, access to investment capital, are willing to pay for good quality professional help ranging from buying the property to wine making, operations, as well as a good marketing plan and advisor.

The most important thing in the beginning is “Education.”  In this article we will touch on just a few of the important factors to consider. First of all what are the components that go into the wine business. I would say the land and its location are number one and number two items. Where do you wish your winery to be? What varietals do you wish to make? Let’s start with vineyard values by Appellation in both Napa and Sonoma Counties. Here are both counties showing their individual Appellations and what an acre of vineyard will cost in each of the many Appellations.

First Things First, Appellations

Napa County Appellations

Sonoma County Appellations

2009 Vineyard Values / Acre - Sonoma County Appellations

Start With The Vineyard

The first thing that is needed to begin the process is the land to plant vineyard. Raw, plantable vineyard land in Napa and Sonoma Counties runs from $30 - 60k / acre in Sonoma County to $50k - 200k per acre in Napa County. Once the land is acquired, it must be planted. This will cost from $30k to $80k per acre with an average cost of $35k per acre. To maintain the vineyard it will cost approximately $5,500 per acre / per year. Maintenance costs will run over the first three years with the first harvest in the third year.  The 3rd leaf (3rd year) harvest is often times dropped on the ground to insure the long-term health and strength of the vine.  The 4th year of an average vineyard should start to produce 2 - 3 tons / acre.  When the vineyard reaches full maturity (in approximately 5 years), it should begin to produce from 3 -6 tons of grapes per acres, figuring an average of 5 tons per acre.  The final tonnage harvested can vary depending on the location and requirements of each wine maker.  A popular belief is that less tons produced per acre, creates higher quality fruit. 

Here is a typical cost and cash-flow breakdown to buy the land, plant a premium Cabernet Sauvignon Vineyard and sell the grapes. (From the farmers point of view.)

Here Come The Grapes

Once the grapes begin to grow it's time for the farmer to think about selling them to a winery. The varietal, County of origin and quality will determine the price per ton sale price. The charts below will spell out the actual sale prices for various varietals in Napa and Sonoma Counties.

Basic Wine Country Knowledge

The Next Step: The Grapes Are Sold To A "Premium" Winery

The Juice

Once the juice is made, it will have to be fermented either in steel tanks or oak barrels. At this point the wine is known as "bulk wine."  If the winery is making a white wine like Chardonnay that doesn't require much aging, the storage cost will be less (figure about one year.) If the winery is making Cabernet Sauvignon, that requires two to four years to age properly, making it more expensive. To age the wine for best taste results, oak barrels are used. You can buy a new American Oak Barrel for approximately $600, or you can buy new French Oak Barrels for about $1,250 a piece. It's not always important to use new barrels, so lets look at the cost of using "preowned" French Barrels: A one season old French Oak Barrel will set you back about $400. A two season old French Oak Barrel will cost around $300. A three season old French Oak Barrel will cost $150. Four seasons old is $100. Of course the more the barrel is used the less the oak flavor permeates. Top premium wine makers may use an oak barrel one to three seasons most.

Blending and Bottling

Once the wine has been properly aged, it's time to blend if need be and begin the bottling process. It is important to know that it will cost from $6.50 - $20 a case to bottle the wine depending on the glass and packaging. This includes the bottles, corks, foil, label and the box. Now that the wine is bottled and cased, it is known as "cased goods." It needs to be stored until sold. If the winery has no refrigerated storage warehouse, you can rent the space from one of several facilities in the area. The cost to rent the space will be approximately $0.125 per case per month. On top of that cost, they will spend another fee per case for each move known as handling (bringing the wine in and taking it out of storage.)  The combined expense of in and out handling for a case of wine is about $0.90 per case.

What is the difference in making Chardonnay vs. Cabernet Sauvignon wine? Quite simply, the answer is time. Once Chardonnay is fermented it can be bottled in a few months to a year and then sold six months later. Different "Premium" levels of Chardonnay will be held in the oak barrels longer, but they are usually bottled and ready for sale within the following year of harvest. Conversely, "Premium" Cabernet Sauvignon will be held in oak barrels for up to 3 years before bottling. It will then be bottled and stored for at least 6 months before they are sold to the public. Once the wine is bottled, it must settle down before drinking. If opened too soon you will discover "Bottle Shock" and will not be happy with the wine.

CHARDONNAY

CABERNET SAUVIGNON

How Wineries Sell Their Wine

Wineries sell their wine in various ways. The best way for a winery to sell its wine is in it's tasting room at a full retail price. The second best way for the winery to sell it's wine is to sell to their favorite customers via a mailing list.  Most wineries will offer a "Club Membership" which will allow the customer to buy at a discount. This usually entails a guarantee from the favored customer that they will buy several bottles or cases on a quarterly or biannually basis. One will normally receive a 10%-30% discount and the winery can forecast on a base of sales over future years.

Then there are the distributors that usually will represent several wineries at one time. They will deal with the retailer and / or restaurant to sell and deliver the wine for the wineries.  The distributor usually pays the winery about 50% of the retail price for the wines they sell.  When looking at the profit margin for a winery one must understand it will take three and half bottles sold through a wholesaler to realize the same profit from one bottle sold direct to consumer / retail.  

In Conclusion

The next time you are drinking that $15.00 glass of "Premium" wine at your favorite Four Star restaurant, remember that the actual cost to produce that glass of wine was under $3.00.  However, this price does not take into consideration millions of dollars of real estate, wine making equipment, vineyard, the time that it took to grow "Premium" grapes, and all of the people that had a hand in getting it to your lips. Just enjoy it for what it is. It's well worth the $15.00 you paid.

If you are interested in becoming involved in wine making or growing "Premium" wine grapes in Napa or Sonoma Counties, let us know. We would be very happy to get you on the right path. You may wish to fill out the Vineyard Shoppers Questionnaire and let us know what your dream of living in the wine country is all about.