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North Bay Chambers
Sold and Leased Properties
Author: Richard L. Thomas [All articles by this author]
July, 2007 Issue
So far this summer, Iíve tried analyzing a couple of perplexing problems that seem to have been around for a long time; oneómoney, as usualóis 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 isnít as much fun as they thought it would be. When you only make about 500 to 1,000 cases, no ďbusiness planĒ can show a big profit. Selling to restaurants and getting on wine lists is great for the ego, but you generally donít sell a lot through that channel. Also, youíre selling at about one-third less than full retail and that adds up to less grossóbut at least you get the old ego stroked. Another real problem is that, just because it costs $40 or more, that doesnít mean itís good. Itís 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 arenít great. Sometimes I think theyíre trying to pay off the winery in the first couple of years.
If youíre really serious about getting into the wine business, itís 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, itíll get full payment prior to crush to prevent the prospective owner from backing out and leaving behind a bunch of unwanted wine. Itís happened all too frequently in the past.
Itís 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, thatís $2 worth of fruit; at $2,100, itís $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 doesnít include any building costs.
If you just built your winery as a tourist attraction (and an ego stroke), itíll take years to amortize that cost at 1,000 cases per year. Somehow, somebody isnít realizing that great wine can be made in a steel butler building, and that bells and whistles donít add flavor.
Several articles have appeared in papers across the nation sayingóquite truthfullyóthat buying or establishing a winery in Sonoma and Napa counties is buying a lifestyle. It doesnít take long to learn that growing the grapes and making the wine is the easy part. There isnít a person in the industry who wonít agree that marketing is, by far, the most difficult task one faces. With more than 2,000 labels in California alone, itís difficultóif not nearly impossibleóto crack that tough nut. You may think itís going to be easy, but selling that second bottle can be equally difficult if the first wasnít worth the high price put on it. You may have a lot of rich friends whoíll buy your wine, but try to cold-sell to a restaurant, and you may well find out how easily your ego bruises. Nowís the time to hire a marketing person to take those lumps for you.
OK, a lot of wineries arenít making moneyóand really donít care, since itís 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 arenít making money.