As I look at the calendar again, I wonder what happened to 2013. It seems like we were just celebrating the arrival of 2012. The old adage of time flying as you get older is certainly true. The last harvest has left most growers happy with both yield and price, except near the end when tank space really became an issue.
This also happened a few years back, and I was as amazed then as I am now with the following scenario: Grower calls winery to see if it will buy more grapes at, say, $2,000 per ton. Winery responds with, “I’m sorry, but all of our tanks are full. But wait; if you’ll take $1,000 per ton, we can probably handle it.” Now, I ask myself how a tank suddenly increases in size as the price drops. Is that some mathematician’s inverse ratio rule?
The other alternative is to custom crush, that is, to have a winery make the fruit into wine that you still own. The grower pays for all of the processing and becomes the proud owner of bulk wine in the spring. Now you have the option of selling on the bulk market at a specified price per gallon. If the bulk market is good, you might just come out with a reasonable profit. I don’t think this year is going to be like that, however, since there’s a large supply of wine out there and the bottom feeders will have a ball buying cheap wine. That’s one way we get the Two Buck Chucks.
A third alternative, which might sound like fun at first, is to have the wine bottled and labeled and—with a couple of licenses—you can become a wine salesperson. Of course, all of your friends will buy it, won’t they? In today’s technological world, almost anyone can make a decent wine and/or grow decent grapes. It isn’t until you get to the selling and marketing part when things start to lose their luster. With the hundreds of new wine labels that come out each year, shelf space is at a premium, and as a small producer, you’ll be constantly swimming upstream. The result of this jammed up marketplace has been the explosion of wine clubs that let you sell at close to retail and make friends at the same time. They really are the cash (cache?) cows of the small producer today.
One strange fact keeps popping up: Wineries, like most of agricultural producers, continually cry poverty. Yet grape growers must think the wineries are fibbing since many growers today are building their own wineries. Just drive up Dry Creek Road and look at the mushrooms, oops, wineries sprouting up. Does that mean the growers are smarter than wineries and will make money selling wine? I probably shouldn’t mention that seeing your name on a bottle is pretty good ego stroking.
For those of you unfamiliar with the industry, here are a few numbers to play with. A vineyard acre should produce at least four tons per acre, unless you’re a Pinotphile. A ton of fruit yields about 160 gallons, or about 66 cases. With growers thinking every bottle they produce is worth $100, let’s say we call it a $30 bottle. So at $360 per case and 66 cases per ton, that grosses $23,760 per ton or $95,040 per acre. Oh yes, I’m fully aware that there are many costs involved. I’ll give you a very high side cash cultural cost of $12,000 total per acre. That means there will be $3.78 worth of grapes in each bottle (or about 12.5 percent of the retail price). If you like math, that’s where we come up with the broad rule that a bottle price should be grape price times 100. You can reverse that and say that the price of a ton of grapes is 100 times retail bottle price.
The place where the math goes squirrelly is the cost to produce the wine. If you built a monument to yourself for several million dollars and amortize that cost per bottle, of course it will be expensive. Build a functional building with only the necessary items and the price falls dramatically. Yes, I realize the wine business is capital-intense. If you need to sell your wine through a standard, three-tiered system, first I say good luck in even getting a distributor that will do your wine justice. You’ll be selling it at 50 percent of retail (or $15 per bottle, in this case). Now can you see the value of selling wine through your own tasting room, wine clubs and online?
With all of that, you then ask: “How do you price wine? Do you use actual cost figures?” No, you probably don’t even have a clue as to what they are, so the real answer is the old standard retail adage: “Whatever the traffic will bear and maybe even a little more.” The big-ticket item in our wonderful industry is, and will remain, marketing.
Since we’re on prices, let me conclude with a reference to Tim Fish, formerly of The Press Democrat and now with Wine Spectator. He recently stated that a major shortcoming of the American wine industry is the lack of locally produced wines priced at less than $10. His statement was answered in a feedback letter by Bryan Garbutt of Novato (Wine Spectator, Oct. 15, 2013), which really tells it as it is: “I believe the reason for this is that the American wine consumer has been completely taken in by the brilliant marketing led by Napa Valley producers and later joined by major appellations in California, Oregon and Washington. The new religion is that wine is so much more than a daily mealtime beverage. Instead, it’s been transformed into a lifestyle statement, a luxury experience. The losers are American consumers looking for solid and reliable wines they can afford to drink on a daily basis with lunch and dinner.” I couldn’t have said it better myself. Thank you, Bryan. After living in Europe for several months, it was very easy to get spoiled on some very good wine I could afford.
By the way, there are some very good, inexpensive wines out there and Gallo, Constellation, Bronco and a few others only suffer from our snobbishness due to marketing. Try some of them for homework!
