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Margins matter in winemaking

and acquiring

First, choose where to locate your operation. You want a
distinct area, what the French call "terroir." You probably
want to make at least 10,000 cases. Sonoma County has 17
American Viticultural Areas (AVAs), which are distinct,
federally recognized growing regions.

Once you choose your AVA and your supplier, you'll
need about 10,000 square feet for the winemaking lab and
offices, barrel storage, tank storage and equipment. This is
a multimillion dollar investment for starters.

You'll need oak barrels, which can cost upward of $750
each. A barrel holds 25 cases of 12 bottles each. Now for the
cash-flow time line: chardonnay will be in the barrel for 10
months, and cabernet for up to 24 months.

Depending on the AVA, you'll pay about $1,500 a ton for
By Brandes Elitch chardonnay, or around $250,000 for 166 tons of chardonnay.
The cost of grapes per case is approximately $37. To this,
CrossCheck Inc. add the packaging costs per case – about $10 for corks, foils,
labels, bottles and boxes. And add $10 per case for labor for
rossCheck is located in Wine Country, Sonoma the crush. You'll end up with a total cost per case of around
County, California. And like many things, wine- $60.
making all comes down to the numbers that
C drive the business. As noted wine columnist However, you aren't done yet. Next come licensing, taxes,
Dan Berger said, "We have always had two-buck wines; but state duties, insurance, utilities, vehicles, and office and
we were asked to pay eight bucks to get them. … The wine winery supplies. Then you'll pay office staff, including
is worth it if you don't ask it to deliver more than that price workers comp, insurance, payroll taxes, etc., which will
point can deliver." add another $10 per case. That brings the cost to roughly
$70 a case.
This got me thinking about the payments industry's price-
versus-value equation for merchants, and how it compares Now comes the hard part: selling the wine. Finding a
to the wine industry. One significant distinction is that distributor willing to accept you as a client is extremely
interchange rates are published and immutable, until the difficult for a small winery. You'll sell the wine to the
next price increase from the card brands, which typically distributor for $125 a case, the distributor will sell it to the
happens twice a year. Whether we use tiered pricing or retailer for $160 a case, and the retailer will sell it to the
interchange plus pricing, we know what it will cost us to consumer for $240 a case.
process the transaction.
You are selling your wine at around $10 a bottle, and
Winemaking is different, because in farming, nature bats the retailer is selling it for $20. What is wrong with this
last. A farmer cannot predict the crop yield, quality or picture? Or more to the point, why would anyone do this?
how much will be spoiled in production, and after all that The answer: for the passion of being a winemaker, not for
– when the wine is ready for sale – what the market will money. A winery needs to make a gross margin of around
support in terms of volume, pricing and demand. 40 percent for the business to be sustainable and make an
Winemaking by the numbers acceptable profit.

In spite of that, a lot of people tell me they want to get into Acquiring by the numbers
the wine business. So here is a little primer on numbers In the acquiring industry, you have to pay attention to the
that drive the business. Let's assume you are going to buy numbers and, yes, you have to make an acceptable return
grapes on the open market rather than plant a vineyard.

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