Startup Wineries: Planning for Success



It will be daunting, exciting, expensive, frustrating and much more. But if you speak to any current wine producers, nearly all will tell you it is rewarding. Most love their business, many are making a good living, although admittedly some are struggling. The most successful operations have done lots of homework before the first tank was ordered or shovel of dirt turned.

Strategic Planning

The first step in generating the important information for your business plan is listing all the costs associated with your new business. Next, divide all costs into either Capital costs or Operating costs. Generally speaking, capital costs are one-time expenses like your tanks and Operating costs are all the recurring expenses.

Total investment costs for startup wineries range from heaven to earth.

  • Building and land costs account for the largest percentage of total investment costs for all wineries.
  • Cooperage accounts for the second largest percentage of total investment cost. The highest percent of variable costs for each winery are packaging costs.
  • Full time labor, cooperage, and purchasing of grapes are the next highest operating costs by percentage.
  • Depreciation of capital assets makes up the highest percentage of fixed costs.

Buildings

The sky is the limit when it comes to constructing winery buildings. There are, fortunately, plenty of ways to economize. For starters, one of the best is to hire an experienced consultant. A winery-design consultant’s service fees are usually a bargain. He or she can ensure that you don’t pay for a large building when a smaller one will fill the bill. A consultant will help you avoid the purchase of expensive white elephants for your bottling line or press deck, and show you how to plan your development in stages that match your cash flow.

The startup winery buildings are considered primarily production facilities, with two-thirds of the square footage dedicated to production and storage. The remainder of the facility serves as retail and office space. Structures are built for operating/production efficiency rather than aesthetics. A standard startup winery has 30-foot insulated metal external walls with steel framing, built on concrete slabs. Each building has cat walks, windows, and bay doors and are equipped with standard lighting, electrical, and plumbing facilities. Control of the temperature throughout the winery is accomplished through commercial glycol air handlers. Other areas, including offices, production, and retail spaces, are assumed to have a standard commercial climate HVAC system.

Those intrepid spirits who have strong wills, unlimited time and limited budgets, have saved money and done well adapting an existing building, doing as much of the work as possible themselves.

Equipment

The amount you spend on winery equipment will vary proportionately with the gallons to be processed—the larger — the more automated the more expensive net outlay. You’re paying for labor saving convenience. You can’t figure the cost of your equipment intelligently until you determine your size range. Consider: a chiller which usually takes day to lower the temperature to a blinding fast automatic chiller that does the same job quicker and better and costing no more than many others.

Here is where a consultant will make sure that you don’t undersize or oversize your true needs. Buying used equipment from other wineries or auctions can also help with a budget problem, but like a used car, you are buying someone else’s problems. You should consider the new energy efficient equipment which will reduce your operating costs.

Startup wineries are assumed to use jacketed stainless steel tanks for fermentation and for storage. Another method for fermentation and storage that has gained increasing popularity in recent years is the use of fermentation bins. Fermentation bins are stainless steel, square, open top fermenters that hold up to 350 gallons of must. Fermentation tanks range from 450 gallons to 2,500 gallons, while storage tanks range from 250 gallons to 1,000 gallons. Each winery uses fermentation bins. Another assumption regarding tanks included the use of glycol to control the temperature of the tanks during fermentation.

Detailed Equipment List

Receiving:
  • Picking Bins
  • Hoppers
  • Stemmer/Crusher
  • Membrane Press
  • Must Pump & Lines
  • Pomace & Stem Conveyor
Cellar:
  • Tank Mixer
  • Transfer Pump & Hose
  • Barrel Washer
  • Plate & Frame Filter
  • Air Compressor
  • Pressure Washer
  • Laboratory Equipment
  • Supplies
Materials Handling:
  • Pallet Jack
  • Hand Cart
  • Fork Lift
  • Rotator Implement
  • Pickup
Refrigeration System:
  • Chillers
  • Heaters
  • Glycol
  • Piping & Hoses
Fermentation/Storage:
  • Fermentation Tanks
  • Fermentation Bins
  • Storage Tanks
  • Tank Stands
  • Tank Washer
Cooperage:
  • Barrels
  • Racks
  • Silicone Bungs
  • Fermentation Bungs
Tasting Room:
  • Refrigerator
  • Wine Cooler
  • Commercial Dishwasher
  • Stemware
Plant and Office:
  • Computers
  • Office
  • Furnishings
  • Land
  • Buildings

Operating and Fixed Costs

Variable operating costs are separated into eight categories:

  • Grapes
  • Cooperage
  • Packaging
  • Bottling
  • Taxes and fees (federal excise tax, business and occupations tax, and Wine Commission dues)
  • Full- and part-time labor
  • Marketing
  • Utilities, office supplies, and miscellaneous

Fixed operating costs are separated into six categories:

  • Insurance
  • Property tax
  • Maintenance
  • Depreciation
  • Loan interest expense
  • Cost of equity

Labor Requirements and Positions:

  • General Manager: Coordinate winery operation and maintenance, sales, marketing, financial record keeping, and staffing.
  • Winemaker: Wine production, lab management, and quality control.
  • Assistant Winemaker: Assist winemaker in lab duties, quality control, wine production, and inventory management.
  • Cellarman: Responsible for winery maintenance, warehousing, receiving and shipping.
  • Warehouse: Conducts all storage and shipping functions.
  • Public Relations: Media and public communications, promotes industry issues, winery tours.
  • Customer Service: Operates tasting room.
  • Sales Manager: Directs all marketing and sales efforts.
  • Office Manager: Financial record keeping and general office duties.
  • Clerical: Assists office manager with all record keeping, filing, answering phones, and other general office duties

Percent of Total Investment Costs by Equipment Category:

To get a rough idea what is entailed in winery start-up, let’s look at the costs for a hypothetical 2,000, 10,000 and 20,000 gallon winery.

Gallons of wine: 2,000 10,000 20,000
Receiving equipment 10% 8% 6%
Cellar equipment 3% 1% 1%
Material Handling 9% 4% 2%
Refrigeration 5% 6% 7%
Fermentation & Storage 9% 6% 8%
Cooperation 9% 20% 22%
Tasting Room 1% 0.3% 0.2%
Plant & Office 54% 54% 54%

Total Investment Costs

As the winery size increases, so does the investment cost. However, the investment costs increase at a decreasing rate. The largest difference among winery size is between the 2,000 and the 20,000 case winery. Plant and office equipment represent the majority of a winery’s investment costs. Investment costs for plant and office equipment stay at a constant 54 percent of total investment. As the output of the winery increases, the per-unit-costs of production decline.

Revenue should increase dramatically for all startup wineries in the first three years. In years one and two, not all wine produced is ready to be sold. For years three through ten, sales will be the equivalent of production. The result is an increasing revenue figure, leading to a higher or increasing annual cash flow. The dramatic increase in revenue is because of the time lag between production and realization of revenue in the early years of each winery. As more wine becomes ready for sale, revenues will increase proportionally.

The Business Plan

This document is, first of all, a guide to strategic planning. In the process of creating it, you are forced to consider what must be done to realize the goal. How much money is needed at what stages? How much wine will have to be sold during the first few years? Where will the grapes come from? Etc., etc., etc.

But the business plan is no mere organizational exercise; it is also a key document in obtaining financing. Any financial institution will want to see that the potential loan customer has a grasp on the details of the business. The best way to demonstrate this is to produce a reasonable and convincing business plan, including cash flow and financial projections for the first 3-5 years of operation.

Although startup wineries can be developed with general characteristics common to all, such as using only new equipment and standard accounting systems, existing wineries differ with respect to several characteristics including:

  • Average yield of juice extracted from each ton of grapes
  • Quality of wine to be produced
  • Temperatures and length of time of the fermentation process
  • Amount of time the wine is aged
  • Degree of labor and capital intensity
  • Bottling dates
  • Marketing method
  • Access to grapes

Economically unsuccessful wineries are not managed by individuals who plan to fail, but by managers who often fail to plan. Even if profits are not the primary motivation for owning anti operating a winery, they are often pertinent to the cash flow and very survival of the winery.

Operating a winery is very rewarding, as every manager will tell you. After all the planning and homework has been done the result can only be a most successful operation.

Note: References taken from Washington State University Extension and the U.S. Department of Agriculture Extension Bulletin