The Business of Winemaking

The Business of Winemaking

by Jeffrey L. Lamy

Hardcover

$40.50 $45.00 Save 10% Current price is $40.5, Original price is $45. You Save 10%.
View All Available Formats & Editions
Eligible for FREE SHIPPING
  • Want it by Wednesday, October 24  Order now and choose Expedited Shipping during checkout.

Overview

The Business of Winemaking by Jeffrey L. Lamy


The Business of Winemaking places all facets of the wine business in perspective for investors, owners, and anyone else who is interested in how the wine business operates. Abundantly illustrated and written in a readily understandable style, the book addresses the technical rudiments of viticulture and enology and all of its related business actions: market analysis, vineyard and winery design, construction and equipment costs, regulatory and legislative issues, accounting and recordkeeping, financial analysis, tax considerations, typical salaries by geographical area, the minimum economic size of vineyards, the business plan, financing, product pricing, advertising, and sustainable farming and immigrant labor. This book features comprehensive case studies from 20 winery sites from coast to coast, making it an ideal resource for anyone wanting to better understand the inner workings of a successfully run winery. 

Product Details

ISBN-13: 9781935879657
Publisher: Board and Bench Publishing
Publication date: 12/01/2015
Pages: 360
Sales rank: 435,583
Product dimensions: 7.00(w) x 10.10(h) x 1.20(d)

About the Author


Before his death in 2014, Jeffrey L. Lamy had been a prominent wine consultant for nearly 40 years. A feature of the Oregon wine business, he is perhaps best known for his stewardship as GM and winemaker of the state’s renowned Montinore Vineyards, taking it from conception and feasibility study to national prominence.

Read an Excerpt

The Business of Winemaking


By Jeffrey L. Lamy, Judith Chien

Board and Bench Publishing

Copyright © 2015 Jeffrey L. Lamy
All rights reserved.
ISBN: 978-1-935879-65-7



CHAPTER 1

Are you ready for the challenge?


Ownership of a winery continues to be an elite international status symbol. The prestige attached to the production of high-quality wine propels many people to pursue this ultimate challenge.

Many new entrants are driven by a passionate and abiding appreciation for wine. Some are not. Such a love for wine isn't necessarily a prerequisite for assuming the risk of a winery investment. Nor does development of an inspired love for wine always follow as a result of involvement in the industry. That's unfortunate, because a passion for wine can be a very helpful asset in surviving the early years of a winery's establishment.

Among newcomers who don't have a true passion for wine, there are those who feel that winery ownership, in and of itself, or the lifestyle it may enable, is incentive enough to justify accepting the challenge. You might say they have more money than sense, but that wouldn't be entirely fair. Further, and this may be surprising, the pursuit of profit is not always a critical factor in the decision.


Three keys to success

Right at the start of this book, it is essential to state the three elements necessary for success in the winemaking business:


* Capital. As with all business enterprises, capital is needed. Without it, the enterprise doesn't get started. Without its timely availability as needed, the enterprise runs the risk of choking on its own burdens, and probably failing.


* Winemaking skill. Wine quality is crucial to success. We're talking here about quality as it relates to market segment. Quality is one thing to a $30–60 bottle of wine. It is different and less demanding for standard wines in the $8–12/bottle range. Wherever on the price/quality spectrum you choose to operate your winery business, the winery has to produce the appropriate quality of wine. In every case, quality depends on capable grape-growing and winemaking skills.


* An effective marketing program. You can make great wine, but if you don't market it properly, you will be stuck with a warehouse full of unsold casegoods. As with any business, you don't make money until the cash register rings.


Winery business is unique

We can marvel at the many ways the wine business is like no other:


* The production process combines science with art. Sure, production of consistently high-quality wine requires a fair knowledge of chemistry. But a lot of decisions are based on stylistic preferences, experience and judgment.

* Winemakers, who are the key people in determining the competitiveness of the winery's products, meet routinely with their peers (competitors?) to critique each other's wines and swap processing secrets ... er, effective winemaking techniques.

* Technical knowledge about winemaking at the highest management level, not just administrative skills and access to money, is important to delivering consistently high product quality, and to achieving marketing success.

* The pursuit of short-term profits often denies the achievement of impressive long-term profits, or the accomplishment of any profit at all.

* Effective marketing tactics differ greatly between the high and low ends of the price/quality spectrum. High-quality wine is best hand sold, with lots of personal selling and very little media advertising. Lower-priced wines are sold like beer and soda pop: lots of advertising and expensive in-store displays.

* The ways in which the winery and its key people conduct themselves in full view of the industry and its marketplace exert a strong influence on the winery's marketing success. In other words, this is a business where style points count ... heavily.

* Patience is supremely important to success. Those who wish easy or immediate gratification in the wine business had better look somewhere other than a winery or vineyard. Perhaps a retail wine shop or restaurant would be better suited for near-term results.


The following insights, offered for those hardy souls who wish to venture forth in the winery acquisition and/or development game, are particularly applicable to wineries in the 3,000 to 30,000 case range. As we travel through this journey together, the author begs your understanding. Efforts have been made to balance the serious with a few of the humorous aspects of the wine business, some factual and some based on myth with regard to the humorous. Please take these asides in the spirit in which they are offered; harm is meant for no one nor any group.


Respect for the challenge

First, the winery buyer or developer needs to comprehend the complexities of quality wine production and marketing. Success is not easy nor simple. Outstanding wines seldom happen by accident, and rarely does a great wine result from good intentions in the absence of technical capability. If the buyer/investor doesn't possess strong technical knowledge, then he or she would be well -advised to employ a skilled and experienced winemaker, to seek the services of a capable consultant, or to "partner up" with such knowledge.

Then, there's the "ritual" side of the wine business: the glamour, the romance, the hero worship, the fol-de-rol, the wine geeks, the winemaker dinners, the symposia, the charity events, the wine competitions, the wine writers. In America, wine represents a new arena for pontification, and where there's opportunity, there will be opportunists. But, if you're cynical about these trappings of the business it'll show, and your cynicism will work against your success. That's why you must have "respect for the challenge." You have to play the game on its terms, not yours.

There's a reason why the wine business has such attributes. It's because wine has earned a ceremonial place in most cultures and religions of the world that is unmatched, going back more than twenty centuries.

When is the last time you saw a bunch of lumber judges, gathered around a table, licking two-by-fours and making comments like: "Hmmm ... sturdy and smooth, yet angular, with a clean finish and aroma redolent of retsina (Greek wine that is made with pine pitch)?"

America is a latecomer to the world of pervasive wine appreciation. Wine represents a wonderful world of cultural enrichment, of endless opportunities for cross-cultural enjoyment of foods and people. Wine is magic. If you had an opportunity to hear Robert Mondavi's sermon on the wonders of wine, consider yourself among the fortunate. His passion for wine was truly inspiring.


Essentials for success

All of the following factors must come together to consistently produce top quality wine:


* High-quality grapes produced at a good site by advanced (sometimes "ancient") vineyard techniques, and picked at the right moment.

* Skilled and dedicated winemaking at the center of the process.

* Record keeping to compile a reference database of experience and to assuage the bureaucratic concerns of the regulators.

* The curse of the accountant, to assure that the financial underpinnings will be there to enable doing what needs to be done.

* Marketing savvy to move the wine through distribution channels to the consumer.

* Staff able to perform well in technical and management functions so the operation meets its objectives, and they need good facilities to enable their work.

* A vineyard and/or winery, acquired or developed at a cost that is suitable for production of an acceptable return to investment.

* Effective management, including expertise and skills of the owner or managing partner, to guide and balance productive efforts.


The production of wine can be a tremendously fascinating and rewarding endeavor. In the following chapters, we will explore each of these factors.

CHAPTER 2

A supportive marketplace


Bullish consumer demand

Opportunities for the creation of new wineries depend on two main factors: growth of wine consumption by Americans and the rate at which Americans upgrade their wine preferences from jug and standard wines to premium and better wines.

America's consumer wine market is growing at a rapid and steady rate. During the period from 2000–2014, annual consumption of all wines increased by 335 million gallons, an average annual gain of 22.3 million gallons, or 3.9 percent. Annual per capita consumption increased from 2.03 to an estimated 2.85 gallons in the same period.

In large part, our attention is directed at the category "table wines", because it is there that most opportunities for new smaller and medium-size wineries are to be found. The same can be said for acquisitions and expansions of existing wineries.

As Figure 1 shows, more moderate annual growth occurred in 2008, following the aggressive increases between 2001 and 2007. In 2001, the nation reacted to the terrorist attacks on New York's Twin Towers. How could an event that occurred in September affect the year's consumption so strongly, you may ask? For most wineries, the holiday season accounts for 50–65 percent of annual sales.

The slower growth year of 2008, was caused by the financial market collapse and recession. A resurgence resumed in 2009, with an aggressive uptick in 2011. a long-term market reality still exists: the demand for wines in the U.S. does not experience an absolute decrease during recessions. The growth rate may slow, but does not turn negative, and this characteristic has been true for at least the past sixty years.

All Wines includes several sectors. Table Wine is the largest, at about 70 percent of the market. Sparkling Wines and Dessert Wines make up most of the difference between All Wines and Table Wines.

Table Wines are defined as dry and sweet still wines that are not more than 14 percent alcohol. Dessert Wines have more than 14 percent alcohol. Sparkling Wines have retained carbon dioxide greater than 0.5 pounds pressure in the bottle.

There are some additional sub-categories of wines, including Other Special Naturally-Flavored Wines and Vermouth. They are ignored because they are extremely small and unlikely to represent significant opportunities in the American market.

The movie Sideways, released in 2004, appears to have had only a minor impact on total U.S. table wine consumption, but it created a boomlet of interest in Pinot Noir. For Oregon wineries, who arguably make the best Pinot Noir in the world outside of Burgundy, the movie stimulated a demand for Pinot Noir that quickly cleaned out winery inventories and resulted in substantial price increases. It also significantly boosted the sales of the other varietals made in the state.


Explosive winery growth

The number of wineries in America has literally exploded in the past twenty years, before trailing off in 2009, then resuming high growth during 2010–2014. A glance at Figure 2 shows that the number of wineries has grown steadily between slight decreases in 1996 and 2009. The average increase over the period was about 11.0 percent per year. It is equally impressive that the number of new winery licenses issued during the 2000–2001 recession did not decrease from the annual trend. Many winery developers took their money out of underperforming areas, like the stock market, and invested in winery facilities and equipment during those periods. In contrast, the 2009 decrease reflects the recession, an abrupt shift in wine consumer buying habits, some consolidation of ownerships and failures of marginal performers. The situation is discussed in more detail in Chapter 10.

These statistics include another class of licensees called "virtual wineries," which perform like wineries in several respects. One example is Oregon's Growers Sales Privilege Permit, by which a grower can contract with a winery to make the wine from the grower's grapes and bottle it with the grower's label. Then, the grower takes possession and markets the wine. Similar versions operate in some other states under custom crush regulations.

In 2012, there were 1,059 of these operations in America, amounting to 16.5 percent of total wineries.


Small wineries outnumber large ones

Wineries making less than 150,000 gallons annually in 2004 turned out only 8.8 percent of U.S. wine production in aggregate, but the 2,322 of them (in 2004) represented 93.6 percent of the number of all America wineries.

The distribution by winery size in 2015 is shown in Table 1. In that year, 96.2 percent of the wineries made less than 50,000 cases (118,924 gallons), and 77.8 percent made less than 5,000 cases (11,892 gallons). The distribution suggests one can start small and stay small, and still achieve success.


California still leads number of new licensees, but other states in chase

Since 1975, states other than California have experienced impressive growth in the number of bonded wineries. California's share of licensees has dropped from 57.0 percent in 1975 to 43.0 percent in 2010. (Figure 3).

From 1995–2012, the total number of bonded wineries in America grew by 412.7 percent from 1,817 to 7,498. During that seventeen-year period, the annual average increase was 334 new wineries. Washington and Oregon led the non-California states, averaging 33.8 and 25.4 new wineries formed annually, respectively.

It is equally impressive that the number of states containing bonded wineries increased from thirty-four in 1975 to all fifty by 2005.

Establishment of new wineries is not the only measure of rapid growth. Wine production is increasing rapidly, too.

The development of new wineries has a stimulating effect on wine consumption. The novelty of visiting local wineries to taste locally-made products introduces new consumers to the pleasures and health benefits of wine.

There's no question; much of the new winery cachet is the novelty of locally-grown wine. That acknowledged, operation of a winery does not depend entirely on locally-grown fruit. Crushed and uncrushed fruit, as well as pressed juice (sometimes frozen), are frequently shipped from grower sites to wineries in other states. The ability to utilize fruit from "ideal" climates to make wines closer to retail markets is a significant factor contributing to winery growth in states that are too hot, or too cold, to grow the best grape varieties.

Refrigerated semi-trailer trucks are used for uncrushed fruit, even over relatively short distances. It is widely agreed that shipping grapes further than 10–15 miles can be damaging to wine quality. Refrigerated tanker trucks are used for juice and destemmed crushed fruit.


Vitis vinifera grapes dominate the industry and marketplace

America is two wine regions. In general, wineries to the west of the Rockies make wine almost entirely from European grape varieties. In states to the east of the Rockies, wineries rely on native American varieties and French hybrids, as well as tree fruits and berries, with only a relatively small part of wine production based on Vitis vinifera grape varieties.

Table 2 presents production and growth data for the three Pacific States: California, Oregon and Washington. A focus on these three states is warranted because, taken together, they accounted for almost 90 percent of America's 2012 winegrape crush.

The list of grape varieties presented in Table 2 is noteworthy for its near absence of non-vinifera grape varieties. French Colombard, Rubired and Ruby Cabernet are hybrids developed from vinifera crosses by UC-Davis. The absence of Thompson Seedless grapes from the list is a mystery, inasmuch as the triple-use cultivar finds its way into many California jug wines.

The pattern of winery production that has occurred in California (typically 84–85 percent of U.S. production) since 2000 illustrates the agricultural nature of the industry. Figure 4 tracks the California winegrape crush over the past fifteen years. After a huge crush in 2005 and again in 2009 and 2012, 2013 outdid them all. The longer-term trend is obvious. Although many wineries try to scale vineyard production according to their marketing goals it is apparent that overall, at least in California's large wineries, volumes tend to be production driven by the harvest. In large part, that is due to the practice of allowing the vines for jug wine use to overproduce in good years. The vine responds by setting a smaller crop in the following year.

Rapid increases in wine production do not appear to have been damaging to wine prices, as was the experience of Australian wineries in 2006–2008. There, the problem was gross over - planting of new vineyards. In contrast, American wineries seem capable of absorbing harvests such as in 2005, and adjusting their market production schedules as needed for the short turn-around jug wines, with minimal downward pressure on wine prices.


(Continues...)

Excerpted from The Business of Winemaking by Jeffrey L. Lamy, Judith Chien. Copyright © 2015 Jeffrey L. Lamy. Excerpted by permission of Board and Bench Publishing.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

Contents

List of Figures,
List of Tables,
1 - Are you ready for the challenge?,
2 - A supportive marketplace,
3 - Importance of the grape,
4 - The solar factor,
5 - Managing the vineyard,
6 - Vineyard financial analysis,
7 - Alternative fruits and products,
8 - Winemaking and pivotal role of the winemaker,
9 - Aptitudes for winemaking,
10 - Does the wine sell itself?,
11 - Recordkeeping and accounting in a regulated industry,
12 - Winery equipment,
13 - Winery building,
14 - Winery revenues and expenses,
15 - Considerations relating to value in an acquisition,
16 - Minimum economic size,
17 - Where do you get the money?,
18 - Management, and expertise of the owner,
19 - A case study: Grand Eagle Estate Winery management meeting,
Appendixes,
Economic setting,
Wage rates and power costs,
Procedures for titration of total acidity using a pH meter,
In Memoriam: Jeffrey L. Lamy 1938–2014,

Customer Reviews

Most Helpful Customer Reviews

See All Customer Reviews