Small Business
Getting started: Wineries
June 18, 2001: 11:04 a.m. ET

It may be romantic, but starting a winery is also a costly and lengthy endeavor
By Bettina Teodoro
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NEW YORK (CNNfn) - Imagine picking up and leaving your hectic life in the city for the peace and quiet of the countryside, where you buy a little patch of land and cultivate it into a vineyard that produces a wine so rich and flavorful it wins you the admiration and dollars of wine lovers everywhere.

It sounds enticing, especially when you consider some numbers offered by the wine production industry.

According to the Wine Institute, which represents over 500 California wineries, total wine sales in the United States from domestic and foreign sources reached 565 million gallons last year, representing a 3 percent increase from 1999. This translates into an estimated retail value of $19 billion, 5 percent higher than in 1999. U.S. wine exports totaled 79 million gallons, or $560 million in revenue.

And while California accounts for about 70 percent of the U.S. wine market, winemaking is an enterprise that takes place throughout the country.

Simon Siegl, president of the American Vintners Association (AVA), says more than 40 states have vineyards, with wineries existing in 49. A winery may include a vineyard or be just a facility for making wine, using grapes bought from another source.

But before you quit your job and consult your real estate agent, there are some important factors to consider. First, to own and operate a winery requires, above all, patience and money. Lots of it.

You have to be passionate about it

"It's a business where almost everybody involved is willing to accept really, really low to negative profits," says Jeffrey Mayo, general manager of the Mayo Family Winery in Kenwood, Calif. "These are people who get into the wine business not because they want to make money, but because it's a passion of theirs. It almost breaks a lot of economic rules."

Jeffrey Mayo surveys one of his vineyard sources.
Henry Mayo, Jeffrey's father, had never intended to become a vintner. A successful real estate developer, in 1984 he and his wife, Diane, purchased property in Northern California, where they planned to spend their retirement.

But in 1989, while recovering from a heart attack, Henry decided to leave real estate and farm his land, which straddled the famed winemaking regions of Sonoma and Napa counties. The choice of crop was obvious grapes.

The next year, Henry planted a six-acre vineyard. He planned to sell his grapes to local wineries.

However, by the time Henry was preparing for his first harvest four years later, he realized he had become emotionally attached to the vineyard, and no longer wanted to sell his grapes. On the suggestion of a winemaker friend, Henry converted an old three-car garage into a winemaking facility.

For the Mayos, five years passed before they saw their first finished product. This is the average start-up time for a winery that begins with a raw piece of land, which needs to be cleared, irrigated, and structured with vines, posts, trellises and fences before planting. Jeffrey Mayo estimates his father spent around $150,000 to establish the vineyard, not including the cost of the land and the maintenance costs for the four years before the first crop was realized.

Then, to turn the grapes into wine, Henry Mayo bought a press, a crusher, tanks and barrels all second-hand and converted an old barn into a temperature-controlled, barrel-storage area. This phase cost another $50,000.

An easier way to start

Not every new vintner does it this way, says Dr. Robert M. Pool, chair of the Eastern Chapter of the American Society for Enology and Viticulture, because the cost is simply too high.

Pool estimates the cost of land for vineyards to be $1,500-to-$300,000 per acre, depending on location. Add this to his estimated establishment costs of $10,000 per acre and maintenance and operational costs of at least $1.5 million over the first five years, and the initial investment can be more significant than many are willing or able to bear.

For this reason, Pool recommends that new vintners start with grapes bought from another farm, while they wait to grow their own crop.

Chris Stanton (left) and Jeffrey Mayo (right) work the harvest.
"There's an advantage to getting started with your wine production before you have grapes producing," he says. "If you buy grapes, you can start selling [wine] and get the kinks out of your operations ... It's not particularly good business, unless you've got a lot of money, to just wait."

In fact, many wineries that grow their own grapes including the Mayos' also buy grapes from other farms. Pool says grapes cost between $250 to $2,500 per ton, with the most premium grapes from California perhaps higher yet.

The secret of success

Asked for an evaluation of his winery's achievements to date, Jeffrey Mayo says it has been "wildly successful," exceeding all set goals. In each of its four years of operation, the winery has increased production and sales, and last year turned a profit for the first time.

Mayo says the winery produced 4,300 cases of wine in 2000 and made about $130,000 on sales of $850,000. This year, he expects to make $250,000 on sales of about $1.1 million.

The Mayos' success can be attributed in part to their strong entrepreneurial spirit. In 1997, they bought a second, 10-acre vineyard that was already in full production an investment, Mayo says, has since doubled in value. They also operate two tasting rooms, where they showcase their own wines and rent space to other wineries.

"With the sales from our own wines, plus the rent from the other wineries, they [the tasting rooms] have actually become profit centers as well," he says.

Mayo also credits his winery's efficient operation. Aside from himself, there is a full-time winemaker, a part-time vineyard worker, and two part-time employees in the tasting rooms. The winery hires additional workers during the harvest season.

"I know of other wineries my size that have four-to-six full-time employees. We have two," he says. "Two or three extra employees would be between $100,000-to-$200,000 extra a year. For us, that's the difference between making money and not."

Mayo readily acknowledges that his family's winery got off to a better financial start than most. His parents already owned the land when they decided to plant the vineyard, and were able to combine personal funds with financing from secondary sources.

A competitive industry

Regardless of the route a prospective vintner decides to take, Simon Siegl of the AVA says the climate for entering the winery business is positive.

"Our main consumer base is growing very rapidly because of the demographic bubble of the baby boomer-aged people, who are now coming into a maturity of enjoying the good things in life," he says. "We're seeing the next 10-to-15 years being a very solid period for premium wine."

However, Siegl cautions, vintners will need to fight to stay competitive, because consumers have an incredible amount of choice.

"There are almost 2,000 wineries in the United States, and there are all the imported products from around the world that come into our marketplace," he says.

"You have to have the ability to define and describe points of difference for your wine that will attract a customer to it, and hope that you win them and keep them as long-term customers." graphic


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