January 8, 2013 —
3 Mistakes You Don’t Have to Make
Starting Your Winery
I work with people who are interested in opening a winery and are doing their research and winery owners who have only been open a few years, as well as established wineries facing new challenges. After working and being involved in the industry for many years, I have found there are some common mistakes made by new or soon-to-be winery owners that can be avoided. Let’s take a look and see if any of these sound familiar.
1. Winery owners want to put their vineyard where they want to live.
Most new wineries were founded on land the owners liked. They find the land they love, then build a house and plant a vineyard. Some people get lucky because where they want to live is in a good grape growing area. However, more often than not, they didn’t do a lot of research on the land; or talk with neighboring vineyards about area challenges; or determine which grapes will grow best there…if any.
Example: In the Burgundy region of France, there is a small town at an intersection forming a Y. All around are vineyards except in the triangle of the Y, where sunflowers grow instead. As a newcomer, you may look at that land and see vineyards all around around and think this would be a great place to plant grapes! Ah, but the reason sunflowers are grown there is because through time, the grape growers have learned they cannot grow quality grapes in that spot. New people to the area would not know this, but the experts do. What makes the difference is the experience of dealing with both.
Experts can assist you choosing good land that is good for a vineyard along with a place you would like to live. Visit with neighboring winery owners. Ask them what they have learned about the land, weather, best grapes to grow, etc. Are there real estate agents in your area that have grown with the industry and understand your needs? You might want to buy two separate pieces of land – live on one and plant the vineyard on the other.
Solution: Where you place your vineyard is critical to the QUALITY of the grapes. You can grow grapes in lots of places, but the quality will be different. Treat the vineyard as a separate business. If you were buying a business, you would find someone with expertise in this area and you would work with them. Find an expert to work with.
2. The winery is established too far into the country.
There is not a large enough regional population to draw upon to sustain the business.
Example: Messina Hof Winery is located right outside of Bryan, Texas and College Station, home of Texas A&M. The challenge here is that the majority of the population most of the year are college students, who typically are not your target market and the closest cities are 100 miles away. How do you attract customers? Hustling! The husband and wife team have spent most every weekend traveling around the countryside getting restaurants to put it on their wine list, talking to store owners and getting it on their shelves, going to festivals and doing on-site events. They have done everything there is to do to market their business. They now have a B&B, restaurant and actually attract enough customers via harvest events that some pay the winery to harvest their grapes! Even now they can’t stop marketing, and to get wine out to more people they chose distribution. They are distributing to places other wineries aren’t getting to and after 30 years, they are one of the 5 largest wineries in Texas!
In contrast, Fredericksburg, Texas is a city that chose to bring in tourism and they are close enough to Austin and San Antonio to attract a lot of people. There are easily 10,000,000 people within 90 minutes of Fredericksburg. The land around Fredericksburg is great for growing grapes and the town has been smart about attracting wineries and tourists to the area. These wineries spend little to market themselves because the city has done most of the work. In fact, Messina Hof has just opened a second winery in the area.
Solution: For your winery to be successful, there has to be consistent traffic unless your plan is to sell everything in distribution. If that’s the case, you want to be close to a highway. But if you want customers to come to your winery (margins are higher, value to customers is higher and you have less competition), then you need to have a large enough population within a 45-90 minute drive to support your business. Also, are they interested in wine? You may be within 50 minutes of Salt Lake City, but if the majority don’t drink, then your location is moot.
3. The new gung-ho, excited winery owners spend all their money up front.
Typically by overbuilding the winery and tasting room, over planting the vineyard or over buying equipment. Reminder: New winery owners built on the “traditional winery” plan need to be prepared to not make a revenue for 5 years. That doesn’t mean you won’t, but if you have any type of setback, you’re done. Plus, you need money for marketing and sales!
Example: Caprock Winery, originally Teysha Cellars, was built in 1988. Over $11,000,000 was spent up front and less than three years later, they were bankrupt. Pockets ran dry and there was no money to actually build the business after the winery was constructed. (Note: The current owners of Caprock recently bought it at auction for $2,500,000. At $2,500,000 it’s a sustainable business. At $11,000,000 it is not.) Yes, this is an extreme example, but there are many other smaller winery owners who spend all their money up front and don’t have enough money to build the brand or can’t make it through the hard years.
Even though you may have been successful in business before, that doesn’t mean you don’t need help starting a new business. Your winery, vineyard and tasting room are all separate businesses. Hire marketing experts to build your brand. Hire a sales expert to run your tasting room. Hire an experienced grape grower to help establish your vineyard!
In contrast, Christoval Winery started a small winery and built the tasting room. Once they had built up cash flow from their wine club and tasting room sales, they put that money into expanding their winery. The winery has only been in business two years and could currently sell their business at a profit. They have borrowed money, but not more than what their actual cash flow could service consistently.
Solution: Building a winery is a marathon, not a sprint. Do not spend all of your money up front. Building the winery and tasting room are just the beginning. Building your brand and creating a loyal customer base to actually get to positive cash flow can take a few years. Working with experts to make you successful is just smart business.
As you can see, consulting with experts will help you avoid these common mistakes that can have a real impact on your business. And this is a business! You may love wine and winemaking, but building a winery that will succeed takes forethought, research and planning…not to mention blood, sweat, tears and money! Don’t fool around and try to “save a few bucks” by not consulting with experts who have first hand knowledge. If we don’t have the experience in a specific area, we know people who do. If you don’t know people who have the experience you are needing, we are here to help. Your success is our mission.
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