The small business of winemaking

Wines & Vines, Oct, 2002 by Anne Louise Bannon

It's hard to imagine an industry that's as much about lifestyle as the wine business. Wine is seldom a mere consumable, such as milk or bread or peanut butter. For people who care about such things, the choice to drink wine with dinner is as much about how they choose to live their lives as it is about quenching thirst.

Even more so is the choice to grow and make wine. The challenges are numerous, the profit margins razor-thin and the competition almost overwhelming. But there's something about the wine "biz" that attracts new winery start-ups year in and year out: the lifestyle.

Some people are attracted to the notion of the gentleman farmer. Others are just passionate about wine and have discovered that they have a knack for making it. Still others come from winemaking families that have been in the business for generations.

But lifestyle is one thing. There's another aspect to the whole process; namely that it's a business. While there are many things about the wine industry that are unique, there are still some bottom-line basics that hold true for any business, from retail stores to dot-coms to wineries and vineyards. Which means there are a host of resources small winery owners can turn to for help with almost any phase of the business, from finding the capital to expand to getting ideas on how to market products to running a tasting room.

"I think often people have a skill, and then they think the rest of the business part will take care of itself," said Dr. Christian Butzke, former enologist for UC Davis' extension program. "You can't just make wine. You have to find the distribution channels. You have to establish the sales."

Although this is true of any business, there are many things that set the wine industry apart. There's the huge capital investment required to buy land, grape stock and equipment, for starters. And even if you're buying your grapes instead of growing them and waiting three to four years for a crop, you still have to sit on your inventory for a year or two before you can start selling it.

"That's different from somebody who sticks tomato plants in the ground," Butzke said.

"Your risks are higher," said Dr. Liz Thach, associate professor of the wine business program at Sonoma State University. On top of the huge investment, this is still an agriculturally based business. "In many cases, it's the whims of Mother Nature, and even if you buy your grapes, you are still held sway by that."

There's also competition from foreign producers who have the advantage of favorable currency exchange rates; the three-tiered distribution system, which further cuts into profits; and the legal issues of whom you can sell to and when and where.

And there's also a final unique reality of the wine industry: many winery owners have already made their fortunes and have gotten into the business for the sheer love of it, and, therefore, are not as pressured to make a profit.

So if you're a small winery owner, shoveling every cent you make into keeping your business alive, where do you turn?

A lot of that will depend on what your problem is, and while the focus of this article is on business solutions, there are several places you can look for agricultural solutions, such as your local cooperative extension program.

These are not the extension classes run out of nearly every major university that the general public can take without enrolling or working toward a degree. Along with sharing the same name, the agricultural-based cooperative extensions are also run out of state university systems, adding to the confusion, but they also have a wealth of information on just about anything to do with putting plants in the ground and getting them to grow. California's cooperative extension program can be found on the Internet at ucanr.org. Links for other states can be found at urbanext. uniuc.edu/netlinks/ces.html.

Thach recommends checking out Farm Employer Labor Services (fels.org), which provides management counseling and all sorts of information on how to deal with your farmworkers.

You can also check out the U.S. Department of Agriculture (USDA) programs. In fact, according to Ray Monahan, chief of the finance division of the Small Business Administration's (SBA) San Francisco office, because wineries are considered an agricultural business, if you want government help securing loans to expand your winery, you'll probably end up working with the USDA.

"We do loan programs, and we do a lot of technical assistance," Monahan said. "We put on about 700 classes a year for learning how to operate a business, how to do marketing."

The SBA, the federal organization that provides support for small businesses, is another resource if you're trying to set up a tasting room or need some capital for another ancillary business. The SBA also funds many Small Business Development centers, where small business owners can get free one-on-one counseling, usually with a counselor who has some experience with their specific problem, such as marketing. The centers also provide training classes on many of the basics of running a business, even something as mundane as how to keep your books in order.