A famous winemaker once told me he made more money using investment tips from his son–Yale BA and Harvard MBA-- in three months than he did in selling wine in thirty years. So myplan is to go into business with the son.
For people serious about this, I always ask this question: what will make you different from all the other ding dongs who decided to make world class wine?? You need a raison d etre, other than ‘it seemed like a good idea at the time’…What is they call this? Unique Sales Proposition??
You also have to remember that you will need to be on the road a lot. Salina Kansas Radisson will be your home away from home.
Wow, lots of negativity (which is fine, I asked). Yes, I get that owning/running a winery is hard and for most not profitable. That’s not what I’m talking about doing if you actually read my posts. Let me ask the question another way. Do people think that good vineyard land in Sonoma or Sierra Foothills or Oregon or Washington State is going to increase in value over time, or at least stay stable, such that if one acquired the land (and made a good purchase with expert help in exchange for a contract to sell to that expert at favorable prices for a few years) and planned to hold it for 10-15 years they wouldn’t necessarily lose their shirt?
Smart wine drinkers let idealistic but frequently naive people do all the hard and risky work, and then cherry-pick the excellent wines, arising in part from sheer happenstance often. By the way, this happens in many life aspects besides wine.
It appears that your entire premise is that you can break even on operations and make money on land appreciation. I feel there is a significant amount of risk to meeting either part of that premise. On the break even operation, you have two issues.
First, you acknowledge that you and your friends will not be running the vineyard yourself so you have to hire someone to do so. This is going to raise you cost. Second, you expect to sell fruit to your winemaker at below market value as compensation for his role. The two together will squeeze you and limit the chances of even breaking even. If you are looking to buy raw land to limit purchase costs, you will have more establishment cost and a number of years of operating costs without any revenue at all. If you buy an establish vineyard, you will be paying a premium for the work that has already been done which leads to the second issue.
Second, its difficult to assume what land prices will be 10-20 years from now. I have family that is sitting on fallow farmland in Ohio that is a fraction of what it was worth when I was a kid. Of course you are not talking corn/tobacco land in Ohio but vineyard suitable land on the west coast. So look at how prices per acre have increased over the past two decades and consider if that growth rate is sustainable going forward, especially if interest rates return to something higher than they currently are today. So if you pay a premium for an established vineyard then generating return on the land is going to be a harder proposition.
A few years back, my wife and I had a chance to buy a commercial property at a below market price. The property is the home of a co-op art gallery who has been in that spot for over 20 years. The former owner was a gallery member and my wife is as well. They wanted to sell to us so that the gallery wouldn’t have to move. The gallery had been paying below market rent for the entire time it resided in that spot. At first this seemed like a great opportunity. The building basically comes with a built-in long term tenant. but after I took a good look at the condition of the building, the condition of the area, the building of new higher end retail area just a few miles away and the significant discount to the market rent that they have been paying I realized that this wasn’t going to work. Just to break even after making the needed repairs, was going to require that the rent be raised significantly. While it would still be below market, it would translate to a significant increase in the member dues of the gallery. This was more than likely to result in artist leaving the gallery resulting in even higher dues for those that remain. Since I knew what the gallery brought in per year, it was easy to see how the loss of a small percentage of the artist over higher dues would result in the gallery no longer being self sustaining. All of this could potentially lead to me owning a vacant building in an area that is losing foot traffic to the new build area near by.
While that story isn’t exactly the same it is very close to what you are interested in pursuing. You seem to be wanting to be part of the wine industry without having to do direct work but also without the cost premium that comes with it and still make a profit over the long term. While I won’t say it can’t be done, it is high risk. But if you are willing to take the risk, then by all means look to the Paso area. During the drought, there was a lot of vineyard land on the market since wells were starting to run dry and of course price per acre was coming down. I haven’t checked lately so I don’t know if the recent rains have reversed that situation or not. But if you are willing to take risk then that may be the area where you can get an established vineyard with existing grape contracts for a relatively cheap price.
I don’t think it is that far fetched to simply pool a few investors together to buy raw or developed vineyard land who want to share in the fruits of such venture. The legal setup will be important as eventually someone will want out or worse pass away. This is very similar to a metayage arrangement in France. This effort may well loose money on the vineyard operations for a very long time. Land values can go up or down and one should be prepared for that as well. I expect the emotional gains here are the main reason. First thing I’d suggest is building some ties in the area you wish to explore and asking for advice. Winegrowers are usually very friendly and helpful.
FYI, I own some land in the Sierra foothills where we plan to plant vines someday. This would only be a hobby and do not expect to make any $$. If we covered costs that would be great. We’d sell any grapes once that time comes. We’ll also live there part time as it is a great chunk of dirt.
Thanks for the thoughtful response. I very much appreciate it, and do want to think these things through carefully. This is a lot more helpful then just a simple “you are destined to lose.”
Thanks. Yeah, what you are doing is sort of the idea in a way, except we’d be hoping the value in the land would increase enough to offset operating losses in the interim. Or maybe if it has not increased I could buy out my friends and live there with my wife in retirement down the road…
We have some neighbors who have planted 10ac of PN with another 5ac to be planted in chard out in the west valley. This year will be second crush, they use a local winery/winemaker and will be vineyard managers with a house on the property when on site. They are having a Day in the Vineyard BBQ next month, so an opportunity to further discuss the business aspects and they love to talk grapes and growing. They spent years in New Zealand studying and working on identifying new locations. They chose the WV in OR over WW in WA for their vineyard. WA has many farmers replanting portions of their orchards and wheat fields to vineyards where they already own the land and just need water rights. Many of the prime WV vineyards are dry farmed and smaller for starters.
Yes. A friend of mine was solicited by a winery owner that wanted to expand to buy land (picked by the winery) and lease it to the winery. Leasing would remove some of the issues described above as the winery would farm the land. My friend was not interested and so I do not know what ultimately happened.
I tend to think the risk is lower in Burgundy than in California (unless you are in Oakville or Rutherford or Russian River or some other region with a big name) because regions out there go in and out of favor. Vosne Romanee or Chambolle Musigny or whatever won’t expand. But, on the other hand, this likely would make the land more expensive up front. I think what was being proposed on the deal I heard of was land in Savigny les Beaune.
This post includes what my followup was going to be. Water rights are a big issue, and those rights are becoming scarce in places like the Columbia Valley. I suppose if you can buy in now in WA or a quality part of CA and get the needed water rights, you’ll probably be all set and see a significant increase in value as the potential to plant new vineyard land shrinks. At the same time, no one knows what will happen in the future and whether or not water rights might be taken away. I doubt they ever will, but who knows what the next major drought will bring? Meanwhile you have the Willamette Valley with probably lots of potentially high quality sites that could be dry farmed (once established) and are yet unplanted. There, future property value is the mystery. If you could buy established vineyard land in WA at a good price, that would probably be a solid long term investment, but it would cost a lot even now. Plus, when I was out there about a year ago, I saw a large amount of new plantings around Red Mountain, apparently owned by one of the big players in the business. With new water rights supposedly already extremely limited (pretty much shut off), I found it a bit odd to see that, and could only think of one explanation ($$$). How susceptible the system is to that sort of thing might be a factor in what happens with values of existing vineyard land. There isn’t a market for WA wine like there is for CA wine, so there are a lot of unknowns there as far as the future goes. There are a lot of factors to consider.
It seems to me, and here we are talking Sonoma and Napa, that whenever somebody bought and planted land, that there was negative cash flow. But inflation has always seemed to change that. But how long will this continue? What about climate change?? That might be an argument for British Columbia.
The State of Washington has sold lots of land on Red Mountain to the owner of the Vancouver Canucks (among other things) and he is planted/has planted lots of vines.
It seems that everyone in California woke up to the fact you could buy good vineyard land in Eastern Washington for very little. Offhand I can think of four wineries here with big plans up there.
I would look at it this way: invest with a friend with the idea of having fun. Don’t base your retirement around this. Think of it as a variant as going to casino. Figure how much you can lose. Plant something that works well with the climate and soil. You can either plant something ‘weird’ like nebbiolo and sell the uniqueness, or plant something everybody sells.
I read comments like “you will never be profitable” and “I have never taken a salary.” Seriously? I would not be doing this if I did not make a healthy profit. It’s work. It’s your job. Who in the world works for nothing? I wear a lot of hats, and do more data entry than I would like, but I keep costs down, minimize the need to hire help, and turn a profit. And the bank doesn’t own me. Or EMH. Simple as that.
Well, it’s true, at least for me. I started with very little, and it’s all had to be self financing, and still is. So I imagine my income trajectory has been slowed a lot because of that.
I would also assert I’m a good 10 years behind you.
To hazard a wild and uninformed guess, would you be able to do what you do if you did not own prime property in one of the best areas of Napa for almost 20 years?
What if you had to purchase, develop & plant your property from scratch in 2008 or later?
My first 300 case vintage was 2008, and it’s taken me the 10 years since to basically pay for the CapEx of leased winery space & tasting room improvements, and self finance the inventory buildup , which is about 5000 cases (2.5 years worth).
One thing we do have in common is that the banks don’t own me either…whew!
I will be open with more details and discussion if people are interested. But I have to ask if you don’t make any money, how do you pay rent/mortgage. How do you buy food? How do you pay for medical? Certainly there must be another source of income providing that base as you CHOOSE to develop your business. But no one can live on nothing.
Expect that below a certain scale, your expenses will always exceed your revenue.
As a non-expert grower, you aren’t just vulnerable to the vagaries of weather. Even good veteran growers can be screwed by dependence on a winemaker, as Eric touched on. Don’t expect a contract to be of any practical help, there. You’re also vulnerable to your vineyard manager, who could turn out to be a charlatan or a flake and really screw you over.
The question here is he and his friends would be paying other people to do what you’re doing. That’s a lot of saved expense. Also, crucially, your attentive and knowledgeable presence is crucial to reacting to issues in a timely manner. Compare that to absentee fairly ignorant owners with a nice checkbook paying a part-time vineyard manager, who has other jobs, with perhaps more demanding bosses and whatever… I know enough real life horror stories.
Another perspective on this from a winery that purchases fruit: We’ve come across a couple small remote vineyards on great sites that aren’t being managed well. We’re willing buyers, but need them to be managed properly. One site was just too cost prohibitive to have an outsider come in. The other has one local guy who’s good enough, but he declined because he’s already maxed out.
I agree with what’s been said up to now and would add:
Owning a business on a remote/absentee basis is a very high risk proposition, regardless of industry.
Owning a business where you don’t add to the value chain makes it tough to earn a return, regardless of industry.
Grape Farming and Winemaking are very different skill sets. Each is rare and finding an individual with both skill sets is a challenge.
We’ve been approached with the model suggested here a number of times and have always turned it down. If your wines are good, you will always be able to get access to good fruit. Thus, there is little upside for a Winemaker to assist in developing and make a long term commitment to buy fruit from a site years before it will yield that fruit, without a significant equity stake.
With a well thought out concept and a solid plan, this can be a great industry, combining passion and, if you get it right, some profit. Its all about who you partner with and having everyone’s economic interests truly aligned. If the ultimate wines are good and sell, it can be an awesome experience.
So, Sean, what I’m hearing is that you bring a checkbook to the table, but not management, marketing skills, production skills or land, already planted or otherwise. Others are suggesting that the industry has plenty of capital right now, perhaps in part because of the number of people who are willing to work in the business with less compensation than they could get doing something else. They can afford to do that if they acquired their land quite a while ago, at considerably less than today’s market prices.
But you wouldn’t be buying land at the price twenty years ago and now it looks a lot less justified financially. It’s called a real estate bubble, and not one of the sparkling variety. I’ve been looking at some businesses for sale lately. I looked at one in the Bay Area that was decently profitable and has been for a number of years at about the same level. But they have only a year or two left on their lease, which is below the current market. When their lease gets adjusted to the market rate in a few years, they will be unprofitable. I think it’s the same thing with the wine industry. I’m particularly concerned about your comment that land appreciation can offset your operating losses. Land appreciation has no cash flow to pay the operating losses, unless you sell it.
Selling prices will have to go up in order to justify the current cost of land. Remember that wine at the quality level we’re talking about is a fairly small percentage of the total wine market. The problem with counting on raising prices, even in the higher end segment of the wine business, is still competition from low cost places like Argentina, Chile and Spain.
And small wineries don’t make much money unless they have a super high end reputation and, therefore, can sell for high prices already. Otherwise, volume = profits, even though I will grant you that there are exceptions. I think the other posters are suggesting that the chances of you finding the people who can grow, make and sell the wine, at a high enough quality level for you to be one of those exceptions, are passingly small given that they are probably already in a situation that adequately compensates them for what they do.