As consultants and custom crush winemakers, we work with seasoned and novice winemakers alike. When people think about making wine, they are sometimes ready to source grapes and start a wine label. However, making wine is only part of the process. The first thing we often tell aspiring vintners is that one must start with a business plan—because after all, making wine is a business. A common question relating to the business plan relates to winery finances. How do you build a budget? What numbers are important to consider? What data can give a readout of business performance? Mark Pisoni is a co-owner of Gravity Wine House and conducted investment analysis for his Master’s Degree while at Cornell University. We used that as a basis for assembling this blog post to give you some ideas for how to get started. The information was developed for wineries in the Finger Lakes region of Upstate New York, but can apply to anywhere. If you’re ready to jump in with budgeting, skip to the Financial Data section of drafting your Business Plan below. Otherwise, follow along as we outline important concepts to keep in mind in starting your own winery.
Understand who you are
Understand who you are and, more importantly, who you want to be within the wine world. While this may sound trivial, a solid understanding of your own vision will make your position and purpose as a new winery clear to future collaborators and clients.
- What region are you in? Will your wine labels carry a particular AVA or sub-AVA classification?
- How does your sense of place influence your brand?
- What type of wine do you produce? Do you have aspirations of expanding your repertoire? These insights may influence your budgeting and marketing strategies as you set yourself up for success for years to come.
- Do you aspire to be a large or small winery based on your target production volume?
- Do you have a winemaker? If not, contact us for winemaking services.
- Is it important to have your own facility, or would a custom crush facility better meet your goals?
- What price point/tier are you targeting for your wine?
Define your goals
This is another idea that may sound simple but is vital before investing money, energy, and effort into a business model that may not align with your broader aspirations. In defining your goals, first, consider where you are now and what things you bring to the table. Are there things you already do and/or have that you want to integrate into your new business plan? These may include a wine label already in production, an ongoing contract with a particular grape grower, or a connection to a particular cooper who is integral in the production of your barrel-aged wines.
Be ambitious but realistic. This is the time for honesty with yourself and your business partners about what you hope to achieve in the coming months and years. It may be useful to set a timeline and think about your goals as dreams with deadlines. In defining your goals, it is helpful to revisit the questions posed above. What metrics are crucial to reach to become the winery you strive to be? Try setting many smaller goals with tangible measures of success to build the foundation for your larger plans.
Write your business plan
Here comes the step you’ve been waiting for! Now that you know who you want to be in the wine world and the actionable steps for getting there, it’s time to create a scaffold to bring your business to life. Your business plan should begin with a broad summary of your business and drill down to details such as how you will price your consumer goods. You may realize you have missing information; for example, have you conducted a market analysis to determine how many competitors in your area produce the same varietals or considered competitor strategies for pricing wine?
The U.S. Small Business Administration has compiled business planning resources that can be accessed here, including further detail about market research and competitive analysis, writing your business plan, calculating your startup costs, and establishing business credit. For those who are serious, we recommend this resource as a platform for further research. For now, we recommend you consider the following sections as you create your plan:
- Executive Summary: Who are you? Include your vision and mission statement here, along with a brief statement of your product or service and basic information about company leadership and location.
- Company Description: Go into detail about your company. What consumers do you plan to serve? What product or service will you provide? What competitive advantages will make you a success?
- Product and Service Description: What products and services do you plan to provide, and how are they different than what already exists in the market? This section may be combined with the one above depending on how much detail you need to provide.
- Market & Consumer Analysis: An understanding of your competitors is crucial to your success. Conduct market research, assess trends, and consider what others do well and what you can do better. See Table 3 below for an example of market analysis from the Finger Lakes region in 2001 (see Table 3):
- Operations: How will your company be structured? Describe the legal structure of your business.
- Personnel & Management: Who will run your company? Consider an organizational flowchart to demonstrate the role of all team members.
- Marketing, Sales, & Brand: Describe your plan to attract and retain a customer base. What are your sales strategies? Consider how marketing may play into sales.
- Financial Data: Budgeting and financial projections are a must. To create an effective budget that will communicate that your business can be a financial success, you must be comfortable with financial jargon and concepts that will help you trace your expenditures and be clear on how your money will be used. Here are some helpful definitions to get you started. See Table 4 for an example of annual operating costs for a model winery.
Below is a market analysis of the Finger Lakes Region from 2001. (Disclaimer: Retail bottle pricing is does not reflect current market conditions but can be used as a guide for datapoints to collect in relevant analysis of your consumer market space.)
The fixed expenses inherent to running your business that cannot be linked to your product or service.
What are your overhead costs?
The expenses that change as a function of the quantity of service or product production.
What are your variable costs?
A financial calculation that weighs the cost of a new product or service against a proposed sale price to determine where you will break even; total cost and total revenue are equal.
Can you use break-even analysis to make informed decisions about services and products you plan to sell?
Internal Rate of Return (IRR)
A metric used to estimate the potential return of an investment. Think about this as a measure of profitability, reported as a percentage. Learn more here.
Can you calculate the IRR of your projects?
Net Present Value (NPV)
The difference between cash inflow and outflow over a defined period of time. The NPV tells us how much money a project will gain or lose in today’s funds. Learn more here.
What is the NPV of your project?
Keep in mind that the exact sections of your business plan may look different from this list. Perhaps you prefer a more succinct Organization section rather than separate Operations and Personnel & Management sections, or you want to add detail in additional subsections. Your business plan should work for you and clearly distill the comprehensive plan for your business and your needs.
Below is a breakdown of the average annual operating costs for Mark’s model winery referenced in Tables 1 and 2. The average operating costs were calculated under the annual equivalent cost method, with production at 1,850 cases in year one with an 850-bottle annual production increase to reach 9,250 cases in year five.
Perception is everything
Although “Marketing, Sales, & Brand” may already be included in your business plan, the perception of your business from the consumer perspective deserves additional attention. Take an extra moment to consider your brand. What brings your wine business to life for your clientele beyond the physical infrastructure you buy and the personnel you employ? What does your wine stand for? Out of countless bottles on the shelf, why should consumers choose you? Your winery will only be as successful as your customers are content with the product you provide. Pay particular attention to the front-facing aspects of your business; their ethos cannot be fully captured by your budgets or estimated expenditures, take time to maintain, and will be integral in your winery’s success.
The decision to invest time, energy, and capital into a new business is a big one. For those really interested in starting a winery, it takes many hours, careful planning, a strong sense of leadership, and wine industry-specific insight. Here, we provided models and posed questions to consider as you decide how and when to bring your business aspirations to fruition. If working with our custom crush facility can assist you in your business development, contact us for opportunities. Either way, seek out resources in addition to those mentioned above – new perspectives will shed further light on how to strengthen your business plan and ensure your success.