vineyard economics

Images from the Pride Winery located at the Summit Ranch on Spring Mountain lying partly in Napa and partly in Sonoma counties, visited on January 15, 2017. The winery features an extensive system of cellaring caves dug into the side of a hill. These caves are sprayed with a layer of gunite concrete which serves as insulation. The caves are neither heated or cooled and thus require no utility expenses, other than lighting, for wine aging. This utility expense issue inspired me to learn more about the expenses of a small winery. The source I consulted was a 1996 study that estimated the following major costs for a winery producing 5000 cases of wine per year:

• Packaging: $123,000
• Labor:        $115,000
• Cooperage: $93,000
• Grapes:       $82,000
• Taxes:         $40,000
• Equity:        $28,000
• Interest:      $24,000
• Bottling:     $20,000

Utilities were less than 1% of total expenses. Thus, having a insulated cellar, though a cost savings, doesn't result in a significant bottom line effect. Interestingly, packaging came in as the most expensive single line item in the budget, surpassing labor, grapes and barrels. This study also projected that the fictional winery would be cash flow positive in year three following an up-front investment of $810,000. The study assumed a real estate loan of $286,000 at 6.5% and an equipment loan of $364,000 at 7%. The project had a positive NPV of $293,000 and an IRR of 19.13%. I wonder whether an updated business plan would have a positive NPV in 2017?

Source: Fickle  LA, Folwell RJ, Ball T, Clary C. Small Winery Investment and Operating Costs: Extension Bulletin: 1996

http://www.agribusiness-mgmt.wsu.edu/agbusresearch/docs/wine_grapes/eb1996_05.pdf