Crowdfunding your Napa Valley Cab: is it tacky, or smart?
Nothing illustrates the entrepreneurial challenge of a cult Napa Cab staying relevant than Yao Ming’s turning to crowdfunding for his winery’s financial needs.
When his wines hit the market, I was as excited as anyone. I gave the 2009 Family Reserve 97 points—the highest of any critic I’ve yet seen (although only by a hair). It was a big, big score for stingy old me—and the next year, I was even more generous, with 98 points for the 2010. The wines were glorious examples of modern Napa Valley Cabernet, but the prices were absurd: $625 the bottle for both vintages. I figured Yao Ming figured he had a lock on the wealthy Chinese market, at a time when it was seemingly willing to spend anything on great wine, so why not go for the gold? After all, he was one of the biggest Chinese-American superstars of the decade, maybe ever.
Now here we are five years later, when the Wall Street Journal is reporting that “As China’s luxury wine market cools,” Mr. Yao is being forced to change his business model. “With Beijing’s anti-corruption campaign sapping demand for expensive wines,” the paper says, “Yao Family Wines is shifting its focus from Chinese banquet tables to US steak houses.”
Wow. That’s quite a radical change in business model. Do you think that $625 retail bottle price can survive the transition to steak houses? I don’t. Who’s going to pay $1,000 for a bottle of Napa Valley Cabernet Sauvignon to drink with the rib eye and baked potato? Perhaps the wine Yao Ming is aiming at American steakhouses is their second-label Napa Crest brand that retails for $48. It’s a solid wine: I gave the 2010 91 points, and my successor in Napa Valley reviewing, Virginie Boone, gave the 2011 90 points. But I think they’re talking about the Yao Family Cab. Whatever the case, the crowdfunding suggests that Mr. Yao is having some difficulties earning enough money to keep his business going through sales alone and is turning to this new, promising but largely unexplored area of crowdfunding to raise money from the masses.
Is there any shame about crowdfunding? I’m undecided. It may well be a wave of the future type thing. After all, we think nothing of a startup Silicon Valley firm taking venture capital from wealthy angels; in fact, it’s a source of pride that a smart, rich investor would think highly enough of a company’s prospects to put her money into it. I suppose that crowdfunding, of the sort Mr. Yao is engaging in (“as little as $US5,000 per person,” the Wall Street Journal says), is simply venture capital for the hoi polloi.
Still, it does make one wonder. What would we think if, say, Screaming Eagle, Araujo, Harlan, Bryant Family or Colgin announced they were crowdfunding? I think there would be a lot of raised eyebrows, and even, perhaps, some upset people on their mailing lists, who might feel that turning the reins over to “the crowd” was impinging on their notion of exclusivity.
Perhaps this is the way to expand an empire that’s already flourishing and can flourish even more. Yao Ming says he wants the money to (in the Wall Street Journal’s reporting) “build a visitor center in Napa Valley and a tasting room in Shanghai.” Given the current blowback from wine country residents against new tourist facilities, Mr. Yao may have some ‘splainin’ to do in Napa Valley. But I suspect that hundreds, if not thousands, of people will want to send him their money, to be connected with his brand, to get whatever perks or discounts they’re entitled to on the wines, and to just have the feeling that you don’t need to be a multi-gazillionaire to have a little bit of ownership in a Napa Valley winery.
If we take this Andy Beckstoffer metric . . .
“The Beckstoffer pricing formula calls for the price of a ton of To Kalon Cabernet grapes to equal 100 times the current retail price of a bottle. (This is true of all his heritage vineyards.) For example, if a bottle of Paul Hobbs Beckstoffer To Kalon Cabernet Sauvignon costs $250 (as it did at my local store) then Mr. Hobbs paid $25,000 for a ton of the fruit plus a base amount per acre that may vary. By contrast, the average price per ton of (average) Napa Cabernet is just north of $4,000.”
[Source: http://www.wsj.com/articles/SB10001424052748704893604576200842057088206%5D
. . . Yao Ming’s Family Cabernet Sauvignon at a selling price of $625 projects to paying $62,500 for a ton of fruit.
Yikes!
Link to Wall Street Journal blog titled “Yao Ming Turns to Crowdfunding to Raise Profile of Napa Winery”
http://blogs.wsj.com/chinarealtime/2015/03/04/yao-ming-turns-to-crowdfunding-for-raise-profile-of-napa-winery/
All wants to be a member of the Royal Court but if everybody and their neighbors get an invitation it’s not so royal anymore.
(Note, I obviously have a huge bias here)
Crowdfunding is no longer just for people who can’t raise money from traditional sources. Crowdfunding is simply a DIFFERENT way to get access to capital and may very well be the BEST way for wine. Unlike professional investors which are solely focused on a risk-adjusted rate of return, consumers derive value from the social currency from simply holding the investment. And in most cases they will receive additional benefits from discounts from the winery. Frankly the financial return potential on a $5,000 investment is less interesting than the other benefits!
If you take the top 3 million US wine drinkers that account for 1/3 of the total US wine retail spend (~ $13B) and say they have $3,000 to invest a year in wine projects (quite conservative), that’s $9B just sitting there. And when TItle III of the JOBS Act finally comes through, we’ll see that number grow by 5X. So maybe $40B+ from investors who are motivated primarily by their relationship with the winemaker and getting preferential pricing and recognition.
From a winery’s perspective, they keep all the control (Yao Ming will give up around 8% ownership to individual investors in this round and they have zero control over operations). But they also get highly-motivated owners that will not only buy more wine but will talk it up to their friends.
We are in the first inning of crowdfunding but it’s going to transform wine… from how wineries fund growth to how they sell products directly to consumers. (shameless plug) And as platforms emerge that are 100% focused on wine to streamline both reward and investment models, we’ll see the mystery of finance reduced to something that the world’s 300,000+ wineries can understand and have easy access to.
I can’t imagine anything more exciting right now in wine.
…Michael
Let’s compare some statistics.
In an earlier blog comment I cited a news report covering the Fine Wine 2010 Conference in Ribera del Duero (Spain).
I quoted David Francke, managing director of California’s Folio Fine Wine Partners, who stated:
“’SIXTEEN PERCENT OF CORE WINE DRINKERS consume wine once a week or more frequently, which ACCOUNTS FOR AROUND 96 PERCENT OF CONSUMPTION. Thirty-five million adults drink virtually all of the wine sold in America, Francke said.’”
16% of 35 million adult drinkers represents 5.6 million individuals — who account for 96 percent of consumption.
Michael Brill states above that “the top 3 million US wine drinkers that account for 1/3 of the total US wine retail spend (~ $13B) . . .”
Clearly. these numbers don’t align.
Michael, can you reveal the source of your stats?
In 2012 the United States produced 754 million gallons of wine.
In 2012 the world produced 25 billion litres (6.6 billion gallons) of wine.
In 2012 the number of wineries in North America surpassed 8,000.
In 2012 the number of wineries in the United States was 7,498.
In 2012 the United States produced 11% of the world’s wine.
Michael, again citing the source of your stats, where do the other 291,609 wineries (300,000 minus 8,391) come from?
Or was that hyperbole?
This website quotes in excess of 40,000 wineries in the world.
Link: http://www.wineweb.com/scripts/wineryCount.cfm
It lists 10,317 in the United States — higher than the quote from Wines & Vines magazine’s 2013 Directory & Buyers Guide.
Bob, have a look at this 70+ page Morgan Stanley research document that states that there are over 1m wineries in the world. http://blogs.reuters.com/counterparties/files/2013/10/Global-Wine-Shortage.pdf
As a quick sanity check: there are 10K producers in Bordeaux alone. Bordeaux produces 2% of all wine (60m out of 3b cases), so 10K * 50 = 500K wineries if the winery density in Bordeaux held. In Burgundy, extrapolating its 3K wineries for 15m cases = 3K * (3b/15m) = 600K wineries. It Italy, there is much higher density of small producers (I have numbers for a few regions, but not in front of me). The US, not so much. I too was surprised to see so many wineries. And who knows, it could actually be in excess of 1m, check this out: http://en.wikipedia.org/wiki/Slovenian_wine. (28,000 wineries in Slovenia alone). The formation of a winery in many parts of the world isn’t the ordeal it is in the US.
As an aside, the US, given its brief wine history, has much lower density of wineries. HOWEVER, from a consumer’s perspective there are more than 9K wineries in the US. This is due primarily to the difference between a bonded winery and a brand. There are > 30K brands produced in the US (3+ years of COLA data) – many of these are 2nd brands on a winery license or a licensee that holds a wholesale/retail license (Type 17/20 in CA), produces under someone else’s bond, but really functions as a winery in a consumer’s eye. I didn’t include those, but for the purpose of this discussion they should also be included.
So the 300,000 is a lower bounds and an upper bounds is > 1m.
===
The Francke quote makes no sense. I think what he was trying to say was that 16% of all US adults are core wine drinkers and that number is 35m. Your quote implies that there are 219m (35m/0.16) core wine drinkers in the US (88% of US adults!). Clearly that’s not correct.
Let’s say your quote is correct and 5.6m drinkers account for 96% of wine consumption in the US. There are roughly 350m cases of wine consumed in the US every year. 350m * 96% / 5.6m = 60 cases per person, per year. Not sure how many people you know that consume 2 bottles/day. 350m * 96% / 35m = 1/3 bottle per person, per day. A much more believable number.
The 3m number I refer to is a number I derived from several studies. If you’re really interested I’ll dig it up, but basically there are 3m drinkers in the US that spend more than $2500/year on wine with the average being $4200/year.
I have no doubt that crowdfunding will become an important source for small interesting wines to get made. As the “Big Guys” gain ever important marketshare and the internet becomes increasingly relevant, small unique wines can use crowdfunding to presell wines based on the ‘coolness’ of the idea and the history of the winemaker. Can’t wait to see what happens.
In order to have my response to Michael’s comment go up without delays from “moderation” (which occurs when a comment has more than one embedded link), I will leave multiple, sequential replies.
“Bob, have a look at this 70+ page Morgan Stanley research document that states that there are over 1m wineries in the world.”
I researched the Web and searched for winery counts worldwide.
Not an easy number to find.
This website . . .
http://www.wineweb.com/scripts/wineryCount.cfm
. . . quotes slightly in excess of 40,000.
But it doesn’t sync with the numbers quoted by from Wines & Vines magazine.
Example: how many wineries in California circa 2012? Wines & Vines quotes 3,532. The Wine Web quotes 4.731.
Second example: how many wineries in USA circa 2012? Wines & Vines quotes 7,498 bonded and virtual. The Wine Web quotes 10,317.
Wine & Vines magazine’s 2013 Directory & Buyers Guide.
Link: http://www.winesandvines.com/template.cfm?section=news&content=111242
Table: Bonded and Virtual Wineries
“U.S. Bonded Wineries: 6,439.”
“U.S. Virtual Wineries: 1,059”
“U.S. Total Wineries: 7,498”
Table: States With 100-Plus Wineries
“California: 3,532”
From the Los Angeles Times:
Link: http://articles.latimes.com/print/2013/oct/31/business/la-fi-mo-global-wine-shortage-20131031
“The figures on wine production come from the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau. It issued its report for 2012 production in May.
“According to government figures, the U.S. produced 754 MILLION GALLONS OF WINE IN 2012. The bulk of that wine, nearly 90%, came from California.”
From Food Quality & Safety magazine
Link: http://www.foodquality.com/details/article/6523601/Wine_Quality_and_Safety_101.html?tzcheck=1
“Total 2012 wine production worldwide was a whopping 6.56 billion gallons, according to the Demeter Group’s State of the Wine Industry 2013.”
The “Full Monty” article from WineBusiness.com (May 12, 2010, 2012):
“The Market for Fine Wine in the United States”
[Fine Wine 2010 Conference in Ribera del Duero (Spain)]
Link: http://www.winebusiness.com/news/?go=getArticle&dataid=73903
By Graham Holter
Associate Director – Publishing
Wine Intelligence market research firm (United Kingdom)
“The US market is one of the few in the world where the drinking population and per capita drinking are increasing.” So says David Francke, managing director of California’s Folio Fine Wine Partners. America loomed large on the agenda of the Fine Wine 2010 conference in Ribera del Duero. Recession, market consolidation and new competition from Asia have failed to dampen the enthusiasm for a market many believe still represents a huge growth opportunity.
“It remains a very high value market: people are still spending more money on the wine they’re consuming,” Francke said. There are, he added, plenty of reasons to expect further expansion in the US market.
“We still sell to a very small segment of the US population,” he said. “Forty-three per cent of the population drink no beers, wines or spirits.”
According to the data presented by Francke, US wine drinking is compressed into a small segment of the population. Sixteen per cent of core wine drinkers consume wine once a week or more frequently, which accounts for around 96 per cent of consumption. Thirty-five million adults drink virtually all of the wine sold in America, Francke said.
Wine Intelligence has studied the US wine market in detail and categorised the wine drinking population – which it measures at 47 million – into profile groups. Two of these segments – Millennial Treaters and Experienced Explorers – were introduced to conference delegates by Erica Donoho, Wine Intelligence’s country manager for the USA.
Millennial Treaters, she said, represent just 6 per cent of wine drinkers, but they account for 13 per cent of market value.
“They’re a young group, under 30, and they’re exciting market players to look at,” she said. “Wine was introduced to them at a young age and it’s something they’re embracing wholeheartedly. When we ask them lots of questions, one theme that keeps coming up is there’s a pressure – especially among the men in this group – to know more about wine. They’re receptive to information; they want to be marketed to with some instruction.
“They’re really interested in sharing knowledge with friends and family, and it’s an amazing way to target this group. They want to share their experience and their knowledge.
“The social etiquette of wine choosing is becoming increasingly important.”
Typically, such consumers will use the varietal as a major buying cue, but two thirds of them are also influenced by country or region of origin.
This is also true of the Experienced Explorers group (which accounts for 17 per cent of the wine drinking population and 33 per cent of market value), though there are important differences between the two consumer segments.
“Experienced Explorers are a bit older, they’re over 40, but they’re the powerhouse,” Donoho said. “They have embraced wine as a central part of their lives. They’re explorers, but they’re experienced. They have the ability to rely on some of their own knowledge and incorporate a broad range of influences when making their choice.”
She added: “Unlike Millennials, they have brand awareness. To many of this group, region can represent a brand, and that’s an interesting way to market this group.
“This group will look to the in-store sales person or the wine critic as a source of information.
“They’re open to being fed more information. They’re not really going and looking specifically for the information, but when it’s presented to them by a trusted source – emails that say this is what’s good, this is what I recommend – it’s so effective, especially when they can press the button and make the sale.”
Bloomberg wine critic Elin McCoy said the way American consumers receive information about wine has changed dramatically since the days when writers like Robert Parker enjoyed a virtual monopoly.
Such critics would “taste thousands of wines, rate them on a 100-point system and write tasting notes underneath each score, but the score was what counted – and that was people’s idea of what a wine critic did,” she said.
“Part of Robert Parker’s power also came from the fact that the wine landscape was very different. People didn’t know anything about wine, retailers really knew nothing about wine, restaurants certainly knew little about wine. There was an opportunity for a single critic to be incredibly powerful.
“Fast forward to 2010 and everything is different. Everything. There’s more wine from more places in the United States, and a lot of it is very good.
“Parker himself has weakened his brand. He’s hiring a bunch of different wine critics so he has more voices on his website as well as his print publications, and that’s a signal of the change everywhere.”
McCoy said traditional critics had been joined by legions of bloggers and regional specialists. “I like to think of it as the democratisation of wine criticism,” she said. “Hundreds of thousands of collectors and general wine drinkers can go and read those reviews anywhere they want, for free.
“Gary Vaynerchuk has utilised YouTube to show his Wine Library TV videos of himself tasting three wines and using language that is very much pop culture language, comparing wines to pop stars and bubble gum. This is wine criticism as entertainment.”
Critics still have a role to play at the upper end of the market, McCoy said. “Parker is still influential. When people are spending a great deal of money – they’re buying Bordeaux and looking to buy for wine investment – they’re looking for some kind of guarantee that what they’re buying is going up in value or they’re not wasting their money.
“Distributors are consolidating and looking for things that sell easily. They still believe if a wine has a high score that will make it sell more quickly.”
McCoy’s core audience is the investment banking community. “They have a lot of money. Wine is part of the good life for them,” she said. “They want to know about it but they don’t want scores from me or tasting notes. They want to be an insider and know about something before anybody else. They want to know stories: compelling stories that are going to give them an insight into what they’re buying and also makes them somebody special.”
Joshua Greene, editor of Wine & Spirits magazine, said the US wine market had seen some fundamental – and more subtle – changes in recent times.
“In the States we were known for going for very large wines, very rich wines. There’s a ‘Robert Parker style’ that’s bandied about in the trade … in the last few years much more balance has come into our market,” he said. “People still enjoy those rich wines but also people are much more interested in looking at lighter styles.
“There really is not anything like an ‘American palate’. There’s a very diverse population and within that you find a lot of people drinking a lot of different styles of wine. It’s part of the growing maturity of the wine market in the United States.”
Greene highlighted esoteric Italian wine, and Spanish wine, as two growth areas in the American market, although French sales have been suffering, he said, quoting from the magazine’s Annual Restaurant Poll, which reports on top end establishments.
“The percentage of total sales that wine accounts for in restaurants [in the poll] has decreased pretty rapidly in the last two years. Even with these decreases we didn’t see a lot of sommeliers losing their jobs. Instead, sommeliers were being asked to do a lot more and not pay as much attention to their lists as they had in the past. They had to sell twice as much wine and make up for the fact that wine prices were coming down dramatically.”
Brands which succeed in the US are likely to have some “authenticity” about them and be owned by producers prepared to visit the market personally and engage with the trade, rather than leave matters with their distributors, Greene said. Some brands have developed a strategy which just targets restaurants, but a new breed of independent wine retailers are also acting as “gatekeepers” to the category, he added.
Greene said by-the-glass sales have become “critically important” for the on-premise sector. “People began to do a lot more wine pairing which created a lot more work for the sommeliers, but it created an opportunity where a wine could be featured on the by-the-glass programme and then step up to the list,” he said.
Francke at Folio said the USA’s three-tier system – involving producers and importers selling to distributors, who in turn deal directly with consumers – had not necessarily been helpful during the economic downturn, especially as distributors consolidated.
Distributors almost share ownership of wine brands, he said, “and there’s also extra cost built into the structure because those distributors are still expecting to make the same margin they were before [the recession]”.
Distributors, Francke said, “gained the reputation of being brand collectors”. Prior to the downturn they were “more involved in brand development. It led to huge wine lists in many places; wine lists that didn’t make financial sense for restaurants”.
“Retailers were expanding their wine selections. Consumers were facing a dramatically expanded selection from all over the world. It led to a weakening of the big recognised brands.
“Many retailers behaved in what I consider a very irrational way. They would reduce the facings on a well known brand and put something new in its place. No one would think of taking Coca-Cola off the shelves to replace it with a brand nobody ever heard of.”
For the past 30 years or so, the US consumer market has been “driven by overspending”, Francke observed: between 1980 and 2010 household debt doubled to 130% of disposable income. This had a limiting effect on wine sales at a time when the credit market was closing up, which caused problems for restaurants and retail operators. Add a wine oversupply problem to the mix and it’s easy to see why prices have fallen.
This has consequences for everybody, even if they hold the line on prices. “When a producer in Napa Valley takes a $150 wine and reduces it to $75, your wine no longer represents the same value,” Francke told delegates.
Indeed, he added, “the idea of brand loyalty is something that doesn’t exist any longer”.
“The days when we were catching someone when they’re 25 years old and keeping them for life don’t exist anymore. I have to be telling my story over and over again. This is a luxury purchase, this is an expensive purchase, [consumers] want to know that they can rely on it. Many of the traditional brands that people thought of as leaders are falling by the wayside.”
Summarizing from ““The Market for Fine Wine in the United States” above . . .
According to David Francke, managing director of California’s Folio Fine Wine Partners:
“Thirty-five million adults drink virtually all of the wine sold in America, Francke said.”
Contrast that with research from this U.K. market research firm:
“Wine Intelligence has studied the US wine market in detail and categorised the wine drinking population – which it measures at 47 million . . .”
So is the domestic consumption baee 35+ million or 47 million?
“According to the data presented by Francke, US wine drinking is compressed into a small segment of the population. Sixteen per cent of core wine drinkers consume wine once a week or more frequently, which accounts for around 96 per cent of consumption.”
Do 16 percent of [a] 35+ million domestic wine drinkers or [b] 47 million wine drinkers consume 96 percent of all wine?
If [a] that represent 5.6 million “heavy user” (marketing research jargon) wine drinkers.
If [b] that represents 7.5 million “heavy users.”
Michael, the numbers quoted by Franke contradict your numbers:
“. . . the top 3 million US wine drinkers . . . account for 1/3 of the total US wine retail spend (~ $13B) . . .”
Franke asserts that 5.6 million U.S. wine drinkers account for 96 percent of the total U.S. wine retail spend.
(I haven’t had an opportunity tonight to access and read the Morgan Stanley research document projecting over 1 million wineries in the world. I will this weekend:
http://blogs.reuters.com/counterparties/files/2013/10/Global-Wine-Shortage.pdf#sthash.Lr9n3YB5.dpuf
It’s 1 in the morning here in La-La-Land — time for this post-midnight comment poster/vampire to go to bed. A wine client awaits my punctual work session arrival in not too many hours.)
Postscript.
Like an “earworm” song that you can’t get out of your head, this statistic stuck in my head.
From Wikipedia:
“Today Slovenia has more than 28,000 wineries making between 80 and 90 million litres annually from the country’s 22,300 ha of vineyards.”
The “back-of-the-envelope” math: 28,000 wineries divided by 22,300 hectares of vineyards averages 1.3 hectares per winery.
A 1.3 hectares equals 3.2 acres of land.
According to this report . . .
http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Slovenian%20Wine%202014_Vienna_Slovenia_2-3-2014.pdf
. . . Slovenia produced 740,000 hectoliters of wine in 2014.
More math: 740,000 hectoliters of wine divided by 22,300 hectares of vineyards equals 33 hectoliters per hectare.
1 hectoliter equals 100 liters or 133 750 ML bottles of wine (or 26.5 gallons).
33 hectoliters equals 4,400 750 ML bottles of wine (or 875 gallons of wine). That’s 367 twelve bottle (9 liter) cases of wine.
Not of lot of income.
Which underscores these excerpts from Wikipedia:
“About 75% of the country’s production is white wine. Almost all of the wine is consumed domestically with only 6.1 million liters a year being exported . . .”
Makes sense. How does a winery survive on producing only 367 9-liter cases of wine a year?
Bob, I think I made a cogent case that 5.6m consumers cannot possibly account for 96% of US wine consumption as that would mean each of them drank 2 bottles of wine every day. Francke was misquoted. But it’s not so material to this thread. What we agree on is that there is a small number of consumers that buy most of the wine.
My point about Slovenia is that it’s an extreme case – most people have never had a Slovenian wine yet on paper it has 3X as many wineries as the entire US! Seems like a ridiculous number to us… but it’s very conceivable that it’s correct. For a small producer in a Slovenian village, maybe 367 cases is a huge production. (BTW, that’s about how much Romanée-Conti is made every year.) Let’s say he sells direct for $100/case and that’s $36K or roughly twice the income of the average Slovenian. Throw in some extra income from his restaurant and the B&B and you’ve got a nice life.
I see no reason why the 1m winery number is not correct. But even if it’s off by an order of magnitude and there are only 100,000 wineries in the world… the environment for crowdfunding is just as compelling.
Michael, et. al.:
Once again, not to turn this blog into a STEM lecture . . .
28,000 Slovenian wineries divided by 22,300 hectares of vineyards “averages” 3.2 acres of vineyard.
For urban dwellers not accustomed to that land metric, let’s put that into an everyday context.
1 acre represents 4,840 square yards. 3.2 acres represents 15,488 square yards. Let’s take those land footprint and configure it into a square.
What would be its dimensions?
The square root of 15,488 square yards is 125 yards. The length of an American football field is 100 yards. Add in two end zones which are each 10 yards deep, and 125 yards is effectively the entire length of a football field. Square that and you have 15,488 square yards or 3.2 acres of land.
So think of a square parcel of land that is as wide and as deep as the length of a football field.
“On average” not a lot of vineyard area for basing one’s livelihood as a grape grower or winemaker, producing “on average” 367 9-liter cases of wine.
Too little to export as a branded product.
Which underscores the Wikipedia entry’s statement that virtually all Slovenian wine is domestically consumed.
Elaborating on U.S. domestic consumption, using Francke’s stats [I hope not misquoted/miscalculated] that 5.6 million individuals [representing the 16% of core drinkers out of the quoted 35 million total wine drinkers] in the United States account for 96% of domestic consumption — which Michael has calculated represents “on average” 2 bottles of wine a day.
But not necessarily two bottles “on average” CONSUMED each day.
The metric of two bottles a day could be PURCHASES. A combination of consumption and laying down wine for cellaring.
Two bottles of wine a day times a seven calendar days a week equals 14 bottles a week.
If those core drinkers-cum-wine collectors bought AND laid down for cellaring a single case of wine each week, then the balance of two bottles out of the “averaged” 14 bottles could represent weekly consumption. That’s 1.3 glasses of wine consumed daily. Quite reasonable.
(Aside: In a front page Los Angeles Times profile of Robert Parker in 1999, he self-disclosed drinking “on average” two bottles of wine a day. And he disclosed that he suffered from gout, which he attributed to his food and wine lifestyle.)
The notion that there are potentially one million wineries in the world still doesn’t pass my “sniff test.”
Reduce that number by an order of magnitude (one power of ten), and I could begrudgingly concede that that number is getting closer to the mark on counting wineries worldwide.
Bob
Smart move… just branding the names “Wine”, “Napa” and “Yao Ming” in the same sentence and a minimum of $5k… he should raise some nice capital if they can get the price per bottle right.
Of course, depending on getting a few bottles that they are “entitled to” could get the sense the $600 bottle just went to $1,000 depending on the sales model 🙂
How many bottles of Cabernet Sauvignon contain a ton of those grapes depends on what percentage of Cabernet Sauvignon is in the recipe. Few CS are 100%. Which people who are actively sourcing winegrapes are there who will concur with the attribution of that 100x factor which Bob Henry has cited, as actually being the policy of Beckstoffer Vineyards? Forgive me for my skepticism, but I doubt that such a policy exists. I would like to know more.
Rich,
I first heard that 100:1 formula for projecting the retail price of a bottle of wine back in the early 1990s, while enrolled in Robert Lawrence Balzer’s wine appreciation course.
Last night I dropped a note to David Francke, inviting him to comment on this blog entry.
His LinkedIn profile currently lists him as president at Vectis Group (having left Folio Fine Wine Partners in March 2014).
Bob
Hi Steve, sorry to chime in late, but this is actually a subject that strikes a nerve with me. While I am not a producer of $100 bottles of Napa Valley Cabernet, I am a millennial and a winemaker, and have seen a variety of ways young winemakers can use crowdfunding to start their own wine label. It is a combination of the two things that seem to have changed most dramatically in what it means to be a winemaker. (1) young winemakers starting their own wine label, and (2) use the internet and social media to build a brand.
Personally, I have tried to stay away from this for a handful of reasons. First and foremost, I saw a musician friend have a negative experience with kickstarter, and that has given me pause. I also might be a bit of a luddite, but believe that, as a young winemaker, I should focus my energies on learning my craft and growing my skills, not building a brand and marketing via social media. While those things are surely important, they are also a bit of a castle made of sand. I know too many young winemakers who can’t run an aspirator or a plate & frame filter, but have their own wine brand that they crowd fund and promote on twitter. Some of those people may grow into talented and successful winemakers. But my opinion is that if you are starting your own winery before you have the skills, experience, and capitol, then you are putting the cart before the horse.
All that said, sometimes I do sometimes daydream about what I could do with a few-thousand free dollars to start a winery 🙂
Gabe,
Where should a start-up venture put its emphasis: on growing its business or growing its brand reputation?
See this Sunday Los Angeles Times “Business” section review of the book titled “Captivology: The Science of Capturing People’s Attention,” written by Ben Parr, managing partner of San Francisco-based DominateFund, an early-stage venture capital firm.
Link: http://www.latimes.com/business/la-fi-books-20150308-story.html
Bob
If the Cost of Winegrapes Delivered to Winery as a share of the retail product is 11.11%, and considering the other costs of production (destemming, pressing, fermentation, cooperage, punch down, pump over, laboratory monitoring/testing/analytices/adjustment, electronics, wiring, temperature control, electricity, gas, cellarage, bottling, maintenance, labor, legal, compliance, rent, taxes, water, governmental affairs, labeling, transportation, community & competitive affairs, insurance, tools, supplies, sales, marketing, education, events, industry relations, public relations, club support and overhead) at what scale is it possible to break even with enough cash flow to produce a sustainable portfolio of labels?
How does a startup do this without some type of finance, such as crowdfunding, borrowing, or other partnerships?
Bob, note that the 100 times bottle price model was simply a Beckstoffer “innovation” to fairly capture the value of the vineyard in the finished wine. It is not broadly adopted and I’m not even sure he uses it any more as he has more clever ways to extract value from his brands (kudos to him).
Gabe, making and selling wines are largely independent of each other. No arguments against bettering your craft. But there is an endless stream of competent winemakers who go off the rails because they don’t know how to sell wine. Whatever you do, I urge you to pay attention to the selling side so if/when you go out on your own, you don’t end up in the build it and they will come land of despair.
Rich, you can use your own savings, borrow money, sell equity in your business, or pre-sell product to get your wine business going. But the money’s got to come from somewhere.
Rich,
Check out two articles on California wine input costs.
The first . . . a quarter-century old article will give readers a “benchmark” for “indexing” wine production and marketing costs.
~~ Bob
Excerpt from Los Angeles Times “Business” Section
(June 15, 1988, Page C3ff):
“Profit a Key Ingredient of Fine Wines”
Link: http://articles.latimes.com/print/1988-06-15/business/fi-4284_1_wine-market
By Bruce Keppel
Times Staff Writer
Dennis Groth prices his Napa Valley Cabernet Sauvignon to sell for $13 retail. That price, he said, will net his family’s young winery here just 34 cents a bottle in profit.
Groth is far from complaining, mind you. After all, he points out, 34 cents represents a 5.2% return on the $6.50 he collects from distributors. “That’s about midway among the Fortune 500 companies and a fair return on my investment.”
See next comment for the second.
Bob
Rich,
Check out two articles on California wine input costs.
The second from 2008 . . .
(I hope the accompanying exhibit table’s columns of info survive the text transfer to this comment box.)
~~ Bob
Excerpt from The Sacramento Bee “Business” Section
(February 14, 2008, Page D1ff):
“Full Bouquet on Wine Costs;
From grapes to glass, prices vary by region and quantity”
[See accompanying exhibit]
Alternate links:
http://www.record-eagle.com/news/business_the_biz/article_1d40b347-9132-54ea-bb2d-fc3fbdfa3db9.html?mode=print
— or —
http://www.arkansasonline.com/news/2008/mar/02/wine-price-flows-reputation-20080302/
By Jim Downing
Staff Reporter
When it comes to grapes, there’s plenty to debate about what’s in a bottle of California’s Central Valley wine vs. one from Napa.
But in terms of cash, it’s pretty simple: The amount of crushed grapes in a bottle of Napa wine costs, on average $4.34, while those from, say, Lodi go for just 52 cents, according to price data from the California 2007 grape harvest released this month by the U.S. Department of Agriculture.
It takes about 2.7 pounds of crushed grapes to make one bottle of wine. While those grapes are the first — and perhaps most critical — ingredient, they’re not the only factor in determining whether that cabernet sauvignon sells for $2 or $102.
It’s the combined cost of crushing, fermenting, aging bottling, packaging and marketing that yields the price you pay. But it all starts with the grape.
There’s no guaranteed formula for growing the sort of grapes that can become a $100 bottle. It has much to do with the grapes’ origins — the regional mix of soil, weather and reputation — that consumers have learned to associate with quality and price. In other words, we’re primed to expect a Napa wine to be worth more than a Lodi wine.
. . .
Accompanying exhibit:
“Breaking Down a Bottle”
The value of wine grapes depends on where they’re grown. While grapes are the primary ingredient in wine, they make up only a splash of a bottle’s retail price. Here’s a breakdown of the estimated costs in a typical bottle of wine:
$20 bottle $80 bottle
Grapes $ 1.95 Petite Sirah (Mendocino) $ 5.75 Cab Sauvignon (Napa)
Winemaking ops $ 3.25 medium-volume $ 6.25 small lots
Oaking $ 0.75 American oak barrel $ 2.00 French oak barrel
Bottle glass $ 0.90 Midrange glass $ 2.00 Heavy European glass
Label $ 0.25 Midsize order $ 0.65 Small order, fancy label
Closure (cork) $ 0.30 Midquality cork $ 1.00 Highest-quality cork
Capsule $ 0.10 Aluminum $ 0.18 Tin
Bottling $ 0.45 $ 0.50
Subtotal: $ 7.95 $18.33
Winery mark-up +75% +150% Small, renowned winery
Winery mark-up +$ 5.96 +$27.50
Subtotal: $13.91 $45.83
Wholesaler m-up +20% +35% Low volume = high m-up
Wholesaler m-up +$ 2.78 +$16.04
Subtotal: $16.70 $61.86
Retailer mark-up +20% supermarket +30% Wine shop
Retailer mark-up +$3.30 +$18.13
Total: $19.99 $79.99
Sources: Sacramento Bee; Robert Yeltman, UC Davis; National Agricultural Statistics Service
Since the column format in the accompanying exhibit of the Sacramento Bee article cannot be preserved, let me rework the text in a different way.
The “Full Monty” article . . .
From The Sacramento Bee “Business” Section
(February 14, 2008, Page D1ff):
“Full Bouquet on Wine Costs;
From grapes to glass, prices vary by region and quantity”
Alternate link:
http://www.arkansasonline.com/news/2008/mar/02/wine-price-flows-reputation-20080302/
[See reformatted accompanying exhibit]
By Jim Downing
Staff Reporter
When it comes to grapes, there’s plenty to debate about what’s in a bottle of California’s Central Valley wine vs. one from Napa.
But in terms of cash, it’s pretty simple: The amount of crushed grapes in a bottle of Napa wine costs, on average $4.34, while those from, say, Lodi go for just 52 cents, according to price data from the California 2007 grape harvest released this month by the U.S. Department of Agriculture.
It takes about 2.7 pounds of crushed grapes to make one bottle of wine. While those grapes are the first — and perhaps most critical — ingredient, they’re not the only factor in determining whether that cabernet sauvignon sells for $2 or $102.
It’s the combined cost of crushing, fermenting, aging bottling, packaging and marketing that yields the price you pay. But it all starts with the grape.
There’s no guaranteed formula for growing the sort of grapes that can become a $100 bottle. It has much to do with the grapes’ origins — the regional mix of soil, weather and reputation — that consumers have learned to associate with quality and price. In other words, we’re primed to expect a Napa wine to be worth more than a Lodi wine.
In Northern California, there’s a vast range of values, from Mendocino’s $1.63-a-bottle grapes, through the Sonoma valley ($2.77), Solano (88 cents) and the Sierra foothills ($1.44). At $4.34, Napa’s grapes are the California industry’s high-water mark. (Those figures are calculated from USDA per-ton grape prices.)
Beyond grapes, the price tag on an individual bottle adds up in multiple ways, from production through distribution.
“Any difference in the price of wine … is amplified more and more as it goes up the chain,” said Robert Yetman, a University of California, Davis, management professor who studies wine economics.
It starts in the winery, where the expense of crushing and fermenting the grapes varies, depending on labor, economies of scale and other factors.
Costs can escalate from there, especially for high-end wines that get the five-star treatment after fermentation.
Aging wine in imported French oak barrels — $900 a pop — tacks on another $2 per bottle. By contrast, flavoring wine with oak chops in stainless steel tanks cost just pennies.
Packaging — the bottle, label and cork or cap — can cost as much as the grapes within, with heavy European glass running more than $2 a bottle and fine Portuguese corks costing $1 each.
The design and printing of a fancy label can add 70 cents or more per bottle, according to label manufacturers at the recent Unified Wine & Grape Symposium in Sacramento.
Wineries with renowned reputations can make up those high production costs — and then some — by selling their wines to wholesalers at a substantial markip, as much as 150 percent, said UC Davis’ Yetman. Wholesalers, in turn, add another 20 percent to 30 percent the price; retailers an additional 15 percent to 30 percent.
That’s why a bottle that a winery produces for $8 can wind up on your table for $20 or more.
. . .
Accompanying exhibit:
“Breaking Down a Bottle”
The value of wine grapes depends on where they’re grown. While grapes are the primary ingredient in wine, they make up only a splash of a bottle’s retail price. Here’s a breakdown of the estimated costs in a typical bottle of wine:
$20 bottle
Grapes . . . . . . . . . . $ 1.95 Petite Sirah (Mendocino)
Winemaking ops . . . . . . $ 3.25 medium-volume
Oaking . . . . . . . . . . $ 0.75 American oak barrel
Bottle glass . . . . . . . $ 0.90 Midrange glass
Label . . . . . . . . . . .$ 0.25 Midsize order
Closure (cork) . . . . . . $ 0.30 Midquality cork
Capsule . . . . . . . . . .$ 0.10 Aluminum
Bottling . . . . . . . . . $ 0.45
Subtotal . . . . . . . . . $ 7.95
Winery mark-up . . . . . . +75%
Winery mark-up . . . . . . +$ 5.96
Subtotal . . . . . . . . . $13.91
Wholesaler mark-up . . . . +20%
Wholesaler mark-up . . . . +$ 2.78
Subtotal . . . . . . . . . $16.70
Retailer mark-up . . . . . +20% supermarket
Retailer mark-up . . . . . +$3.30
Total . . . . . . . . . . .$19.99
$80 bottle
Grapes . . . . . . . . . . $ 5.75 Cab Sauvignon (Napa)
Winemaking ops . . . . . . $ 6.25 small lots
Oaking . . . . . . . . . . $ 2.00 French oak barrel
Bottle glass . . . . . . . $ 2.00 Heavy European glass
Label . . . . . . . . . . $ 0.65 Small order, fancy label
Closure (cork) . . . . . . $ 1.00 Highest-quality cork
Capsule . . . . . . . . . $ 0.18 Tin
Bottling . . . . . . . . . $ 0.50
Subtotal . . . . . . . . . $18.33
Winery mark-up . . . . . . +150% Small, renowned winery
Winery mark-up . . . . . . +$27.50
Subtotal . . . . . . . . . $45.83
Wholesaler mark-up . . . . +35% Low volume = high m-up
Wholesaler mark-up . . . . +$16.04
Subtotal . . . . . . . . . $61.86
Retailer mark-up . . . . . +30% Wine shop
Retailer mark-up . . . . . +$18.13
Total . . . . . . . . . . $79.99
Sources: Sacramento Bee; Robert Yeltman, UC Davis; National Agricultural Statistics Service