Video: The Cost And Profit Breakdown of $150 Cab.

I am linking this from my Vimeo account. Nothing in this is about my wine per se, but I am posting this because…

  1. I have not posted in a while
  2. I think a lot of people will find this interesting.

No one talks much about the actual costs to make and sell high-end Cab from Napa. To make, sell… and what the margins look like. I thought I would peel this back so you could see.

I remember very well a blog post that is from at least 10 years ago where someone broke down the costs to make his wine. Since then, I don’t think anyone has done this. Things are a lot different since then.

The video is 12 minutes long, so take a gander when you have some time. Hope you find it interesting. Enjoy!

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Hi Roy,

Thanks so much for that! Invaluable information and an eye-opener. Please continue!

Thanks for sharing, very interesting indeed! Please publish future video’s here too. Thanks!

Thank you for sharing! Always enjoyed your videos.

Pretty chilling. Helps to remind me that starting a brand from a lesser known region like Mendocino was doomed from the start. Now I need to bump the price for my fruit!

I appreciate the effort and information, and understand you’re not posting about your specific situation, so please understand when I use “your” in the following, I’m also not talking about you.

Seems a bit disingenuous to assume you’re going to have a full time sales person to market 250 (or even 500) cases of wine, especially if a significant % is going to the mailing list. Also, couldn’t that person market a second (or 3rd, 4th or 5th) wine? Or some of the back vintages? I understand making extra wines may not reduce the winemaker costs per bottle, because they may charge more to make a separate wine, but you’ll reduce a significant expense there, which brings me to my second point…

It appears if you’re looking for the best value, by from producers that don’t need a consulting winemaker. This, of course, does not mean anyone using a consulting winemaker is producing bad value wine, but the best value might lie with a producer who doesn’t have to bear that cost.

At 750 cases, what sort of bottle price do you need for a 15% IRR assume 50% mailing list/50% wholesale?

David Coffaro did a similar exercise here:

http://www.coffaro.com/BrendansTruth.html

Hi Roy - this is awesome. Thanks for taking the time to do this, it’s very revealing.

As an FYI, I think you may have a formula error at the top. At the 500-2000 case level, the barrel cost is not being included in the Winemaking subtotal.

Roy these videos have been fantastic and each one has been incredibly informative. Really appreciate the time you take to put these together and I look forward to each one in the future.

Each time I watch one it makes me want to open up a bottle of your 2012 that I was lucky enough to snag but I’m being patient (for now)!

Very interesting indeed. Yep, this is certainly ‘high end cab’ and costs most certainly are not as high if a) you are not working with that expensive a fruit b) you make the wines yourself without a consulting winemaker c) you are not using that much new oak, etc etc etc . .

One quick question based on this - is bottling really a set fee per day as mentioned here or is it done on a per case basis? Whenever I’ve used a mobile bottling line, there is a set up fee, but beyond that, it’s priced per case. Perhaps it’s different up there?

Cheers.

Thanks Roy. Quite interesting.

Of course, this assumes the fruit is purchased. Too many possible variable scenarios otherwise.

I enjoyed this quite a bit. I definitely opens one’s eyes to things, including how much these top consulting winemakers pull in annually! Thanks for posting.

Wow I never knew that wholesalers and restaurant owners were getting juice at below cost.

All good questions.

  1. I would guess that 90% of small-production $100+ Cabs are owned by someone who neither makes the wine, nor has the time to sell them. (This is very different that the situation for Pinot or Syrah outside Napa, btw.) In addition, many have little to no background knowledge on how to sell the wine, or what is needed on the back-end to accomplish this. Of the 10% that are owned by winemakers, they also often don’t have the time to sell… because they are winemakers for more than just their own wine. Often their spouses sell and do the business grunt work, in which case they essentially are part owners and might not take a salary. Then again, I know two spouses that do take salaries in the range I mentioned, even for their family owned wines. Honestly, I am the only person I know who both makes and sells their own $100+ Napa Cab, off the top of my head, because I work only for myself and do not consult for anyone else anymore, thus giving me time to be “all-in” on one small brand. For most owners, they need a winemaker and sales person, even at 250 cases. Most 100+ wines don’t sell out “direct” even if they score 95 points, nowadays, without someone focusing on it as a daily task. There are just too many in that category now.

  2. As for buying wines from those who don’t need a consulting winemaker… who are those? If they have a full-time winemaker, then they are above the production range in my example. Harlan for example is a vertically integrated, good size winery that, among all its brands, must be close to 10,000 cases now. If someone can get 95-points or higher as a winemaker, they likely are consulting for others as well and don’t have time to focus on selling their own wine. For most of these kinds of wines (250-1000 cs), the kind of scores (or brand name) needed to sell out production come from a consulting winemaker of some kind… either on staff full-time or on a consulting basis. In either case, they usually are not the ones selling.

In CA, we can sell at 66% of retail price, directly to restaurants and stores. But, most use wholesalers who then charge the winery for storage and delivery, bringing the after-storage costs to about 55% of retail.

Outside CA, the standard is 50% retail. So that if you are at $150, you sell to the wholesaler for $75, they sell to the end-seller for $112.50, and they sell for $150.

So that if your costs are $97 and you sell it all wholesale for $75, you are in trouble. Thus, getting to 500 cases and lowering to $60 is a big deal.

It’s not quite as bad to do as one might think. The economics of Napa Cab are in another sphere from Paso or even Russian River or Mendocino.

First, packaging costs are less for Pinot and Syrah because bottles cost $1, corks .75, etc. Winemakers for Pinot generally make way less per consult, typically $30-50K. And the fact is that many Pinot and Syrah makers simply can’t afford to hire anyone. They made and sell the wines themselves, take a small salary (if any) and then keep costs in line that way. So their costs are much, much lower. They make may their wines for $25-30 per and still have a nice margin… IF… they can sell direct. Custom crush in Sonoma is $36-48 per case vs. $48-100 in Napa. The costs are lower for almost everything.

The hard part is that there are far less people who buy Pinot and Syrah direct than Napa Cab. And the amount of people willing to buy Syrah or Pinot, even a 97-point Syrah or Pinot, at $100… is very, very low. At 97-points, Napa Cab often sells out at $175+. They are very different clientele. And there are simply far more who want Cab.

Pinot producers, especially, get into the biz BECAUSE they want to make their own wine. Think about how many high-end Cabs are made by the owner vs. Pinot Noir. Very few. Among Pinot (and many Syrah) makers, they often do it all, or maybe have one helper, at least until 1,000 cases.

When I got in this business I was originally inspired by what Pinot-makers were doing. I almost worked for Kosta Browne in 2004 when they were at 2,000 cases and it was only Michael Browne and Dan Kosta working there. I would have been employee #3. And by Brian Loring, who even now is pretty much a one-man show. And Jamie Kutch, who was at 500 cases with only two vintages under his belt and doing it himself. And particularly by Joe Davis of Arcadian, who I almost worked for, as well, in 2005. I felt I could do this because they had. I just wanted to do it in Napa. It wasn’t until I got here that I saw the cost structure was so brutal.

But even now, there are very few (any?) other people in Napa I know who are doing the whole thing, top to bottom, only on their own wine. I take no salary. Zero. So for me, I cut myself a check only after I have paid off all costs and have money left over. I have a good friend as an investor. I have to both make it and sell it to make it work at just 200 cases. Luckily, it’s exactly what I wanted to do in the first place. It can be done.

Indeed. I think that the best odds for winning in wine right now is to keep capital expenditures as low as possible. Don’t own the winery. Don’t own the vineyard. If you do, you now have three separate businesses to run. Often, those who own their own vineyard actually run them as separate legal businesses, where the winery business buys from the vineyard business and each has their own profit/loss.

Costs CAN be a lower if you have owned your own vineyard for some time… maybe since 1999. But when I run the numbers on buying a top vineyard now, they are very poor. We have entered a phase where people forget this is a farming business and valuations are too high. Any top vineyard purchase at current levels is bound to have a drag on overall financial profits, imho.

Very informative, thanks.

So, this is probably a stupid question, but asking such questions is one of my specialties. I’ve wondered about this in the past, but this provides a convenient place to ask…

If a “winery” sources grapes they didn’t grow, hires an outside winemaker to make the wine, has the wine made and bottled at third-party facilities, and hires someone else to sell it for them, what are they contributing to the process other than financing and marketing? Not that those are at all insignificant to a project like this; I’m just trying to understand how much (if any) influence they have on what the wine actually tastes like.

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There are so many ways to “do this,” one 12 minute video can’t possibly address all the scenarios. A great video, Roy, and a pretty good stab at a couple of typical scenarios. Except there is no typical.

I get asked questions all the time about this kind of stuff.

Owning your own vineyard…excuse me…owning my own vineyard is the single most important aspect of this for me. First word: control. Second word: life-style. Ambiance. Enjoying your life while you go about this nutty stuff. Yes, I bought mine in 1999 - which seems to be your cutoff date.

Don’t pay an expensive consulting winemaker (I think you said you don’t, Roy) if you don’t have to. Excellent fruit goes a long way. Don’t pay for that big-shouldered glass at $4.00 a pop - at these levels of production you are not looking for an image of being a big boy on the retail shelf. Pay a buck; it costs less to ship, too.

Custom crush where they have their own bottling line.

You can minimize the cost for new French oak barrels by cutting the percentage of new oak. This gets into style, but you are not wrong on the cost for a new oak barrel.

I pay way more (I think) for labeling. Artist costs, photo costs, and per bottle printing costs are high for screen-printing, as I do.

Again, just hitting around the edges of a well-done production.

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