Saturday, February 18, 2006

In the wine business - tough may not be enough

Wine writing is 99% about the grapes, the wine, the romance - the other 1% is about the wine-making business. Here's a fairly good article chronicling the financial challenges faced by small, start-up wineries in Niagara.

Globe & Mail - The tough business of winemaking

This having been said, lets put a few things in perspective.

First, a winery is first and foremost a farm, and, by-and-large, farms in Ontario are losing money.

Second, while it's true that a number of smaller wineries have succumbed to finanical pressures and been sold to large, deeper-pocketed interests, this happens in many fragmented industries. It's especially true when the industry as a whole hits a few bumps. It's no surprise that the harsh winters and laybug problems have caused a shakeout in the Niagara industry. In somes ways, those exiting the Niagara wine business are lucky - they have found buyers and will at least get some equity out. (OK - so maybe not what they put in.) The vines in the ground represent equity - because older vines are more valuable. There is also value in the brand awareness.

So what advice might I give someone going into the wine business. Well - if you ask me:

1. Look for an opportunity to buy an established vineyard that produces reasonable quality grapes.
2. Plan to make some wines from purchased grapes - and some estate wines.
3. Avoid overinvesting in the physical plant. If you are just building a hobby business, be my guest. However, remember that it NEVER gets that busy in the Niagara tasting rooms.
4. Aim to distribute a good portion of your wines by mail order or from the cellar door - you'll need that to capture margin.


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