Owning a winery and making wine is an almost romantic notion for many people but few can transform that dream into a successful business. The wine business is tough but there’s incredible potential there. If you’ve been thinking about starting a wine business and setting up a winery here’s what you need to do to set yourself up for success.
Why Start a Winery Business
A winery business will typically have higher profit margins compared to a different wine business, such as a retail shop. It also has total control of the product so you can bring your vision for the perfect wine to life. There are more business opportunities available for wineries. You could sell in bulk to wholesalers and distributors, and provide white-label manufacturing services in addition to running a tasting room.
The biggest disadvantage is that it’s a very capital-intensive business. There’s a lot of money required to purchase a vineyard and all of the equipment required to run a winery. It may take several years for a new winery to be profitable so considerable patience will be required before you can break even, let alone turn a profit.
14 Steps to Starting a Winery Business
Considerable thought must go into any new business endeavor and that’s particularly true for starting a winery business since it requires a lot of start-up capital and compliance with the strict regulatory framework for alcohol. The following steps highlight everything you must do to ensure that you hit the ground running once your business starts operating.
Research the Winery Industry
You likely have some idea already of the type of wine that you want to produce. Now would be a good time to research the target market to see the opportunities that exist for your product. It will also educate you about the challenges in the market so you can adapt your plan accordingly.
Since this is a highly regulated industry, make sure that you are fully aware of all the laws that apply to winery startups, so that your business doesn’t run into any legal troubles when it launches. There will also be many permits and licenses that you’ll need to obtain so find out which ones will be required for your business and prepare the paperwork accordingly.
Choosing the location of your winery is also going to be a very important decision. If you’re looking to grow grapes, you want to be in a place where the temperature and soil are just right, as both will heavily influence the product quality.
Choose Your Business Model
The business model will determine how your winery is going to operate. Perhaps you prefer total control of the product from seed to bottle or you’re happy to source grapes from farmers to produce your wine, it ultimately comes down to your preference and vision for the business.
This business model provides you with the most control over the entire supply chain. You choose the vineyard’s location and the type of grapes to be grown, thus enabling you to create the perfect wine brand. In addition to making your own wine with those grapes, you could also sell them to other wineries that don’t have vineyards and further increase revenues.
Having a winery alongside the vineyard is a great example of vertical integration. Harvested grapes are processed quickly and are transformed into the ideal product. Even if you don’t have a vineyard, you can source grapes from different regions to produce your wine.
- Hosting Guests at the Winery
Wine enthusiasts show a lot of interest in the process behind the making of their favorite brands. Leverage that interest by providing curated tasting room experiences as well as visits to the vineyard.
Draft a Business Plan
A business plan serves as the roadmap for setting up and growing your business. It highlights the opportunities and challenges, the regulatory framework, the capital requirements, and the cost outlays. The business plan should evolve as your business grows so that it’s able to adapt to changing dynamics.
You need to know who the buyers are for the product you’re creating. A solid business plan will include research based on which you’ve determined the target market. Look at the demographics in the markets where you’re going to sell the wine, understand their preferences and align your product to them and closely monitor the trends to understand the market potential for your product.
It can be expensive to set up a winery business. Land acquisition for the winery will be one of the biggest costs as it can range from $10,000 to $30,000 per acre, potentially even higher in regions like Napa Valley. Expect to spend several hundred thousand dollars and even north of $1 million on the various equipment and machinery required to build a production facility.
You need to consider several market factors when deciding on how to price the product. $12-$25 is typically considered to be the sweet spot for vineyards, particularly those that rely on tasting rooms to generate the bulk of their revenue. If you’re in the business of growing grapes and supplying them to other winemakers, consider what the competition is charging and what the demand is for those types of grapes before deciding on what the price will be.
Name of Business
Choosing a unique business name is of vital importance. It’s what will set your brand apart and make it instantly recognizable. That’s particularly important for a winery business as it will be too difficult to stand out of the crowd otherwise. Take some time to decide what the right name for your business will be. It should be unique and easily understandable.
Since starting a winery business tends to be very capital-intensive, you’d likely have to tap into several sources for funding. This could be through loans and grants that you can apply for at banks and organizations that support small businesses.
You could also look to crowdfunding if there’s enough interest in your idea to raise funds from the public. Naturally, there’s always the option to dip into your savings if you’ve been setting aside money to launch your business.
Select Your Grape Type
Grapes are essential to your winery business and you need to pick the most suitable one for your wine business. There are primarily three different types of grapes that are used for the production of wine.
The Vitis Vinifera grape is used in the vast majority of wine produced. Its varieties include Pinot Noir and Cabernet Sauvignon. It’s native to the Mediterranean though there are varieties that are native to the eastern United States.
The Vitis Labrusca is native to eastern North America and the majority of its grape varieties are red. It’s capable of withstanding a colder climate and can yield wines that are more similar to the European types.
Native to the southeastern and south-central United States, the Vitis Rotundifolia species is well-suited to warm and humid climates. They’re primarily used to make desserts and artisan wines.
Choose a Location
The location of a vineyard is of paramount importance. Understand the climate and soil of the place where you want to set up a vineyard. It should be conducive to supporting a good harvest. The location will also dictate the type of grape you can grow as different varieties require different climate conditions.
Consider ease of access to the location as well, particularly if you intend to operate a tasting room, as it should be relatively easy for people to visit the vineyard. A strong local wine-driving culture is also important as it will ensure support for the business in the community.
Decide on Your Business Structure
Choosing the right business structure is an important part of the process. It determines what legal and regulatory requirements your business is subject to, how it’s going to be taxed, and what compliance may be necessary.
A sole proprietorship is an unincorporated business with a single owner. There is no separation between the business and the owner. They remain personally liable for the obligations of the business. Its biggest advantage is that a sole proprietorship is easy to set up as it has minimal documentation and paperwork requirements.
General partnerships work much in the same way that sole proprietorships do. They consist of two or more owners who share similar personal liability for all obligations. General partnerships are easier to set up as well since they have similarly minimal documentation requirements.
In a limited partnership, a managing partner is chosen by all of the other partners who are then responsible for managing the business. The other partners have no management control. The managing partner takes on unlimited liability whereas the other partners have the liability limited up to the amount that they have invested.
Limited Liability Company
A Limited Liability Company (LLC) separates the business from the owner so the exposure to their personal assets in case the business is unable to meet its obligations is limited. LLCs are required to be registered with the secretary of state where they’re based. They’re also annual filing requirements and additional paperwork involved to set them up.
A corporation is a completely separate business entity from its owners and as such, it provides the maximum liability protection. Corporations are capable of acquiring assets, entering into contracts, suing or being sued, and issuing stock to raise funds from investors. Corporations are relatively more expensive to set up and also need to follow strict regulatory requirements for filing and disclosures.
Register Your Business
Depending on the type of entity that you’ve chosen, you may be required to register it with the relevant authority. For example, the LLC’s paperwork needs to be filed with the secretary of state where it’s based. Businesses are also required to obtain an Employer Identification Number or EIN from the Internal Revenue Service (IRS).
Acquire the Necessary Licenses and Permits
There are significant licensing and permit requirements for businesses that deal with alcohol, including registration with the ATF. There will also be state and local regulatory requirements specific to where you’re based, so it’s best to research the requirements that apply to your business. Ensure that you comply so that the business can operate seamlessly once it’s launched.
Open a Business Bank Account
Opening a business bank account is essential when setting up a business. You’ll be able to separate your business and personal finances which enables you to exercise prudent financial management. It will also make your life easier come tax season as any guesswork will be eliminated in trying to classify transactions. Opening an account can be done at any preferred bank.
You’ll typically be asked to provide business registration and personal identification documents as this is a regulatory requirement for banks. They may also offer you additional services such as business credit cards or small business loans, but this usually involves extra due diligence.
Source the Grapes and Other Supplies
If you’re only producing wine and not running a vineyard, sourcing grapes will be one of your biggest challenges. You need to set up a solid supply chain that ensures an adequate supply of high-quality grapes that you can then use to produce wines.
This will require reaching out to different vineyards, understanding their production capacity and constraints, and supply agreements. Other supplies for wine production will also be required. This will include fermentation tanks, boilers, and bottling machines.
Get Business Insurance
Business insurance is necessary to protect against any potential liabilities. The standard coverage should include general liability and workers’ compensation in addition to commercial property so that your equipment and structures are protected. Insurance coverage is also available for orchards and vineyards that protect against damage to vines and harvested grapes.
Hire and Train Your Staff
Hiring and training staff will be time-consuming but it’s important to get this part of the process right. You can’t be running everything yourself so the people you put in charge of different aspects of the business must not just be passionate about what they’re doing but must have adequate training so that they’re able to do their job effectively.
Take your time to find the right candidates for each position and then provide them with adequate training either in-house or through training consultants to ensure that they’re fully equipped to do a great job.
Advertise Your Business
Once you have the business up and running, it’s time to get the word out about it. Do this through social media marketing campaigns and by running Pay Per Click ads online. You can also invest in Search Engine Optimization (SEO) efforts to increase brand awareness through content marketing. Focus on attending industry events and networking through professional organizations to establish your business as a serious player in the industry.
Raise a Glass to Your Success
It may seem daunting to launch a winery business and while it certainly has its challenges, it also offers unmatched opportunities for business owners to expand and eventually grow their revenue streams.
Diligent bookkeeping is the foundation of every good business and with doola Bookkeeping, you can eliminate the stress of having to accurately track income and expenses to focus on what matters the most: taking your business to new heights.
How much does it cost to start a winery?
The cost to start a winery can typically range from $300,000 to over $1 million depending on the type of wines being produced, the equipment being acquired, the location of the winery, and any additional services that it may be looking to provide.
Is a winery a profitable business?
For those who have a great understanding of the industry, a winery can be a very profitable business as it provides them with the opportunity to not only make their own wine but also produce wine for other companies.
Can you start a winery without a vineyard?
It is possible to start a winery without a vineyard as you don’t necessarily need to own one. You can source grapes from vineyards and use them to produce wine under your own brand.