Ten Great California Wines Without Homes

(Forbes) - A friend of mine has the best pickup line: “I own a winery.” As the last syllable rolls off his tongue, the woman to whom he’s speaking undergoes a scientifically undocumented physical transformation in which her knee joints abruptly become wobbly Jell-O. (At least, that’s what appears to occur.) If only his claim were true. 

Let me be clear: My friend does own a successful wine brand. And his wines are truly outstanding, regularly notching high scores from the critics and sellouts in each vintage. But he does not own an actual, physical winery – or even vineyards. Instead he leases small portions of several prestigious vineyard properties, and his wines are made under contract at a large winery at which he leases a small corner of the facility. And I’d go so far as to argue that his wines – and several others that either rent space at a larger winery or use a custom winemaking facility – taste better as a result. 

All you have to do is think about the basic economics of winemaking for a moment. Let’s say, for starters, you buy land and construct a winery – easily a $10 million investment (and that’s probably on the low end when you add in all the crushing and winemaking equipment, stainless steel tanks, cooling systems, bottling line, etc.). Let’s also say you want to buy vineyard land, which runs about $300,000 per acre in Napa. Assuming an annual crop of two tons of Cabernet grapes per acre, that calculates to about 120 cases of wine per acre. Ignoring farming and winemaking costs, new oak barrels (about $1,000 a pop), bottles, labels and corks, that puts a break-even cost of the wine well north of $200 per bottle, excluding the initial cost of the winery. Of course, you wouldn’t get a return on the initial investment for about three or four years, since the grapes need a full season to grow, six months to ferment and finish, a couple years of aging in oak and one more in the bottle before release. That’s when the marketing costs kick in, and just on grapes alone you’re already about $1.2 million in the hole. Assuming there’s a real, scalable plan in place for the business and there are about 10 acres under vine, that means you’re out $12 million just on grape juice before a single dollar is headed back your way. Add in the winery, and you’re well over $20 million in the red.