Going Commercial

Discussion in 'General Wine Making Forum' started by sdelli, Jul 8, 2018.

Wine Making Forum

Help Support Winemaking Talk by donating:

  1. Jan 11, 2019 #41

    Hokapsig

    Hokapsig

    Hokapsig

    Senior Member

    Joined:
    Sep 6, 2011
    Messages:
    1,115
    Likes Received:
    277
    your first 5 years you are not expected to turn a profit. operating from your house allows you to write off a TON of expenses related to the house.
     
  2. Jan 11, 2019 #42

    KevinL

    KevinL

    KevinL

    Senior Member

    Joined:
    Jun 28, 2017
    Messages:
    127
    Likes Received:
    49
    Gender:
    Male
    Location:
    Warrenville IL
    That'll be the profit (Revenue-Expenses). My break even point on the investment is years away I think. I'm hoping when all is said and done this year that I've got a small profit under my belt. My understanding is that since I'll have taken 3 years of write offs as I've established the business, I need to show a profit in 2 out of 5 years to avoid being classified as a hobby by the IRS. I have to show a profit next year on the taxes. Even though I have additional plantings that I intend to do, I will be holding off on them for 2019 just to keep expenses down.

    I know I could clearly demonstrate that I am doing this as a business and intend to turn a profit (I've got the business plan, licenses, etc...) but I'd prefer not to attract their attention if I can help it.
     
  3. Jan 12, 2019 #43

    danno

    danno

    danno

    Junior

    Joined:
    Jan 15, 2014
    Messages:
    12
    Likes Received:
    8
    Wow - I, as an amateur wanting to go commercial but need my county to become "wet" to get a winery permit, am very interested in what it takes to be profitable.
    Since you operate out of your home I would think that you have practically no overhead and your expenses would be only your production costs to produce your wine. My production costs per bottle are around $4.50. Assuming I could sell my wine at between $12 and $20 per bottle, I would make $100 by the time I sold 10 bottles. I'm sure you sold more than 10 bottles so what am I not seeing here?
     
  4. Jan 12, 2019 #44

    jgmillr1

    jgmillr1

    jgmillr1

    owner, winemaker

    Joined:
    Jun 13, 2017
    Messages:
    259
    Likes Received:
    89
    A few logistical things you may be missing when stepping from a hobby to a commercial winery (aka: things I had to do to make/sell wine in a separete building on my property)
    * You may not be zoned to sell commercially on your property. You would have to petition for a hearing from your local plan commission to be re-zoned. Your neighbors will have a chance to argue against it.
    * You probably must receive a permit from local health dept to do tastings. Depending on where you would perform the tastings, you may have to perform many upgrades to bring it to code. They also will periodically drop in to perform an inspection.
    * You will very much want to get insurance for the business including liquor liability. Your current home insurance agent likely does not offer such a policy and will quickly drop your policy once it comes to their attention you plan to sell alcohol on your premises. (This happened to me)
    * The manufacturing space must be open to inspection by the federal TTB and your state excise police. You will be visited by both periodically.
    * Is your manufacturing space large enough to handle even a small sales volume such as 500 gallons / yr? Need sufficient tanks, barrels, pumps, hoses, labeling eqp, clamps, valves, o-rings, filtration eqp, bottling filler, corker, capsuler, chilling eqp, floor drain, and enough electric supply to run it all.
    * You will have to register with the FDA as a food manufacturer.
    * Does your building have sufficient parking?
    * Will the county allow a sign to be placed in your yard?
    * How will you plan an advertising campaign?
    * Do you have a label designer and who is your label printer? All labels must be approved by the TTB.
    * What kind of wine do you make and can it sell for $12-20? Your competition is the corner grocery store and the local tastes may be different than your own personal tastes for wine.
    * Need to purchase a point-of-sale machine or find a merchant device so you can take credit cards. 75% of the sales are using a credit card.
    * You will need to open wine for customers to sample, cutting into your per bottle profit.
    * You will need a health dept approved glass washing system (3-bay sink or commercial dish washer, typically).

    So, the bottom line is that there are many factors that must be considered and many up-front expenses which must be incorporated into the bottle cost.
     
    Last edited: Jan 12, 2019
    Ignoble Grape, KevinL and CDrew like this.
  5. Jan 13, 2019 #45

    KevinL

    KevinL

    KevinL

    Senior Member

    Joined:
    Jun 28, 2017
    Messages:
    127
    Likes Received:
    49
    Gender:
    Male
    Location:
    Warrenville IL
    I don't anticipate that your county would change it's status easily. I imagine the lobbying would be an uphill grind. Also some states have crazy restrictions about who can sell such as county-owned or state-owned liquor stores.

    The majority of my annual overhead is Insurance and licenses to the tune of $2,500 a year or so. When I put in the variable costs like bottling and excise tax, I need to sell around 300-350 bottles before I break even, much less turn a profit. Since I dropped a considerable amount into establishing my vineyard, I've got a ways to go before I break even on the non-annual overhead.

    I work in the insurance field, so I'm quite familiar with homeowners liability. Because I am set up as a Partnership, I have infinite personal liability, so I got a nice GL policy to cover the business activities on top of the liquor policy. I will probably switch to an LLC when we change facilities because I'll need to reapply to the TTB anyways.

    jgmillr's list of things to consider is spot on. Other things to consider, the TTB will require a separate exit and a portion of the house that can be secured off by a door or wall from the rest of the house. You can't just pick a room in the house and start operating, you'll need exterior access.

    This past year I went through the whole licensing deal, starting with the TTB, to the ILCC (I am in Illinois) and my own City. I am in a residential neighborhood, so I had to go before the plan commission and obtain a special use permit. I recognize that I can't operate profitably if I did tastings (Can't afford to open 3-4 bottles of a small harvest and not get them fully consumed), and also I realized that I didn't expect my neighbors to be okay with what is essentially a bar opening up in the neighborhood. As a result I decided that there would be no tastings. Because of that I am able to get around the county health department (Which was also at the city's discretion). I still had an inspector from the ILCC come out and inspect my facility. We don't have a sign in front of the business, because we want things to look like a residential neighborhood. We direct customers to get to us when they do the pickups.

    I checked with all of my neighbors before I got started, and talked with them about what I intended to do. I keep open lines of communications with all of them to make sure that there are no issues.

    The type of license I got from the state doesn't allow me to do events. If I want to have a tasting event, I will need someone who holds a retail license to agree to host it for me, buy from me at wholesale, and do the pouring. I would just do the talking. Not the "romantic" winery owner ideal, but it'll be the way I have to do things. Plus if I do it that way I can guarantee that more of a bottle gets consumed in tasting rather than having to pour it down the sink.

    Per bottle costs are a bit more than the wine. I've got to buy the glass, cork, and then the label. Each bottle also comes with an excise tax from the feds and from the state (It's charged per gallon.) The wine is actually the cheapest part really, the taxes, label and glass come out to more.

    All in all it's been a ton of work. It's been really fun though. The people in my town have been really excited about having a little winery in town, and I'm happy to be the guy running it (with my lovely business partner aka wife.) When we opened this past fall we only had a tiny inventory (about 15 cases) and it evaporated in about 3 weeks.

    www.lfvwarrenville.com if you want to take a look.
     
    Ignoble Grape likes this.
  6. Jan 13, 2019 #46

    danno

    danno

    danno

    Junior

    Joined:
    Jan 15, 2014
    Messages:
    12
    Likes Received:
    8
    Thanks for the input. I would consider the costs associated with the activities you mention to be mostly "sunk" costs, other than the insurance premium which would definitely be a current cost.
    As to the $12-$20 per bottle selling prices, they certainly aren't out of line with boutique winery prices in my region. I'm located in central Arkansas and am currently producing some good crops of vinifera varieties- Cab, Merlot, Shiraz, Chardonnay, and Sauvignon Blanc. Maybe I'm wrong but getting say $16-$20 for estate bottled viniferas, and around $12 for sweet wines which I would make from local hybrid grapes, which are readily available and relatively cheap, does not seem unreasonable.
    Your comment about competing with the corner grocery store puzzles me very much. Maybe it's a regional thing but I see people from the urban centers in Missouri, Arkansas, and Texas flocking on weekends to wineries in small outlying towns an hour or two away to buy locally produced (and mostly hybrid) wines at prices considerably higher than what they would pay for a semi-decent bottle of California wine at Whole Foods.
    Anyway, thanks again for the input- much to think about.
     
  7. Jan 14, 2019 #47

    danno

    danno

    danno

    Junior

    Joined:
    Jan 15, 2014
    Messages:
    12
    Likes Received:
    8
    Very nice website- looks like you're on your way. In my $4.50/bottle cost I did include the costs for bottles, labels, corks, etc. but not for excise taxes. May I ask what your tax per gallon is?
     
  8. Jan 14, 2019 #48

    PhilDarby

    PhilDarby

    PhilDarby

    Member

    Joined:
    Nov 14, 2012
    Messages:
    160
    Likes Received:
    39
    Not sure how things stand in the US in the UK the main supporter of micro breweries is wetherspoons, it isnt easy to get into, as I believe you have to pay the tax up front, at least in the Uk, then the alcohol is bonded, in a warehouse, so, basically it needs money up front, I considered going that route when i had more money, it is / was taxed by Abv and by the type eg cider etc, when i considered my options it wasnt worth the investment, or hassles, so, I took my life down other avenues.
     
  9. Jan 14, 2019 #49

    PhilDarby

    PhilDarby

    PhilDarby

    Member

    Joined:
    Nov 14, 2012
    Messages:
    160
    Likes Received:
    39
    Good luck with your venture, hope it turns out well for you.
     
  10. Jan 14, 2019 #50

    jgmillr1

    jgmillr1

    jgmillr1

    owner, winemaker

    Joined:
    Jun 13, 2017
    Messages:
    259
    Likes Received:
    89
    Yes, these are the fixed up-front costs (easily running into 5- or 6-figures) that you slowly will recover in time. I don't consider running a profit until the initial expenses are paid back. There are also credit card swipe fees, bank fees, and such that eat into your revenue. Staffing is a major expense along with the associated worker's comp insurance and fed/state withholding.

    You also need to give customers a reason to visit your winery the first time and reasons to return more than once. This means advertising costs since customers won't immediately flock to your door as soon as a sign is out front. Perhaps consider hiring musicians for entertainment. Hosting events. But these are all recurring expenses.

    Awesome you can grown those varieties there. But you are probably aware that unless you live in an AVA, you are not allowed to label your wine as "estate" (though can refer to it as "estate" in the tasting room). You could certainly command $16-20 for the vinifera wines and over $12 for hybrid wines.

    I meant that consumers will choose whether to buy your Cab or the one at the grocery store from Cali for less. Whereas grocery stores usually have very few hybrid wines and people often enjoy getting something different and locally produced from the winery. After offering a number of vinifera wines as "safe" choices for the unadventurous, I found they only slowly sold compared to the other hybrid varieties. After all, why buy a Riesling here when you can get a volume-produced one at the corner store for half the price? I made the choice to focus solely on hybrid & American grapes since those will grow in my Indiana vineyard while vinifera won't easily grow here. Local tastes dictate what you make. Over 2/3 of my sales are of semi-sweet and sweet wine, in spite of the fact that I prefer the barrel-aged bold dry reds and have a large selection of dry wines available.

    Tax varies considerably state to state. Looks like Arkansas is running $0.75/gallon for excise tax (link). California is $0.20/gal. Indiana is $0.57/gal. Federal excise tax is only $0.07/gallon (under 14%) unless you make sparkling wine, which is $2.30/gallon

    Good luck with your venture. It is good to fully consider all the costs for opening even a small winery. You definitely don't want to spend the cash and find it loses money.
     
  11. Jan 14, 2019 #51

    danno

    danno

    danno

    Junior

    Joined:
    Jan 15, 2014
    Messages:
    12
    Likes Received:
    8
    Thanks for the info- great stuff. I do live in an AVA so I can label my wine from homegrown grapes Estate Bottled. Like most winemakers I too prefer the dry. I'm not surprised that 2/3 of your sales are sweet or semisweet - I hear that from just about every winery owner around here that I've talked to. Attached is a picture of my 2017 whites. IMG_3929.jpg
     
    Last edited: Jan 14, 2019
    The Dutchman likes this.
  12. Jan 17, 2019 #52

    KevinL

    KevinL

    KevinL

    Senior Member

    Joined:
    Jun 28, 2017
    Messages:
    127
    Likes Received:
    49
    Gender:
    Male
    Location:
    Warrenville IL
    In Illinois it is a little over a dollar a gallon. I'm finding it adds up rather quickly. Fortunately we don't have to pay the state excise tax until the wine is sold. It's good while I'm turning what cash I have left over into inventory.
     
  13. Feb 8, 2019 #53

    sdelli

    sdelli

    sdelli

    Senior Member WMT Supporter

    Joined:
    Jan 10, 2013
    Messages:
    869
    Likes Received:
    264
    Opening a winery to create a profit could be a challenging effort. Too much competition at that level. My model is a "Wine Café". I believe you must open something that creates the correct environment for your wine sales. You cannot be just selling wine! The draw must be much more unique then that. I am fully licensed in the state of Michigan for a small winemakers license now. Still finishing up the location but in no big hurry. This is not what I do for a living. It is just another level of my hobby I have created. More of special invitations and parties then an everyday walk in business. Some call it an elaborate man cave..... lol
    I will upload some up to date pictures on the progress.....
     
  14. Feb 8, 2019 #54

    sdelli

    sdelli

    sdelli

    Senior Member WMT Supporter

    Joined:
    Jan 10, 2013
    Messages:
    869
    Likes Received:
    264
  15. Feb 8, 2019 #55

    sdelli

    sdelli

    sdelli

    Senior Member WMT Supporter

    Joined:
    Jan 10, 2013
    Messages:
    869
    Likes Received:
    264
    Wine cellar almost ready for racks....
     
  16. Feb 8, 2019 #56

    sour_grapes

    sour_grapes

    sour_grapes

    Victim of the Invasion of the Avatar Snatchers

    Joined:
    Sep 19, 2013
    Messages:
    9,000
    Likes Received:
    6,402
    I really like those false murals. (I am not sure I would call them trompe l'oeil, but pretty close.) Very cute and inviting.
     

Share This Page