GROWING & FINANCING YOUR VINEYARD & WINE BUSINESS
Market thoughts for new and experienced wine grape growers and winemakers
BY W. TERRY LINDLEY, CHIEF MARKETING OFFICER, AMERICAN AGCREDIT
Financing a vineyard or a winery? It is typically high risk. Risk for the business owner. Risk for the lender. Risk from the weather. And risks with the market. The variables are numerous.
Vineyard financing is typically dependent on vineyard management ability, parcel size, land prices, site, variety, financial position, earnings history of the owner, as well as the financial strength of other entities involved. Winery financing typically centers around operating, equipment, real estate and construction loans to finance the winemaking facility and contents, and to cover the production cycle and inventory.
On top of this, financing estate vineyards and small wineries can present additional challenges because they are a diverse group that often has a unique perspective on business growth and marketing.
In all cases, the capital needs are intensive. And because the variables are so interdependent, investors and entrepreneurs who are relatively new to the wine industry need to know and understand what those business risks are, what the financing needs might be, and most importantly the time that’s needed to ensure success over the lifecycle of the wine business. Oftentimes, it takes two to three years before new vines really start producing.
CRAFTING A SUCCESSFUL WINE BUSINESS
California produces 90 percent of American wine and grows nearly 400 agricultural products. Within this, the North Bay is the state’s top wine grape producing region. As more and more vineyards are planted in the area, there are a myriad of considerations that should be assessed in order to make the business successful and allow it to thrive.
First, a good business plan must include a balance of capital, proven production ability in the vineyard/winery industry, and strong market knowledge. At the same time, be cautious about growth expectations. Other considerations include:
DO YOUR MARKET RESEARCH
• Today’s Millennial crowd is adventurous and open to trying new California wines not typically found in their parents’ cellars. They’re also looking at issues around sustainability, and tasting the local region’s unique wines.
• Not long ago, Cabernets and Chardonnays were the biggest sellers. But according to recently released data, sparkling wine has shown nearly 9% growth over last year, with imports up in the double digits.
• What grapes are most successful in your selected territory, and how are those existing businesses in the area maximizing that?
LEARN FROM THE MISTAKES/ SUCCESS OF OTHERS
• What percentage of expected annual sales can properly support an operating loan? And why? (50% is considered maximum)
• Find those organizations that can provide resources, such as the Wine Institute.
• How are the wine industry peers in your area managing their risk and business partnerships?
RESEARCH THE RIGHT LENDER
• Do they understand what you need as an agricultural business?
• Who offers the best options for financing for your operating cycle and real estate, leasing for your equipment and barrels, and crop insurance for your grapes?
• Does the lender offer adjustable or fixed rates, and can tailor a payment structure to the cash flow of your vineyard or winery?
Published research can aid in understanding the industry and how it relates to your business. These include:
• The recently-released “Winery & Grower Benchmarking Report”, compiled by Farm Credit, Turrentine Brokerage and Moss+Adams.
• The California Sustainable Winegrowing Alliance’s (CSWA) program has become a global model for sustainability, and it covers 227 best management practices for sustainable winegrowing and winemaking.
Financing your vineyard and wine business with the right lender is an important step. Partnering with the right people will help your achieve success.