As with any agricultural product, wine goes through cycles similar to boom and bust, but what the consumer doesn't see are the bad times, which can occur for various reasons at any time.
There are hidden pitfalls in this game, which is not a game but a serious business with pressures that are not always visible.
Take, as one example, wineries that make only one wine and it is red. In no other business does the owner make a wine in one calendar year and not be able to sell it for two more years. Adding to that same problem, if the winery is using its own estate-grown fruit, there is at least a three-year period when the winery can't even pick fruit to make its first wine.
So here the turn-around is five years. Imagine trying to explain this to a novice tax official when you show five to six years of consecutive losses and maintain that you are in a viable business.
It gets worse. Imagine that you have a wine that costs $10 a bottle to make and that you can sell from your tasting room for $25. This more than covers all overhead and makes a small down payment on the investment. So you end up with a small profit.
But what happens when you can't sell all you make from that tasting room? You have two options:
1. Set up a sales arrangement with a wholesale company to sell your wine for you.
2. Set up your own in-the-field sales force and try to market the wines directly to retailers and restaurants.
Both scenarios are fraught with major hurdles.
In the first case, you sell your wine to the wholesaler for about 50 percent of what you sell it for in your tasting room ($12.50), and out of that you have to take all costs, including overhead. Result: You end up with no profit for reinvestment or salary for yourself.
In case No. 2, you incur all the costs associated with direct selling, such as hotel rooms, meals, airline tickets, etc.
Today, with the amount of wine filtering into the marketplace from more sources than ever before — including a record amount from other countries — the word “glut” is being heard almost daily. With such a plethora of wine comes marketplace demand for lower prices, and consequently, smaller winery profits.