Business booms for custom crush wineries in Sonoma County

Wearing his Bermuda shorts and a T-shirt,with a San Francisco Giants cap tucked snugly around his head, Brian Kobler freely admits that he doesn’t represent the glamour of the wine industry.

Kobler’s work within the last month has been hectic and decidedly more blue-collar as he braved the mid 90-degree heat bearing down in the back of a nondescript Healdsburg industrial park: driving a forklift, hooking up hoses and installing machines that will crush grapes and ferment their juice into wine.

But the eventual payoff could be significant as his Healdsburg Custom Crush plant will begin crushing grapes this week, the first of a projected 250 tons that it will process in its first year. He already has 233 tons reserved. The company’s first crush is remarkable, given Kobler hatched his business plan in April and took keys to the plant on July 1.

With an average-sized crop at a minimum predicted this year, Kobler said he believes he and his three investors are on track to be in the black within three to five years. That would fulfill an inspiration to go into business for himself after watching a program on the History Channel a few years ago about the gold rush.

“It wasn’t the gold miners who got rich, it was Levi Strauss and the people who provided the service; the people who didn’t mind taking a back seat to the more glamorous job,” Kobler said.

That sentiment has spread throughout the North Coast this harvest season as the custom-crush industry has greatly expanded in the past year. The plants vary, but essentially provide one-stop service for vintners to crush grapes, make wine and transfer it into barrels and then into bottles - everything except marketing and sales.

For example, Rack & Riddle Custom Wine Services earlier this month opened its new 67,000-square-foot facility in Healdsburg, complementing its other location in Geyersville. Red Custom Crush is expected to begin operations this week in Healdsburg. And The Wine Foundry in Sonoma last month purchased Juice Box in Napa and moved its operations to the new location.

“Certainly in the last couple of years there has been a lot more activity,” said Justin Lattanzio, who opened up Vinify Wine Services in Santa Rosa in 2007, catering to boutique wineries.

The activity mirrors the growth in the overall wine industry, especially after two large Sonoma and Napa crops in 2012 and 2013 that produced surpluses. In addition, a rebounding economy has attracted more business, from first-timers looking to break into the highly competitive industry to established wineries that are stretched to capacity.

The economics of the custom-crush market makes sense for the clients who want to spend their money on sales - where they can get a greater return - rather than tie up their capital in production equipment and buildings. “It’s very expensive to run a winery,” said Rob McMillan, executive vice president of Silicon Valley Bank’s wine division.

It also applies no matter the scale. For example, a small investor could get 300 cases of wine with about a $20,000 initial investment, using a custom-crush facility and working with a vineyard management company for sourcing.

Contrast that figure to the estimated $5 million to $25 million that it would take to buy or ramp up a full-scale winery. The math has led many people to try to get into the wine business, especially those in lucrative industries such as technology and financial services.

“You got two types. There’s one guy who wants to get into the Safeway and the chain stores. Then you have the one trying for the holy grail and searching for the 98-point Parker review,” said Jeff O’Neill, who operates a large facility in central California.

One of those is Brooks Friedeman of Sebastopol, who along with his wife, Jessica, moved out from Chicago to try to make it in the industry. The two have full-time jobs while devoting their remaining free time and savings to building Friedeman Wines, which has grown from 150 to 1,000 cases in three years. Vacations are used to do crush and make sales trips.

“We really couldn’t operate without a custom-crush facility. The overhead is just too high,” Friedeman said.

Business based on trust

Healdsburg Custom Crush will process the 15 tons of grapes that Friedeman will purchase this harvest, a decision he made after working with Kobler on previous batches of wine and being impressed with the cleanliness and insulation of the new facility in Healdsburg.

“Trust is definitely the most important thing,” Friedeman said. “There’s a million things that can go wrong during (crush).”

The industry has spurred other related businesses. For example, some plants like Kobler’s do not have bottling capabilities, which has created a role for mobile bottling trucks to complete the winemaking process.

The custom-crush plants also have helped established wineries grow their brand.

For example, some Santa Cruz-area wineries have been able to add sparkling wine to their roster with production provided at Rack & Riddle, said Laura Ness, a marketing consultant who works with South Bay vintners. Those wines are typically priced between $25 to $40 per bottle.

The wineries were not able to make sparkling wine at their existing facilities, given that it requires a much different production technique than still wine. But many of these wineries host events, especially weddings, and wanted to offer their own sparkling wines as part of their packages.

“It’s added a quality affordable product to something that they wouldn’t have been able to do on their own,” Ness said. “Customers love sparkling.”

Others are finding different market niches. Red Custom Crush will cater to large wineries as it has set a minimum of 22 tons for crushing red wines only, as well as bulk wine tank storage. The bet on the business is performing well, said owner Heath Dolan, as Red Crush has already filled up its space for the 4,500 tons to be crushed this year.

“For the most part the larger wineries are growing so fast that they can’t keep up with it,” Dolan said.

“The bean counters can go along with this because they can write this off as an expense as opposed to try to get $5 million to build something out.”

Major risk is poor crop year

Bruce Lundquist, co-owner of Rack & Riddle, said he has seen his business increase production by 40 percent over the past two years. The larger wineries just do not want to spend the money and the licensing hassles to build new production facilities, especially obtaining a wastewater permit, Lundquist said.

“If you look at one of the drivers right now in the custom business it’s wastewater,” he said. “A lot of wineries are confronting this.”

The major risk to the custom-crush business model is a poor crop year. But Kobler said he will be able to hedge that potential problem by also offering barrel storage that will help generate cash flow. Dolan of Red Custom Crush has a related business, Premium Wine Storage, that houses 2.5 million gallons of stainless steel capacity.

“I’m right in the middle. If there is a big glut year, then I’m going to process like crazy. If there is not a lot of fruit coming in, then we are going to have a lot of storage,” Kobler said.

You can reach Staff Writer ?Bill Swindell at 521-5223 or ?bill.swindell@pressdemocrat.com. On Twitter @Bill?Swindell.