How to Start a Winery
Are you a wine lover who has dreamed of opening your own winery? It seems ideal, but it takes a large investment of time and money. However, if you have what it takes, it can be a rewarding and profitable business.
Business Overview
A winery grows grapes and makes wine and sells the wine onsite, online, and in retailers under their own brand. Some wineries also have an onsite restaurant and may offer tours of the winery.
Many wineries purchase a significant amount of grapes from grape farmers. Depending on the variety, newly planted grapes can take 3-5 years before they are able to used in wine production.
Industry Summary
According to Statista, the wine industry market size was $68.1 billion in 2018. According to IBIS World, the growth rate for wine-based alcoholic beverages from 2016 – 2021 was 3.6%. The industry benefits from positive economic trends as people have more disposable income for more expensive beverages.
There are many different types of wine, but some are more popular than others. Red wine is often the most popular type, as it has a robust flavor that pairs well with food. White wine is also popular, as it has a light, refreshing flavor that goes well with seafood and other lighter dishes. There are also many variations of red and white wine, such as Cabernet Sauvignon, Merlot, Pinot Noir, and Chardonnay, that are popular among wine lovers. Matching popular types of wines with the types of wine grapes that can be grown in your area is important to getting quick recognition.
Related Industries
Industry Trends
The industry was impacted by the pandemic as restaurant and hotel sales declined, but it is expected to rebound as the pandemic winds down. According to International Wines and Spirits Research (IWSR), the market size is expected to increase 2.4% from 2020 – 2024.
Target Market
Your target market will be wine enthusiasts and travelers to your area.
Skills, Experience, and Education Useful in Running a Winery
There are several specific skills that you will need to open a winery.
- Experience. You should have experience working in a winery so that you know how it works and how to make wine. You’ll need to develop your own wine recipes to make your brand unique.
- Knowledge of wine. You need to have an extensive knowledge of wine to know tastes and trends.
- Business knowledge and experience. You will need to have at least some basic knowledge of marketing, finance/accounting, and human resources.
- People skills. You’ll need to build rapport with your customers so that you retain them as customers and keep them coming back.
Checklist for Starting a Winery
Starting a winery can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.
Step 1: Write your Business Plan
After coming up with the idea, the next step in starting your winery should be to write a business plan. The business plan will make you focus on some important aspects of the business, such as doing some market research and knowing who your target audience is, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be and what your ongoing expenses will be.
Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you think through all the aspects of the business and then serves as a guide as you begin.
Related: How to write a business plan
Step 2: Name the Business
Finding the perfect winery name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name. Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.
Related: Tips and ideas for naming a winery
Step 3: Form a Business Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a winery, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: 3 steps to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
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Step 4: Select your Location
The type of land on your location needs to be favorable for growing, and you should be in a location that is near highways, preferably in an area that people travel to.
Equipment and inventory storage will need to be considered as well.
In addition, the location will need to be suited to planting vines for the types of grapes being grown. Some varieties are only suitable to certain climates, while topography can be another consideration as well.
The actual calculation will vary on the type of wine being produced, but as a general rule of thumb, one acre of vines can produce 4 tons of grapes, which can produce around 600 gallons of finished wine. Since it takes 3-5 years for a vine to produce fruit, it may make sense to purchase grapes from other vineyard owners. It takes approximately 20 pounds of grapes to produce a gallon of wine.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
The licensing and regulations for wineries can be frustrating as there is a lot of paperwork required to start and operate a winery, in addition to regulations to follow. Each state has different requirements as to how much wine can be sold in the winery and different requirements for selling to distributors and wholesalers.
Approval from the state for a winery license and Alcohol and Tobacco Tax and Trade Bureau (TTB) will be required, and in some cases, the county as well. Wine is also heavily taxed and regulated by the Department of Revenue, so be sure to understand these requirements as well. Each wine label will also need to be approved by the TTB before selling wines.
In addition, a winery will need general licensing and permits such as a sales tax permit and an Employer Identification Number (EIN).
Related: Common business licenses, permits, and registrations by state
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a winery is another. In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your winery business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Plan in Place
A winery will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for a winery include social media marketing and online advertising, as well as postcards and flyers, and road signage.
Related: Low-cost ideas to market a new business
Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.
Step 9: Get Business Insurance
A winery should consider several types of insurance coverage to protect the business. A few types of insurance to consider include:
– General liability insurance can help protect you from third-party claims of bodily injury and property damage.
– Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.
– Crop insurance protects a farm from weather or pests destroying the grapes.
The cost of insurance will vary based on several factors. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.
Step 10: Hire Employees
From tending to the vines to filling bottles to selling out of the retail store, you will need employees to help run the winery. Employees with good customer service will be needed in the tasting room. On the production side, a good winemaker will be critical if you don’t have wine-making experience and labor to tend to the vineyard. Make sure that you select people with appropriate experience.
In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system for your winery is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
StartingYourBusiness.comHow much does it cost to start a winery?
Here are some of the typical costs you will face when you open a winery.
– Setting up a business name and corporation costs approximately $200.
– Business cards, brochures, postcards for marketing $200 – $300
– Website setup $100 –$200 for a basic, do it yourself website, $1,000 – $2,000 for a professional site
– Land costs will vary based on where you are located, but 10 acres could cost $500,000 to well into the millions.
– Facilities construction and preparation, plus land preparation depending on the size of the winery $500,000 – $2,500,000
– Vineyard costs such as farm equipment, tools, pesticides, etc. – $10,000 +
– Commercial winery equipment, such as crushers, fermentation tanks, filtration systems, bottling line, refrigeration, forklift, etc – $50,000 +
– Insurance $200 – $600
– Initial inventory such as grapes, oak barrels, etc. $5,000 – $50,000
– Initial marketing such as Facebook ads or search engine optimization for your website $500 -$1,000
How profitable is a winery?
The average sales for a winery company are $6.3 million, but that includes very large wineries and brands. A small winery will make much less.
Managing cash flow can be a challenge for a winery. Grapes are typically harvested in the early fall and the aging process can take anywhere from a month for bulk wine to 5 years for certain red wines. Wine sales are typically highest around Christmas and New Year’s, so be sure to budget accordingly.
In addition to the investment in grapes and the time held before selling a bottle of wine, the next highest cost to manufacturing a bottle is the cost of wine bottles. Depending on how much wine is sold directly to customers through the tasting room, which is more profitable than selling to a distributor, expect the cost of a bottle of wine to cost between 30%-50% of the sales price.
Are there grants to start a winery?
It’s extremely rare to find a grant to start a winery. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a winery?
The NAICS code for a winery is 312130.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Resources:
Wine Business Monthly
Wine Institute
