January 15, 2016 by Andrew Schwarz
You’ve seen that great TV show about the tree change to that picturesque rural vineyard. You love wine – and your best friends just bought their own slice of viticulture heaven in regional Victoria. So, now it’s your turn, right? But the sad reality is that in around 95% of cases, wineries do not make profits that make continuing in business a sensible decision – and without these profits to show to potential investors and purchasers down the track, you run the risk of spending years working in a job you have bought for yourself, rather than building a business that can be sold to fund your secure financial future.
Before you take the financial plunge into the world of boutique wineries, read these important tips.
Great Wines Are Global
There are great wines everywhere and today’s global market, including the wonders of the online ordering world puts all kinds of unique, delicious wines at the fingertips of your potential clients.
So how do you know they will really come to your winery? This is not Field of Dreams. Just because you build it, they may not come and spend the money you need to make your business survive. Make sure you have a point of difference and you understand the needs of your target market, if not, this is not the best business for you.
Exporting Wines To The International Market
Australia has enjoyed a rise of 8% in value and 5% in volume of its exported wine in the most recent figures released by the Australian Grape and Wine Authority for the 12 months to September 2015.
This is the strongest growth since exports peaked in October 2007. The most robust growth was in the Asian region, with a particular increase in demand for premium wine, with average value for exports up 3%, to $2.67 per litre.
Wines above $10 per litre increased 28% to $426 million. This boost was in line with the focus on the Australian wine industry to concentrate on the premium range of the market.
However, despite this increase in premium wine, the majority of wine exports is still bulk wine, at below $3 per litre, which is well below the production cost and extremely price sensitive. With the dollar falling recently, volumes have increased.
In the past 12 months, Australian wines were exported to a total of 121 destinations by a massive 1,329 exporters – a figure that showed a sharp climb in people entering the export market (in 2013 there were 983 exporters of Australian wine).
It’s definitely a competitive market and, while there is opportunity, you need to ask yourself if you have all the ingredients in place to turn your winery whim into a viable, profitable venture.
[LH1] Crowded Domestic Market
The international market may be crowded but the domestic market is even more so. With around 2500 local producers all trying to differentiate their product and find a sales channel, it is definitely a competitive space.
This, coupled with the fact that Coles and Woolworths control around 70% of the domestic wine sales market, makes it very difficult to gain brand recognition. Without brand recognition and a route to market, sales success is impossible.
The Tasting Room Matters
The trees might look lovely and it the designer labels on those environmentally friendly bottles might look good too – but the reality is that more than 90% of your winery’s revenue will come from the tasting room.
And of that revenue, most of the business will happen on Saturday and Sunday – between midday and 5pm, with the majority of visitors coming during the warmer months and almost nobody visiting on chilly, rainy winter weekends. Great wine is the beginning, but without a tasting room that lends itself to lingering and being comfortable and cozy, your business will not be off to its best start.
The Journey is Not The Destination Vineyard
If that winery you are looking at buying is a stand-alone venture far from the madding crowd, think again.
To create a viable and thriving winery business, choose one that is part of an established wine trail – a place where busloads of tourists are brought each and every weekend.
As stunning as the surrounds might be, if the winery is by itself on a windswept cliff, you’ll never rely on passing traffic to pay your mortgage.
Choose a spot with convenient and logical access for the typical wine-lover tourist and your business will have a much better chance.
Owning a winery might seem like a fairytale but it does require serious business planning and number crunching.
Be aware of the work involved, and the costs associated with hiring the staff you’ll need to help you. If cash flow is an issue, this may not be the ideal business for you.
Being a winery owner myself I know! Also being a Forensic Accountant, contact me before you sign on to that new vineyard and I will give you some realistic advice.
Tags: Wine Industry