GARAGE VINO

So if you’re following along you know I’ve decided to “go pro” for the 2008 harvest — one way or the other I’ve set out to make wine commercially by the end of this year.

The options as I see them for “going pro” include the following “training camps” on the way to my “rookie season”: 1) Custom Crush; 2) Alternating Proprietorship; 3) Lease/Purchase of a Winery without Vineyards; 4) Acquisition of an Existing Winery Estate and Brand. I spelled out the merits and drawbacks of each of these scenarios in my last post. Got some input from a wise winemaker friend on these points too (see the comments section at the end of the last post), including some sage advice on the topic of bringing partners to the table. This kind of echoes my own natural inclinations: I prefer not to answer to anybody but myself, being the bullheaded, stubborn, cynical writer type that I be. Which may speak to the merits of the update below, as I forge ahead as an aspiring professional wine dude.

THE DUAL CALL

My ideal choice in this set of options is my usual ambitious leap. Ideally, I assemble the bucks and acquire an existing winery I can immediately step in and run, top to bottom, bringing to bear my business experience and budding (though very young) winemaking and viticulture skills to the table as I turn a semisuccesful, 1,000-to-2,000-case operation into a full-fledged estate winery success story with a nice 5,000+ case clientele. This is where I want to be anyway, in that 2,000-5,000 case realm, and to be in the winery and out on the vineyard doing it all, with help from expert consultants and the appropriate staff, of course, as needed. I confessed from the outset that I’m not beginning with the industry-standard “large fortune,” but that I do in fact aspire to owning the whole package as my playground (and successful business enterprise) — winery, vineyard, tasting room, maybe a bed & breakfast on the property, a place people come to as a destination, where they pull in the flavors of the wine country life and remember their time there with the case of wine they bring home and keep in the cellar. Pulling a bottle out from time to time, of course.

I’ve even found the winery I’d like to acquire — in Paso Robles, a two-hour jaunt up U.S. 101 from my home, making for various possibilities on commuting, spending part of each week up at the winery, etc.

There are, however, a number of considerations involved with this ideal. Just to drag the analogy out, this concept doesn’t just involve “going pro” — it involves buying the franchise and installing myself in the starting lineup as point guard. (As a 5’-10” hoops junkie my fantasy was always to buy an NBA team and start myself for one game just to say I’d played pro ball…so I guess I’ve taken the fantasy and turned it into a business model for getting into the winery business right at the top.)

Anyway, the considerations are many: determining the value of the winery and a wise purchase price; determining the dedication of the wine club clientele and how loyal they’d remain under a change of ownership; how much more costly the winemaking effort would be for a rookie like me in that I’d need to bring in a winemaking consultant or advisor; what the real potential and strategy would be for growth; and of course the issue of investor partners. Unless I decide against buying a nice home in which to live, I’m not going to finance the whole purchase of an existing, profitable winery on my own. A vineyard maybe; a winery building and site; but when you start tacking on the winery business, an existing wine club or distribution channels, and so on, the pricetag becomes high enough to require some investors be brought to my winemaking table.

So here’s where I come out.

I would like to pursue the winery-acquisition option. I become a winery owner and vigneron immediately by going this route. And I am never one to shy away from coming in confident and up toward the top of the heap. The challenges and pressure are greater, but if you believe in your passion and skill and work ethic, you know you’ll make it work.

However, it is a long road to reach the point of closing the deal…particularly when fund-raising is required. Among the tasks at hand? Writing a business plan (I’ve got a draft but it could use some more glitz), sorting through acquisition terms, due diligence on the books, business, and property, approaching investors, nailing down their investment dollars, lawyers for the private-placement fund-raising technicalities, the recruiting of advisors, consultants, staff, and so on, and so on. At any stage in this process, I may decide I don’t like the deal, I don’t like an investor, not enough money might be raised, a competing buyer might step in — you name it.

So the last thing I want is to wind up investing nine months of my life in the potential deal, deciding against it, and looking at another harvest where I’m left with only the home/garage winemaking option since the permits and so on were not in place.

Therefore the first thing I’ve decided to do is to launch OPTION ONE:

THE CUSTOM CRUSH.

See, regardless of whatever else happens, if I get my federal, state, and county/local “wholesale wine/beer sales” permits in place, I will be street-legal when it comes to purchasing some grapes and entering into a custom-crush winemaking contract with a winery facility in the area. If I get the approvals nailed down, I will guarantee that I “go pro” this coming harvest season — I’ll have the chance to make wine professionally no matter what else comes to fruition, or falls through.

Not that the Custom Crush option isn’t a great one in its own right, but by deploying that option as my first and main step in “going pro,” I leave myself open to all the other possibilities as well. For instance, I may find an opportunity, at the right custom-crush facility, to accelerate the plan and advance to the Alternating Proprietorship business model even before buying my grapes and making my 2008 vintage. Or perhaps the acquisition deal moves along and goes through, and my wholesale permits become unnecessary.

By my understanding of things, four main tiers of permitting are required as part of any commercial custom-crush contract with a winery facility.

Tier One: First, there’s the federal license, called the “Basic Permit,” a permit granted by the TTB (the Alcohol and Tobbaco Tax and Trade Bureau) allowing you to purchase domestic or imported wine and/or beer at wholesale for reselling, also at wholesale. From a custom crush standpoint, the way this works, technically speaking, is that you are obtaining a wholesaler’s permit so that you can buy the finished wine from the custom crush winery, then resell it to retailers or wholesalers (under your label if you wish, and if you get your label approved) but not directly to the consumer.

Tier One Progress: This week, I filled my application out (you can find instructions, contact info, and forms at the TTB Website) and mailed it in. I had previously spoken with the very helpful folks at the TTB offices, in Cincinnati; they basically have a package of forms and instructions geared toward the custom-crush crowd. It’s all pretty self-explanatory. Things begin to get a little more complicated when you want to sell your wine at the retail level; not sure that you absolutely need to own a winery bond or the equivalent of a liquor or “package” store, but that’s pretty much the requirement. I figure I can cross the retail-sales bridge when I come to it — getting set up to make the wine commercially and be allowed to sell it wholesale is a great first step.

Tier Two: The second main tier of licensing is at the state level — in my case, it’s with the California Department of Alcoholic Beverage Control, also known as ABC. The paperwork is a bit more intense for this tier. But once again I’ve found the staff in the permitting offices to be highly helpful, and with a couple of calls I pretty much figured out where I need to be. In my case — lacking any retail/tasting room storefront and seeking only to get papered up at the wholesaler’s level to start with — I was told today by the Ventura office of ABC (handling Ventura and South Santa Barbara Counties) that what I need is a “17/20 Combination” permit. This refers to the sole-owner, non-warehousing, “off-sale” (e.g., non-retail) wine and/or beer sales permit boxes checked off during the overall ABC application process. There is also the “14,” or warehousing-location piece of the permit, dictating and licensing where the wine will be stored, which is generally a permit held by the custom crush facility you are contracting with (if that’s where you’re storing your wine, and possibly shipping it from, once it’s made). So I will need to submit a combination of forms relating to my office address (read: home) (read: garage), sources of funding, personal information, bank accounts, and so on.

While alcohol is, technically, a controlled substance, one begins to wonder how anyone with less than a PhD in form-filling-out has ever started a business around here. I think a great deal of the complicating factors are simply remnants of Prohibition policies — back then, at the point spirits, wine and beer became legal, the government wanted to keep any criminal element out of the industry…they probably still do, but I think the point back then was to keep anyone who’d been bootlegging out of the legitimate alcohol industry.

Tier Two Progress: I filled out the relevant forms in pencil and learned that the permit issued actually includes a license for the addresses of your office, bonded winery facility, and storage location — meaning I need to determine which custom crush facility I am using and place their address and related information on my permit application. Haven’t decided that yet — but this will prompt me to nail down that decision in the next month or so. Want to make sure I’m way out ahead with my permits and can focus instead on the important thing: the fruit I’m going to use for the wine. This brings me to…

Tier Three: Entering into a contract with a custom crush facility. This involves, technically speaking again, your entity entering into a wholesale wine-purchase contract involving “custom” crush/winemaking choices, with their grapes or yours. Once the crush takes place and the wine is made, you take possession of it and generally utilize the custom crush facility’s (or another facility’s) storage for your barrels/tanks/cases of wine (under their “14” wine-storage location permit, I assume).

Making the Custom-Crusher Call: Because of all the help he’s given me, I would like to use Nicholas Miller’s Central Coast Wine Services in Santa Maria, but they have a 2-ton or 3-ton minimum, depending, and it’s apparently their Paso Robles Wine Services facility that handles the smaller lots more effectively anyway. My intention is to start small and keep all costs to a total of $10k or so for at least 100 cases of wine, made in smaller lots than that. So tops on my list, if they are operational in time, is Terravant, where the orientation will be toward small-lot winemakers such as myself. Plus it is located in Buellton, a mere 40 minutes from here. Maybe Nick Miller will be able to be flexible for my small lots — and there is also the possibility of working with a Santa Barbara County winery where the owners do a bit of custom-crushing business on the side as well. I understand there are a few of these in Lompoc.

Tier Four: Ultimately you’ll need brand and label approval — another bridge I will cross when I get to it, unless ABC or TTB require submission of brand names and/or labels as part of the initial permit process, which I do not think they do. I intend to come up with some ideas, float them out to the readers of Garagevino.com, and solicit ideas as well, maybe hold a “win a case of my first professional wine” kind of contest to anyone who devises a name that I wind up going with. At this point my company name is The Staeger Wine Company and I’ve got a couple ideas for the wine-brand name and will hit that later.

THE WINE ITSELF (AKA THE GRAPES TO BE CRUSHED)

My notion, at this point, is to make two or three 50-case lots of wine. First would be Zinfandel. I am hoping, after our cool bit of correspondence, to shoot for some awesome fruit from Sonoma Valley via Morgan Twain-Peterson and his Bedrock Vineyard; depending on how the 2007 vintage continues to come along in my garage, I may also make some from Mike Prowse’s Creston Hills Vineyard, in Paso Robles, again.

Second, I would love to make what I love to drink, and two of the three wines I’ve enjoyed the most were the Matanzas Creek and Freemark Abbey Merlots. I’d like to make a supremely rich, complex, edgy, almost Santa Barbara County Syrah-ish Merlot, and possibly blend it with a bit of Cabernet…my own version of a Bordeaux, minus the Cab Franc. Perhaps, in the spirit of the havoc Sideways wreaked on the Merlot marketplace, I can unofficially call this lot of wine “Fuck Miles Merlot.” Be cool to call it that officially. Yeah right, says the TTB. I wonder though… could F#&! Miles Merlot work? We’ll see.

Third would be my other favorite wine — that being a 2000 Pia Cesaro Barolo (I think I have the name right). Anyway I enjoyed it in 2005 and it was something — complex and sharp and crisp and, by then, already quite drinkable. Nebbiolo is the fruit behind Barolo, and it hasn’t been done particularly well, and certainly not on a widescale basis here. I intend to try it and make it well.

The fourth possibility is a Sangiovese — I love a great Chianti; Chianti is actually a blend of Sangiovese and, depending on your moment in history, differing percentages of a couple different other grapes. I just read that some Chiantis are now made of a Sangiovese and Cabernet Sauvignon blend, up to 10-15% Cab — something like that is the way I’d like to make my Sangiovese in the long run; first “pro” year out, maybe I’ll just stick to the 100% Sangiovese.

Thus ends my lengthy essay on the garagevino strategy focus in the quest to “go pro” this year. More ramblings soon, including the update on my idea for the winery acquisition — but, for now, I’ve got the permit-application process underway for the licenses I’ll need in order to custom-crush as much as a hundred and fifty cases of wine this fall…as a legitimate (or, more accurately put, illegitimate) wine pro!

You know that sensation that strikes while you’re on vacation, when you reach, with fierce solidity, some sort of realization? Maybe it’s the idle time; or, in my case with vacations, the 24-hour-a-day immersion in the lives of 6-, 4-, and 1-year-olds. In fact I have known some people who experience the same sort of crystal-clear realization while in prison — so maybe it’s just the isolation factor.

But one way or another, I seem to have drawn a number of my “life conclusions” while on the beach, on a jog in some tropical clime, or while otherwise escaping from the routine of everyday life.

And this holiday vacation was no different.

This time, I realized with a concreteness that the time has come for me to just do it: it’s time to proceed with my quest to own and run a winery and vineyard.

See, over the past few months, while expanding my experience as harvest slave and garage Zin-maker (and simultaneously revising a highly challenging third novel), I’ve been considering the numerous means by which I might accomplish my goal of “going pro” as a winemaker (and, ideally and eventually, vigneron, i.e., winegrape grower and winemaker in one). Each angle has its merits; each, its pitfalls. I’ve also held an internal debate, which I assume to be common among people pushing into a new field at my age: Do I keep this passion relegated to amateur, “hobby” status? Am I too entrenched in my other career(s) to “go pro”? And even if I pursue this passion as a small business owner, do I focus primarily on another, “A” career to pay the bills until the business gets rolling?

What happened in my moment of Vacation Enlightenment was that I figured out the answer to these things. The way I see it now, like that ex-con who’s seen Allah before his release, is that there’s no more debate — only strategy. It’s kind of like a candidate accepting the nomination from his party: with all those issues raised during the debates in mind, it’s time to move ahead with the chosen platform.

It’s time to get this winery of mine out of R&D and onto the production line.

With that decided, allow me to set the table. Here are the strategies under review — the ideas subject to my internal debate these past few months. Wrapped within these options are various money-making and cost-factor components — whether a living can be made, how long it will take to get there if so, how my other money-making pursuits can or will need to figure into the equation of each option.

By the way, I am accepting all votes and advice — send me a comment or drop me an email or phone call if you’ve got opinions (yes, Mom, even you). Here are the strategies I’ve been considering for “going pro”…One way or the other, it is time to get moving, so it’s time to pick, and here are the choices as I see them.

GOING PRO, OPTION 1A: CUSTOM CRUSH

This is of course the strategy I set out to attempt in September but didn’t yet have the paperwork, permits, or grower relationships in place as harvest arrived.

Short version: obtain a wholesale wineselling license, then contract with a winery to “borrow/lease” that winery’s winemaking bond to make your wine at their facility for a fee.

Merits: From an overall cost perspective, this is the cheapest model. No real estate costs, no capital equipment costs, no employees, and less paperwork to worry about than any other option. Through the custom crush facility, you can often get access to better grapes than you might find, going cold turkey, trying to buy fruit on your own as a new winemaker.

Drawbacks: Technically you’re a wholesale distributor under this plan, with no right or facilities to sell your wine at the retail level, even online. So you’re selling to restaurants and stores rather than the consumer (unless you enter into some creative form of partnership with a retailer). You have less control over the winemaking process than with the other options below. Per-bottle, your production costs are very high if you’re making small lots of wine.

Notes on “Going Pro”: No way of turning a profit for at least 2-3 years (since I’ll be making red wine that needs sufficient aging time), so “going pro” in this case requires a “day job” for at least 5 years to fund the business; theoretically, the more wine you custom-crush, the faster you could profit from it (provided you can sell the wine), but the more you make under this model, the less sense it makes from a per-bottle cost-effectiveness standpoint.

Bottom line: This is a way to start making and selling wine professionally but does not yield a career or living to begin with.

GOING PRO, OPTION 1B: ALTERNATING PROPRIETORSHIP

Short version: An evolved version of the custom crush. Instead of obtaining a wholesale wineselling license and “leasing” the winery bond from a custom-crush winery, you actually own a percentage of a winery bond at an existing winemaking facility. A number of such “proprietors” make their wine alongside each other in a facility- and equipment-sharing arrangement.

Merits: You’re actually a winery in this equation, so depending on state and local regulations in the region you’re operating, you are permitted to sell your wine at both the wholesale and retail level. You are the winemaker, so while you’re using someone else’s facilities, you have more control, since you’re making the wine yourself rather than providing instructions to the custom crush winery on how to make the wine for you. Costs are still relatively low since you are not purchasing land or an entire winery. Good relationships develop between the winemakers in the rotation so often you’re gaining great wisdom by way of proximity.

Drawbacks: The overall cost is higher and the licensing and reporting processes are more intense. Despite the increased cost you do not have an opportunity to set up a tasting room without a separate purchase or lease because you do not own any real estate allowing for the tasting room.

Notes on “Going Pro”: I could make better wine this way (vs. the custom crush model) and have a greater opportunity to sell the wine for more money (because of the retail allowance via ownership of a winery bond). However, the timetable is the same as under the custom crush model and the costs, overall, are higher. So it requires both more money from a “day job” and more time since you are overseeing more facets of the operation you’re doing “on the side” as compared to the custom crush model.

Bottom line: Probably a smarter, more sound strategy for making wine professionally and for-a-profit than the custom-crush model, but possibly overwhelming top-to-bottom, since it isn’t and can’t be a career change until a profit is realized — and to run a winemaking operation at this level while working a “day job” that would fund its higher operating costs might become onerous on both sides of the equation.

GOING PRO, OPTION 2: LEASE OR BUY A WINERY/TASTING ROOM FACILITY (BUT NO VINEYARDS)

Short version: Jaffurs Wine Cellars, Whitcraft Winery, a half-dozen others in Santa Barbara, and countless other wine labels elsewhere operate in this manner. Whether in an urban setting or out in a winegrowing valley somewhere, the idea is to buy or lease a tasting room, crush pad, and winery building in which you can make, store, and sell your wine. You source the grapes from elsewhere, buying from growers and regions of your choice.

Merits: While its costs resemble that of any production-based business, this is ultimately the most cost-efficient model since it entails obtaining a winery bond, full control of the winemaking at your own facility, and a retail sales location all in one — without the mortgage expense of many acres of land in a premium wine region. Another plus is that you are not restricted to any particular varietal, vineyard, or region: you can choose the best fruit your relationships, money, or luck can find, and change plans whenever you need to (for instance, you’re making Syrah for two years and the market for Merlot picks up while Syrah’s sales turn to shit — no problem; start buying Merlot and cancel your Syrah contracts).

Drawbacks: Expensive — to the tune of a $2 million investment in any place where you’ve got retail wine-buying traffic. Access to fruit will depend on relationships and luck; it can be very competitive and expensive to get your hands on the best Syrah or Pinot Noir, for instance, from Santa Barbara county.

Notes on “Going Pro”: Basically a step beyond the alternating-proprietorship model in both potential as well as cost — and time commitment. To the point where I’d say that I’d need to raise the funding. The question then arises as to whether raising the money to fund a $2 million new-business launch is feasible when that same timetable of 2-3 years at a minimum exists before revenues flow in.

Bottom line: A good business model, but, out of the gates, if I am going to raise the money from a pool of investors, it would be more responsible and attractive to recommend a business to my investors where there is existing cash flow or a forecast of profits within a shorter window of time. If I am going to fund and own my winery business entirely on my own, this option feels like the sort I would set up only after establishing a brand, and sales numbers, through either the custom-crush or alternating-proprietor options. (Precisely the chronology followed successfully by Craig Jaffurs, as well as a few other wineries operating under this business model.)

GOING PRO, OPTION 3: ACQUIRING AN EXISTING WINERY

Short version: Just like it sounds.

Merits: Depending on the winery, there would be an existing brand, distribution channels (tasting room, wine club, wholesale distributor, etc.), all winemaking equipment and facilities. Theoretically, the business would be capable of functioning on a turnkey basis and generating a profit right out of the gates. Depending on the winery and its numbers, there could be considerable appeal to investors.

Drawbacks: Entry cost requires investors. Existing brand could be great, or could be problematic. Depending on winery, its property/facilities, and cost, this model might be less cost-effective than the eventual version of the winery-without-vineyards scenario.

Notes on “Going Pro”: Find the right winery property with existing or potential profits, raise the funds from investors, and you’ve got the opportunity to run the business and winemaking efforts of a winery, either as a salaried employee or shareholder or both.

Bottom line: Great move if the right opportunity exists and I can find investors ready to jump into the wine industry on my shoulders.

GOING PRO, OPTION 4: ASSISTANT WINEMAKER BY DAY, NOVELIST AND SMALL-LOT WINEMAKER BY NIGHT

Short version: Utilize my out-of-industry business talents, emerging-winemaker skills, and highly compelling charm and charisma to land an apprentice- or assistant-winemaker position with a small to medium-sized winery. I continue to write and make wine under one of the above scenarios (probably a version of the custom-crush scenario) by night…or by early-morning, or occasional free weekend day…

Merits: Provides a means of continuing to do something I love while contributing to earning a living, and potentially facilitating some of the custom-crush sort of options above. While it might take longer to get to Robert Mondavi status this way than through one of the other options, I would be learning on someone else’s dime, and the access to the industry a “real” position like this would provide could cut costs and corners in my quest to get to vigneron-entrepreneur status.

Drawbacks: Writing novels and making small lots of wine professionally on the side while working full time for another winery could be spiritually rewarding but might be taxing, time-commitment-wise. Whereas raising the funds to acquire an existing winery and combining two of my three career tracks into one might be more realistic…or continuing to focus my money-making efforts in the fields where I already do pretty well while launching a small-lot winery business on the side, via one of the custom-crush-type options.

Notes on “Going Pro”: This would probably be a do-what-you-like kind of decision rather than a get-paid-enough choice. Not every employer is ready to take a leap of faith in the six-figures salary range on somebody with a great track record in another industry, so I’d probably be faced with opportunity cost here: I would most likely make one-quarter or less of what I’d make by continuing to do the things I already do “by day.” Would I enjoy it enough so I wouldn’t care, on the path to earning what I hope to before long as a vigneron-entrepreneur? That is the question if this option is on the table. Of course I don’t want to work for “every employer” anyway — perhaps the right winery owner would see the benefit of bringing an entertainment-industry exec with a fledgling winemaking pedigree and a few published novels to his name aboard as a strategic member of his staff, and reward him accordingly, after all.

And thus sums up the options I’ve had under consideration. There are, of course, variations, such as making my own label of wine under the bond of another winery owner, who then sells my label alongside his in his own tasting room, handing me a cut of the sales of my wine (allowing for retail sales under the custom-crush scenario). And a few other notions as well, either as alternatives unto themselves, or means of bridging the gap between options.

So, to the point:

AND THE WINNER IS…

Well…I’ll get to that in my next post.