Ever consider setting aside your vocation and taking up the pruning shears and the wine thief? (A wine thief is a glass tube used to take samples from wine barrels to fill the glasses of nosy wine writers.) Many people dream of owning a winery. Most of them wake up, fortunately, but a few actually get into the business. Of these, some file for bankruptcy -- and a minuscule percentage actually become successful.
Among the latter is Dan Duckhorn, owner of Duckhorn Vineyards, and his story is instructive. A former venture capitalist in San Francisco, Duckhorn and his wife, Margaret, found themselves living in the Napa Valley about 10 years ago, and liking it. Duckhorn decided to make wine instead of deals -- although it took one last deal to make the winery possible. He put together a partnership composed of himself and six friends, most of them fraternity brothers from the University of California at Berkeley. They raised $125,000 among themselves and borrowed as much again from the bank, giving them a quarter of a million in seed money.
Duckhorn bought a 10-acre site with some usable buildings on it and had a small winery constructed. He kept costs down -- purchasing modest wine- making equipment, renting bottling equipment when the need arose and paying himself a minimal salary. He did outside consulting work and put the fees directly into the winery. Margaret worked as a nurse full-time and on weekends worked free for Duckhorn Vineyards.
Early on, Duckhorn made some prescient decisions. One was to stay small; another was to concentrate on merlot, a grape that was to become very popular as well as scarce. Since he could not afford his own vineyard land, he got to know the owners of some of the best in the Napa Valley and signed many long-term contracts that assured his source of good fruit.
For the first two years, Duckhorn Vineyards lost $125,000 a year. But Duckhorn raised another $160,000 from the investors and went back to the bank for a smaller infusion. Then he brought in three more partners, raising an additional $100,000. And he still hadn't sold a bottle of wine.
At the end of the third fiscal year, Duckhorn's assets -- mostly aging wine -- amounted to $400,000. But the vineyard owed the bank $300,000. Finally, Duckhorn started selling wine -- $150,000 worth of the first vintage -- and extraordinary wine at that. It won medals, as well as hearts and minds, at the high end of the market. Duckhorn began to climb out of the fiscal hole.
Today, Duckhorn Vineyards is considered one of the best in the valley. It now sells about 13,000 cases a year, worth $1.35 million, 25 percent of which is profit. The merlot sells for about $20 a bottle; Duckhorn also makes cabernet sauvignon and sauvignon blanc, and semillon under another label, Decoy.
The partners who hung in there now enjoy an annual return on their investment of about 40 percent; not one of them complains. But most of the money made by Duckhorn Vineyards is going into the purchase of vineyard land, so that eventually it may produce all of its own fruit. Dan Duckhorn refers to this as vertically integrating, backward.
If you are encouraged by this story, beware. Even if you have Duckhorn's knowledge, tenacity, foresight and luck, the economics of starting a winery have changed somewhat in the last 10 years.
To begin with, your 10-acre winery site in Napa will now cost you about $350,000. The winery -- tastefully built, of course, as Duckhorn's was -- and wine- making equipment will set you back another $2 million, plus or minus $100,000.
You'll have to buy grapes, hire a winemaker and buy bottles to put the wine in. If it is top-quality wine -- and it had better be -- it will cost you about $60 a case just to produce. If your initial production is 2,000 cases, that is another $120,000.
Meanwhile, you will need a place to live. A proper house in Napa costs about $400,000 -- although, as in Washington, D.C., even the sky is not the limit. You will also need a place to put up co-investors, salespeople, promoters, restaurateurs, relatives and visiting Frenchmen. The guest house will be about $250,000.
So, at the end of the year, without any wine to sell and without having drawn a salary, you will have spent at least $3 million.
And that doesn't include the interest. ::