Succeeding In The California Wine Business By Really Trying

John McKinsey, Partner, Locke Lord LLP

Joe Genshlea, Partner/Founder, Revolution Wines

Wine is a Business?

• Yes, a very tough business.• There were 3,364 wineries in California in

2010. That’s competition!• The biggest three wine companies account for

about 90% of all wine produced, worldwide.• Market access is restricted and challenging.

Wine is a Business?

• Yes, a very unique business.• Tremendous variation in price for same

product. • Differing, competing, international traditions.• Agriculture + food processing + sales.• In U.S., alcohol regulation history leaves

unique structures to navigate.

Wine is a Business?

• Yes, a fun, creative business.• Art, aesthetics, creativity are all rewarded. • It’s wine!• There are thousands of different wines to

make.

Case Study: Revolution Wines

• Being an urban winery to establish solid local customer base.• Growing and/or buying grapes.• Making wine in the city.• Serving food to make winery a destination.• Filling out production capacity of equipment through custom

crush operations.• Going from local customer base to reach statewide, national

and international markets.

Primary Challenges of Wine Business

• Distinguishing/differentiating your wine.• Getting access to markets.• Selling wine at profitable price point.• Selling inventory before next year comes in.• Managing regulation.• Dealing with surprises and incidents.

Distinguishing Your Wine

By Taste?

Distinguishing Your WineBy Name?

Distinguishing Your WineBy Name?

Distinguishing Your WineBy Name?

Distinguishing Your Wine

• Unique name, labels, story.• Finding product niches to build reputation in.• Getting reviews, acclaim, and demand.• Getting onto store shelves.• Keeping quality high and consistent.• Keeping price as low as you can go.

Getting access to markets

• Dealing with the three tier system– Producers– Distributors– Retailers

• Dealing with the market dominators– Big three make 90% of all wine. – Finding openings to get your toe in the door (shelf

in a store, slot on a restaurant menu, etc.)

Different in

Each State!

Profitable Price Points

• QUESTION: What is the difference between a $2 bottle of merlot and a $100 bottle of merlot?

• ANSWER: $98• A key challenge is setting up a wine business to

operate profitably at a price point it can compete at.

• Generally, the cheaper the better. But if you cut costs too much, you will injure quality.

Moving Inventory

• A strength of the wine industry can also be its bane: its annual cycle.

• Most wineries own their vineyards or contract to buy wine grapes every year.

• So, each year, you need to move your wine before the next year arrives.

• In early years of a new wine business, this can be very hard (Lesson: make smaller amounts of wine in early years).

Regulatory Compliance

• Wine business may be the most complicated and regulated business in the world. – Agriculture, environment, and farm labor– Art and science of making good wine (the

winemaker)– Food processing facilities– Alcohol regulation– Retail sales and tasting rooms and wine clubs– Wholesale business to distributors

Unexpected Hurdles

• “The center cannot hold,” “things go wrong,” “stuff happens.”– Weather– Bacteria– Change in law– Business partner quits industry or has problem– Etc…

Resources for Wine Businesses• California Department of Alcohol Beverage Control

(ABC)-– Licenses to make wine and/or offer wine for sale.– Data collection on grape and wine production.

• Federal Tax and Trade Bureau (TTB)– Label approval.– AVA/ appellation approval.– Federal tax collection on wine.

• The Wine Institute• Family Winemakers of California• Local wine trade/industry associations

Time to Go!

Time to Go!

Joe Genshlea, Revolution Winesjoe@revolutuion-wines.com(916) 444-77112116 P Street, Sacramentowww.revolution-wines.com

John McKinsey, Locke Lord LLPjmckinsey@lockelord.com(916) 930-2527