Small Winery Investment and Operating Costs
By: Le Ann A. Fickle, Raymond J. Folwell, Trent Ball, and Carter Clary
Abstract
Total investment costs for the wineries in this study ranged from $560,894 for the 2,000 case winery to $2,339,108 for the 20,000 case winery. Building and land costs account for the largest percentage of total investment costs for all wineries. Cooperage accounts for the second largest percentage of total investment cost.
Total investment costs for the wineries in this study ranged from $560,894 for the 2,000 case winery to $2,339,108 for the 20,000 case winery. Building and land costs account for the largest percentage of total investment costs for all wineries. Cooperage accounts for the second largest percentage of total investment cost.
The highest percent of variable costs for each winery are packaging costs. Full time labor, cooperage, and purchasing of grapes are the next highest operating costs by percentage. Depreciation of capital assets makes up the highest percentage of fixed costs. Economies of size exist at a decreasing rate among all of the wineries. That is, as the output of the winery increases, the per unit costs of production decline. Average total costs per case decrease from $154.41 for the 2,000 case winery to $124.93 for the 20,000 case winery.
The wineries in this study all have the ability to produce positive cash flows by year three, showing that all operating costs and debt obligations can be met. Results show that all wineries have the ability to repay all debt obligations and to operate as self-sustaining entities.
Introduction
The Washington wine industry has experienced rapid and diversified growth. Washington State now maintains the second largest premium table wine industry in the United States. Growth in the Washington wine industry is expected to continue due to the growing recognition of Washington wines as a high end, premium product. The number of wine grape acres planted across Washington State reflects the growth of the industry, along with the increase in number of wineries and wine sales. Wine grape acreage increased from 4,440 prior to 1992 to an estimated 27,000 in 2004. The number of wineries increased from 19 in 1982 to 368 in 2004.
The objective of this study is to develop an accurate depiction of current investment costs of constructing, owning, and operating a winery in the state of Washington. Potential investors and lenders will find this study useful in evaluating the expected profitability, cash flows, and potential risk associated with investing in a winery.
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