Custom Crush May Be Just the Option You Are Looking for To Get into The Wine Business
A few years ago, a friend decided he wanted to put out a wine under his own label. His strategy was to test the markets reception and then decide whether to sell the wine in the future. His wine was a chardonnay named after his wife. He randomly contacted a custom crush facility in Napa to explore the options involved. Ultimately, he decided he wanted to buy his own fruit directly from a vineyard owner and have the fruit delivered to his custom crush facility. The rest of the work was in the hands of the facility staff. He specified in laymen terms, his label look, specifications relative to taste, tannins, alcohol, oaky aromas, and acid levels. In 12 short month’s his family and friends were toasting his new wine. Do you have a similar dream?
Digressing for a moment. In the late 60’s I visited the Robert Mondavi Winery; they were finishing building their new winery. And for a long time after that I equated a bottle of wine with a physical winery; one having a grand building and surrounding vineyards. Reality isn’t that. In reality, a winery may not include a physical plant and support facilities surrounded by their vineyards. In the past, consumers perceived premium fine wine was considered premium if made by wineries that owned their own vineyards and buildings.
Today premium wines can be made by winemakers who neither own the physical facilities or the vineyards. Boutique wines, varietal and blended, are not a function of a building or owned land. As Celebrations Wine Club notes, “Many of the wines that are now cutting edge are made by winemakers without their own vines, who are hunting down extraordinary fruit from small, often old, and usually obscure vineyards in out-of-the-way places and making extraordinary wines that command handsome prices. Ultimately fine wine is the result of winemaking technique and vineyard quality, regardless of who owns the land.”
In the case of vineyards/grapes, winemakers don’t need to own the land and the vines, if someone else produces quality fruit, then buy from them. Relative to winery facilities, over the past 10-15 years, there are more options for winemakers to ply their skills through “Custom Crush” and “Alternating Proprietors” options. I will explain both, but the focus now is on Custom Crush because that is where boutique/small case production winemakers can get the most help in crafting their wines while exerting various levels of control in the winemaking process.
Alternating Proprietor-Where two or more entities take turn using the same space and equipment to produce wine. These arrangements allow existing fixed facilities wineries to use excess capacity. The TTB (Tax and Trade Bureau of the Treasury Dept.) must approve all proprietors as an operator of a Bonded Winery. These are the same requirements as if owning 100% of the winery.
Custom Crush-The wine ‘Producer’ is authorized by TTB to make wine and is entirely responsible for producing the wine and following all regulations and taxes. The ‘Customer’ is not responsible for interfacing with the TTB or paying taxes directly. Once the finished wine is transferred to the customer the sale is completed and taxes are paid by the “Producer”.
Note: Unless the “Customer” chooses to give his wine away to friends or even sommeliers as a free sample, no filing with the TTB is required. However, to sell the wine, the former ‘Customer’ now becomes and acts like a winery and must file with the TTB for a license to sell the wine—remember there are two things in life that are unavoidable, one being “taxes”. This notwithstanding, some custom crush facilities can assist in selling a Customers dream wine “Direct-to-Consumers” by acting as a licensee for the Customer.
The above explanation is only to explain that there are two options for winemakers to craft their own wine absent owning a physical winery. A custom crush facility is free to help the winemaker based upon agreed fees, but ultimately, the custom crush operator is responsible for everything from label approvals, to record keeping relative to bonding, and taxes.
The growth of the Alternating Proprietors and Custom Crush options has been so dramatic that in 2008 the TTB came out with an Industry Circular to remind wineries and custom crush operators as to the rules/laws that apply to their operations as set forth by the TTB.
The “virtual” winery industry of 2015 in the U.S. was 1,477, out of a total of 8,287 wineries (6,810 were bonded). The Custom Crush universe now represents 18% of all wineries and had a 23% growth 2015 versus 2014. With California representing approximately 50% of U.S. wineries it is easy to understand that the big push into custom crush is California driven.
The true magnitude of just how impactful the custom crush business has become can be realized when we explore the definition of a winery. Basically, it is defined as an establishment that produces wine for proprietors or owners of the winery and pay taxes on the finished product. Most boutique wine sellers have their own licenses to sell their wines and are therefore wineries. In the case of custom crush, there is only one entity paying the taxes, yet it is not uncommon for them to be producing wine for 100 plus people. Looking at the client list of two custom crush companies in Sonoma and Napa, they produce wine for more than 100 clients each.
In the virtual world of wine production, the Alternating Proprietor is not Custom Crush and really does not cater to the small or start-up person. So, what is the profile of a custom crush adventure?
It seems that almost every Custom Crush company has their own business model. For example:
- Size of production.
Some will provide services for a minimum of one barrel—25 cases of wine/approximately 300 bottles. Others stipulate a minimum production of 4 barrels, or even more.
- Services and Cost.
This is probably best discussed in the context of explaining two business custom crush models on both extremes—large full service and a smaller operation that caters to small clients exclusively. These are simply two I chose, of dozens of operators available to potential winemakers.
The Wine Foundry in Napa seems to have the most inclusive offering of services that starts with a single barrel option, although most clients are larger than single barrel. They support the client/winemaker throughout, design and obtain label design/TTB approval, fruit sourcing, crush, fermentation, lab facility/monitoring, varietal wines for blending, bottling-bottles/cork/ foils, taxation record keeping, and even a program to assist in commercial distribution of your wine. Alternatively, if a client is on a tight timeframe or not interested in making a custom wine, they will put a personalized label on a wine they have produced for themselves. The Wine Foundry has every solution to support a brand from incubation to full scale custom crush and a brand or individual can produce as little as 25 cases to as much as 15,000 cases per year.
As noted previously, every custom crush facility has their own model in doing business with clients. The simplest full service option, where the facility does everything for the client, except source the fruit (one ton or 2 barrels of finished Napa Valley Cabernet Sauvignon wine), is approximately $9,100 or $15/bottle (approximately 600 bottles total). But, remember, the cost of the fruit is not in the production costs. This price includes the sorting, crush, use of facilities for fermentation, barrel aging, labels, blending wine, standard packaging and bottling. Once you buy the fruit from The Wine Foundry, or source it yourself, the finished bottle of Napa Cabernet Sauvignon your finished bottle of Cabernet Sauvignon will be approximately $35.00 to $41.00 per bottle (fruit price varies by vineyard).
Don’t panic at the price because some of The Wine Foundry custom crush clients have sold their wine at up to $200 per bottle; the average is approximately $85.00 per bottle. Mind you, that is a premium wine!
The commercial activity associated with selling your wine is a totally different issue with additional costs and regulations. But then you can immediately start building a commercial wine brand.
At the other end of the spectrum is Judd’s Hill MicroCrush. Judd’s Hill MicroCrush’s average custom crush is between 1-5 barrels for a new client. The services they provide will produce a custom premium wine to include: crush, fermentation, barrel aging, label designs (outsourced), bottling and lab work. (In the case of a red wine it is approximately a 2-year process and for whites it is 1 year.) Many of their clients are small vineyard owners who, for varied reasons, want wine produced to their specifications that will showcase their fruit.
“Our customers run the gambit from the single barrel customer to a vineyard owner bringing us 10 or more tons of fruit,” explained Susie Dineen, Manager. To keep it simple for Judd’s Hill customer base, they have a flat rate charge of $4,450 per barrel which includes everything except fruit, labels, small lot wines for blending and taxes. The fruit is an additional cost to the client. Assuming, you buy 1 barrel of Cabernet Sauvignon you could have a premium wine for approximately $27.00 per bottle (flat rate charges plus the fruit, label, etc.). If you can’t wait, buy a premium finished barrel from their own barrel room, ready to bottle after you add your own blending touches.
You better expect to make 2 barrels of wine because you may find it hard to buy anything less than 1 ton of grapes and 1 ton will make 2 barrels of wine or 600 bottles. Judd’s Hill is unique in that their custom crush model allows them to cater to the single barrel ½ ton of fruit client.
Bottom-line, if a potential customer wants to try their hand at being a winemaker there are tons (no pun intended) of custom crush facilities that can help. All such facilities I talked to have a menu of services they offer with corresponding costs noted. It is up to the customer to be comfortable with their winemaking abilities relative to what they expect in the finished wine and their objectives.
The fruit costs can easily represent 60% of the finished costs. The king of varietals in Napa is Cabernet Sauvignon and within Napa a big factor is what vineyard you get the fruit from. In the 2016 harvest, the Cabernet Sauvignon cost per ton ranged from $5,400 to $8,500. Some Zinfandel grapes were available for $2,400 per ton. Chardonnay grapes averaged $2,500 to $3,000 per ton. The big drivers, aside from yields, in fruit costs are: the AVA/county (i.e. Napa, Sonoma, Lodi), reputation of the vineyard, quality and even the clone.
If you are looking at a wine for a promotion or gifting, a nice Chardonnay single barrel can be produced for approximately $20 per bottle.
Before you start shopping around for your custom crush partner you need to do some homework and maybe consider some of the following:
- How much time do you expect to contribute to “your” wine project; how hands-on do you want to be in this endeavor? This is your call.
- What is your overall budget? I would recommend a 10% contingency addition to your “back of the envelop-first cut” budget.
- How will you use the finished wine? Is it for gifts, wedding, company promotion, samples for future client sales? If it is going to be for sale you have 2 options—get TTB/state licenses or contract with a facility capable of selling direct to consumer.
- If there is any contemplation of future sales of your wine, you should have a business plan that contemplates complimentary sample bottles of your wine.
- Shipping costs need to be considered.
- What varietal you want to lead-off with?
- Consider the packaging costs—glass, corks, foil and the sophistication of a label. In most cases bottling is part of the custom crush provided services process, but check with the operator.
- Start the facility search with a well-prepared specification sheet that explains the character of the wine you want to produce. Consider even taking a sample bottle of a wine you might like to replicate in certain ways.
- Define exactly the services you need and make sure the custom crush operator has those services available and at what costs.
- Probably the most important is the relationship you think you will have with the staff at the facility. You certainly do not want to be the smallest client at the facility—the operator should want you as a client and be geared for your size.
- Share your business plans with the custom crush staff if you are wanting to grow your efforts beyond producing your wine for personal/private use.
- Finally, where do you plan on storing your wine? Twenty-five cases of wine is a lot of wine that needs to stay cool, in proper humidity and secure.
There is an adage that says—talk is cheap. Conversely, in the wine business, lack of talk can be very expensive. People specializing in the custom crush business have and exponentially greater amount of knowledge than the average wine consumer because they deal with such a varied list of clients. And they tend to interface daily with all the people in the supply chain. Ask for their comments and input for your project—to much information is not a bad thing.