The state of California is the world's 4th leading wine producer, trailing only behind the nations of Italy, France, and Spain. While the winery industry in California's statewide impact has grown 17% in the last 7 years and has remained resilient through the Great Recession, there are multiple risk factors that potential buyers must consider before purchasing a California winery. Three factors to consider when doing your due diligence include examining the high costs of buying and operating a winery, the time it takes to produce the product, and the competition you will be facing in the market of Wineries in California, alone.
In most cases, money doesn't grow on trees. But, fortunately for winery owners, it grows on vines. In the current market for California wineries, a buyer can expect to spend at least $1 million to purchase their own winery, to inherit the operation that is already underway. On the other hand, if a wine connoisseur would like to build their wine business from the ground up, $2-5 million in capital would be required to open the doors and run basic operations.
The key to making a profit in the wine-making industry is producing a high volume of wine. In order for a small winery to be profitable, your production should be in excess of 5,000 cases, or 60,000 bottles, annually.
When operating a winery, it is important to understand the amount of time it can take you to turn a profit. A small winery can take upwards of 7 years to turn a profit on their original investment. It is also important to keep in excess of 5,000 cases on hand, and in storage, because the process of producing the product, from the growing of the grapes, to selling the product to customers, can take 1-5 years. Another factor involved in the growth and profit on a California winery is the climate of the area you are trying to operate in. Operating profit will likely be low and operations as a whole could be very difficult due to the uncharacteristically low levels of rainfall, seen in all parts of California.
Lastly, there is a lot of competition to consider in the California wine-making industry. There are over 4,600 bonded wineries in California, up 102% since 2005, and early all of them are family owned businesses, producing 229 million cases in 2015. When opening or taking over operations as an owner and manager of a California winery, it is important to understand that the industry requires a lot of patience to maintain slow, but steady profits.
#photo#About The Author: Peter Siegel, MBA is the Founder And Administrator of BizBen.com (established over 25 years now!). He consults daily with California business buyers, owner/sellers, business brokers, and agents regarding buying and selling California small businesses. Call him today regarding advice on finding, buying, selling, financing a business purchase/getting pre-qualified (ask about the BizBen ProBuy and ProSell Programs for business buyers and owner/sellers, and brokers). Peter Can be reached direct at 925-785-3118 (if you get voicemail please leave some good times to reach you and a detailed message - thanks).
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