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Should growers make bulk wine?

Much attention has been paid recently to wine producers acquiring vineyards to secure affordable, quality supply as grape prices rise. Less discussion has focused on growers who see this rise in profits as a way to invest in themselves by diversifying into wine production. This perennial question, "To crush or not to crush?" and its sister question, "Bulk or branded?" are often answered with an intuitive decision. This article will use data to examine the decision to sell bulk wine, while an upcoming issue of Wines & Vines will include a column focusing on wine brands.

Profiting from bulk wine sales

Easier than starting a brand, many growers choose to crush their grapes into bulk wine for sale on the spot market or as part of a contract with a buyer. Back-of-the-envelope calculations generally indicate that this will significantly increase profits. For instance, the two scenarios on page 37 show a basic calculation for 1 acre of Sonoma County Chardonnay grape sales compared to bulk wine sales for the same site. They are based upon anecdotal evidence, data gathered from postings, USDA data and UC Davis Extension studies.

This simple calculation indicates an increase in profits (before capital recovery costs) of a healthy 17%! Of course, the best-laid plans often shatter upon contact with reality, as anyone who has been in the wine industry long enough can confirm. Make sure to investigate your own situation thoroughly, as while these assumptions are realistic for some growers, they are meant as an example.

For one, these simple calculations ignore the effect on cash flow. If a grower is able to collect on grape sales at 60 days from harvest, this implies that he must incur 14 months of expenses prior to receiving income. Conversely, posting dates for bulk wine sales ads on indicate an average period of roughly three years between harvest and sale of bulk Sonoma County Chardonnay, on top of the year of growing expenses! Even if you manage to avoid such a long sale period--and the storage fees that entails--you can expect a significant increase in the gap between revenue realization and accrual of expenditures.

Brokers have indicated to me that, in the broader market for larger transactions, the sale period is much shorter but the prices are also lower. Furthermore, without the regular demands of meeting with and complying with the requests of a winemaker, growers can often reduce their viticultural expenses. One implication of not growing to the tailored needs of a winemaker is that the grapes should be grown and vinified in a way that "casts a wider net," according to Glenn Proctor, a partner at Ciatti Co., a grape brokerage located in San Rafael, Calif.

In any case, crushing grapes keeps you from putting money to work for you in other ways, whether through financial instruments or investments in your existing or new vineyards. It also increases your risk of falling into arrears on your bills. These downsides are generally magnified for red varieties, as are the storage and maintenance fees that can significantly reduce profitability.

Of course, sometimes things go wrong on top of these risk factors. Most obviously, either winemaking or the market may cause your wine to sell for less than expected or cost more to produce. According to Ellison Wofford, a lender with Silicon Valley Bank, while some growers can capture more profit through bulk wine sales, in her experience, "It's not common for folks to receive a price higher than the cost to produce the asset."


It should be no surprise that selling bulk wine is riskier than selling grapes, as bulk wine prices seem to fluctuate much more than grape prices. Between 2011 and 2015, for example, the year-over-year change in average price for Sonoma County Chardonnay bulk wine advertised on winebusiness. com was more than five times that for Sonoma County Chardonnay grapes. Other measures of volatility yield similar results, as I recently demonstrated in a blog post on my website.

Volatility can sometimes be a good thing. For one, you could sometimes benefit from price spikes, though one's ability to anticipate this is severely limited, even with intense analysis. More importantly, some growers believe that bulk wine prices can serve as a hedge against falling grape prices. In many instances, this is speculative and can lead to catastrophe.

However, some well-run winegrowing businesses will crush wine for this hedging aspect with no attempt at speculation. One grower I spoke with stated that he simply crushes 30% of his crop every year. On the other hand, I have heard from both grape buyers and sellers that when a grower decides to crush his grapes to avoid selling them at low prices, he is often simply doing the work for the buyer, who then purchases that same bulk wine at a similarly low price.

I used data from winebusiness. com to shed light on these different narratives. The chart at right shows the average advertised price, weighted by tonnage, of District 3 (Sonoma/Marin) Chardonnay grapes and bulk wine per gallon. As one can clearly see, the two prices move in opposite directions. In fact, they have a correlation of-.8135, indicating that they would make excellent hedges against one another.

This is encouraging news, but with some very important caveats. The actual price movement for the grapes is minimal; the period studied is only five years long, and this is only a single variety for a single region. Still, this indicates that the potential for hedging grape prices with bulk wine does exist.


Growers turn to winemaking either to capture a greater share of the profits that the supply-chain provides, to hedge against drops in wine grape prices, or both. In reality, wine production can increase or decrease profits. Similarly, it may be an effective hedge against prices, but it also has the potential to make revenues more erratic.

One risk factor wine production invariably intensifies is the constraint on cash flow. Revenues occur on a significantly longer timeline and, in most cases, expenses continue to accrue. Additionally, there is some small level of additional risk that vinification will proceed poorly and reduce revenues.

Before you decide whether bulk wine is right for you, I recommend that you do three things. First, make sure that bulk wine sales will achieve your goals in terms of hedging and profitability. Review historical data for the appellation and variety you will be selling and confirm costs with custom-crush facilities available to you. Call brokerages to confirm that the numbers you are assuming make sense, and get feedback about which custom-crush operations work well with clients and brokers. Check with your accountant to determine how much bulk wine production you can sustain with your expected cash flow.

Second, develop a strategy that you can stick to. Modify this strategy, as needed, after careful analysis, but never deviate from the strategy you have committed to. To compare this to financial investments, if your goal is diversification, then you should be managing your asset allocation, not picking stocks. If your goal is speculation, make sure you have a very solid methodology to ensure profitability. Avoid a situation in which you are reacting emotionally to outside forces.

Understand that once you crush your grapes, their price will be determined solely by the willingness to pay of the market's participants. Your costs become sunk costs. Anchoring to these costs could cloud your ability to make a level-headed decision about what offers to accept.

Finally, keep in mind that the high volatility of bulk wine prices implies that you should generally be selling a large majority of your grapes as grapes and not as bulk wine. The high volatility of bulk wine prices, relative to grape prices, allows you to effectively hedge your grape prices with a small amount of bulk wine production (roughly one-fifth of your total production in the case of Sonoma County Chardonnay). It also means that, in a situation where your bulk wine program performs poorly, you will want a large buffer of grape sales to sustain you.

Gabriel Froymovich is proprietor of Vineyard Financial Associates in Flealdsburg, Calif. VFA provides financial and business consulting services to wineries, vineyards and investors in the wine industry. He blogs at



Price per Ton                     $2,100
Yield per Acre (Tons)               6.75
Revenue per Acre                 $14,175
Viticultural Expenses per Acre    $5,500
Gross Profits per Acre            $8,675

Based on data from, the USDA and UC Davis Extension.


Price per Gallon                            $20
Gallons per Acre                            950
Revenue per Acre                        $19,000
Viticultural Expenses per Acre           $5,500
Vinification per Acre at $525 per ton    $3,375

Gross Profits per Acre                  $10,125

Based on data from, the USDA and UC Davis Extension.


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Title Annotation:Viewpoint
Author:Froymovich, Gabriel
Publication:Wines & Vines
Date:Mar 1, 2017
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