Starting a winery is a dream for many wine enthusiasts. It combines the romance of the vine with the satisfaction of creating a product that can be shared and savored. However, launching a winery requires much more than just a passion for wine.
Whether you’re a wine enthusiast looking to turn your passion into a business or an entrepreneur seeking a lucrative opportunity, this guide will help you navigate the world of winemaking and set you on the path to success.
Business Overview
A winery produces and sells a variety of wines, typically operating its own vineyard or purchasing grapes from independent growers. Most wineries are small businesses, but a few large producers generate the majority of revenue. Wineries often sell through distributors and directly to consumers, but direct-to-consumer sales via tasting rooms and wine clubs are also rising. Small micro-wineries are proliferating, often using organic grapes.
Wineries require substantial startup capital for land, facilities, and equipment. Loans and occasionally government programs help finance wineries.
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Industry Summary
The US wine industry includes 8,164 wineries that generated $26.8 billion in 2022, according to research from IBISWorld. Over the past five years, the winery industry has experienced an increasing demand of 1.4 annually, primarily driven by high-quality and artisanal wines. Wine consumption has also become more popular for special occasions and as a part of everyday life. This trend has led to a rise in boutique wineries focusing on unique flavors and local terroir. Additionally, wine tourism has gained traction, with vineyard visits and tastings becoming sought-after experiences for wine enthusiasts.
Even with the industry’s growth, attracting younger wine drinkers remains a challenge for the industry.
There are many different types of wine, but some are more popular than others. Red wine is often the most popular type, as it has a robust flavor that pairs well with food. White wine is also popular, as it has a light, refreshing flavor that goes well with seafood and other lighter dishes. There are also many variations of red and white wine, such as Cabernet Sauvignon, Merlot, Pinot Noir, and Chardonnay that are popular among wine lovers. The Napa Valley region of California leads grape production, but matching popular types of wines with the types of wine grapes that can be grown in your area is important to building your brand.
Steps To Start A Winery
Step 1: Research Regulations
Starting a winery is a dream for many wine lovers, but the regulations and licensing requirements involved in starting a winery are extensive. So, before doing anything else, the first step is to research local and state licensing requirements for setting up a winery in your area.
At the federal level, the Alcohol and Tobacco Tax and Trade Bureau (TTB) is the gatekeeper. They regulate the production, labeling, and distribution of alcoholic beverages. Start by visiting the TTB’s website, which offers resources to help newcomers understand the requirements for starting a winery. Federal permits, label approvals, and taxes are all under their purview.
It’s also necessary to analyze alcohol licensing and distribution regulations in your specific state. Some states may have winery-specific licenses, while others regulate wineries under broader alcohol manufacturer regulations. At the local level, there are typically licenses required as well, and in some areas, there are a limited number of winery licenses available. Therefore, doing this research as the first step lets you know where, how, and if you can sell your wine.
Step 2: Market Research
The next important step we will cover has nothing to do with making a good glass of wine. Here, we need to research market demand. Given the high cost of starting a winery, researching whether there is enough demand for a new winery in your area is necessary.
Understanding who lives in your area is the first step. Look at the population size, average income, age range, and what kinds of wine people enjoy. Surveys can be a big help here. They can tell you what types of wine people buy, how much they spend, and what they’d like to see more of. Additionally, seek input from Extension specialists, economic development officials, and small business support organizations to identify any opportunities or gaps in the local wine sector.
Researching further in your local area, investigate the demand for local wines in restaurants, bars, and retail stores. Speak to industry professionals, sommeliers, and local distributors to gauge the interest and demand for local wines.
Wine isn’t just a drink; it’s an experience. Many people love visiting wineries and going on wine tours, and if your area already has wine trails or events, that’s promising. It means people are coming through, looking to try new wines and have new experiences. These tourists could be your customers, too. If you have one, visit your tourism office to learn more about tourism and the impact of local wine festivals.
Last, look at the number and types of wineries already operating in your area. Research existing wineries’ price points, varieties, and customer reviews. This analysis will reveal their strengths that you can complement and weaknesses that you can avoid. To gain a firsthand understanding of the competition, drive the wine trails and visit tasting rooms. Assess if your potential winery could specialize in any underserved wine styles or varieties to cater to unmet customer needs.
Step 3: Write a Business Plan
Having researched the requirements to start a winery and gained a better understanding of the market, the next step in starting a winery is to create a business plan.
A business plan is a roadmap that outlines the goals, strategies, and steps needed to bring your entrepreneurial dreams to life. The business plan is also there to pose the tough questions. How will you attract customers? What makes your wine different? And most importantly, can the business make money? It’s easy to get swept up in the romantic side of winemaking, but the business plan keeps you grounded with a realistic assessment of your idea.
The financial projections may be one of the most important sections of the business plan. This includes an estimate of both your income and expenses. Your income projections should detail how much revenue you expect to generate from selling wine. Consider factors such as your production capacity, pricing strategy, and market demand.
Your expense projections on the other hand, should include all costs associated with running the winery. This could range from the initial cost of establishing your winery (like purchasing land and equipment) to ongoing operational costs (like labor, utilities, taxes, and marketing).
By analyzing the financials in the business plan, you can determine whether your winery business is feasible. It’s far better to identify any potential challenges or hurdles during the planning stage rather than after investing significant resources into launching your business. Not only that but investors and lenders will want to see that your dream is also financially feasible.
Related: How to write a business plan
Step 4: Secure Funding
The cost of land, vineyards, equipment, and production really add up when starting a winery. Funding any business can be a challenge, but given the cost of a winery, this type of business can be more difficult. Here are several common sources of funding to consider:
Self-funding: Personal savings are a starting point for funding your winery business. This source probably won’t be enough to cover all the startup costs, and outside funding will be needed.
Lenders: Traditional lenders, such as banks and credit unions, can provide loans for starting a winery business. Lenders typically require borrowers to invest at least 15% of their personal funds toward the total cost of the project, have a good credit score, and provide sufficient collateral. In some cases, if the bank considers the loan too risky, they may use an SBA (Small Business Administration) loan guarantee.
USDA Loan guarantees and grants: The US Department of Agriculture (USDA) offers grants and loan guarantees to assist agricultural businesses, including wineries which are often located in rural areas, with land purchases and facilities. Additionally, wineries may be eligible for the USDA’s Value Added Producer Grants, which can provide financial assistance.
Friends and family: Friends and family can be another source of a portion of funding. It is important to establish clear repayment terms and put agreements in writing to avoid potential conflicts or misunderstandings in the future.
Investors: Investors are another funding source for wineries. These are typically high net worth individuals who provide funding in exchange for part ownership of your winery. This funding option can provide the capital you need without having to take on debt. However, giving up equity means that you will be sharing control and profits with the investors.
Related: Finding the money to start a business
Step 5: Acquire & Set Up the Location
Once the funding is taken care of, the next step is acquiring a location. Before you buy a property, check the local zoning regulations. Wineries are typically zoned for agricultural or mixed commercial use. Be aware that there might be additional requirements or restrictions in some areas. Also, since grapes thrive in specific soil types, topography, and climate, choose land that meets these requirements. Also, water access is important as winemaking relies on a reliable source of clean water for irrigation and production.
Designing your winery facilities plays a role in maximizing productivity and workflow. Consider the entire winemaking process, from crushing to fermentation, aging, and bottling. Allocate ample space for equipment and refrigeration. If you plan to have a tasting room, it should be in a location that’s highly visible and easily accessible to customers. Ideally, choose a spot near highways, preferably in an area that people often travel to and proximity to complementary businesses can be advantageous. And, of course, take into account traffic patterns, parking availability, and signage rules.
Step 6: Register the Business
Starting a winery is exciting, but it’s not as simple as just making wine and selling it. You need to take several legal steps to properly register your business. This includes choosing a business structure, registering your business name, obtaining necessary licenses and permits, and complying with labeling and packaging regulations.
Business structure First, you’ll need to choose the type of business structure that suits your winery. Each has its own advantages:
- Sole proprietorship: This is the simplest form of business to start. It’s just you running the show with less paperwork and lower startup costs. You’re the boss, but you’re also personally responsible for the debts and obligations of the business.
- General partnership: This is when you and at least one other person are in business together. It’s still fairly straightforward to set up, with shared responsibility and decision-making.
- Corporation: This structure turns your winery into its own legal entity, offering the strongest protection from personal liability. But it comes with more regulations and requirements.
- Limited Liability Company (LLC): An LLC offers liability protection like a corporation but with fewer formalities. It’s often a popular choice for small businesses, including wineries, because it balances liability protection with simplicity.
Related: Comparison of business structures
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
Related: Tips and ideas for naming a winery
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Related: Finding a domain name for your business
Obtain necessary permits and licenses: The licensing and regulations for wineries can be frustrating as there is a lot of paperwork required to start and operate a winery, in addition to regulations to follow. Each state has different requirements as to how much wine can be sold in the winery and different requirements for selling to distributors and wholesalers.
Besides registering your business, you may need to obtain various permits and licenses to operate as a winery. This includes a federal basic permit from the TTB, state-specific licenses, and local permits for factors such as health and safety regulations, zoning compliance, and alcohol sales.
If you plan to produce wine for commercial purposes, store, blend, or bottle wine, or wholesale or import wine products, you must file an application with the Alcohol and Tobacco Tax and Trade Bureau (TTB). Make sure you understand and fulfill all federal registration obligations before starting these operations. The TTB also has
Wine labeling requirements can be extensive and must comply with federal, state, and sometimes international regulations. Familiarize yourself with the guidelines for wine labels to ensure you meet all necessary requirements.
Health department licensing: If you plan to serve food along with your wine, be aware of and comply with regulations related to a commercial kitchen. Requirements can vary.
Obtain business licenses and permits: In addition to the winery-specific requirements, there will also be general registration requirements needed before opening. These depend on local requirements but could include a business license, seller’s permit, and Employer Identification Number (EIN).
Related: State guides for general business licensing
Step 7: Set Up Operations
Setting up operations for a winery business involves translating your ideas and plans into tangible steps. Here are some key tips to consider.
First, it’s important to plan the supply of grapes, and you have the option of either planting your own vineyards or establishing grape supply contracts with local growers. As a general rule of thumb, one acre of vines can produce approximately 4 tons of grapes, which in turn can yield around 600 gallons of finished wine. Since it takes 3-5 years, depending on variety, for vines to produce fruit, it may be more feasible to purchase grapes from other vineyard owners.
Once the wine is ready to sell, you will need to establish distribution channels, which can include direct-to-consumer and wholesale avenues. Your marketing and branding efforts will directly impact your distribution strategy, so develop a marketing strategy that encompasses aspects such as brand identity, target markets, and product promotions.
Step 8: Hire Staff
As a winery owner, you will need to hire employees to help with the operations of your business. It’s important to understand your responsibilities as an employer to ensure compliance with legal requirements and to provide a safe and fair workplace for your employees.
Before hiring employees, there are several legal requirements to take care of. First, you’ll need to obtain an Employer Identification Number (EIN) from the IRS. This number is used to identify your business for tax purposes. Additionally, you must ensure that your potential employees are eligible to work in the United States.
Another key requirement is state reporting. Each state has different requirements for reporting new hires to state agencies. This step allows government agencies to track unemployment taxes, child support payments, and other related information.
In most states, worker’s compensation insurance is required to provide benefits for employees who are injured or become ill on the job. Make sure to research and comply with your state’s specific worker’s compensation requirements.
Finally, adhere to labor laws that pertain to your industry and location. This includes minimum wage, overtime, and anti-discrimination laws, among other protections for workers.
Related: State guides for hiring your first employee
Step 9: Prepare to Open!
We’ve covered the major steps in starting a winery, but there are likely a lot of steps still remaining. To help you wrap up the loose ends before starting, here are some tasks to consider before starting your business. Every business is unique, so your needs may vary.
Business insurance: Business insurance can cover costs associated with property damage, theft, and liability claims. Make sure to research and purchase the right type and amount of insurance to protect your assets.
Setting up bookkeeping: Implement accounting software and systems to manage your day-to-day finances, prepare for tax time, and generate financial statements that provide insight into your business’s performance.
Opening a business bank account: A dedicated business account is separates personal and business expenses, simplifying accounting processes and tax preparation.
Joining industry associations: Joining industry associations such as the American Vineyard Foundation and the National Association of American Wineries can provide networking opportunities, resources, and professional development.
Preparing for the grand opening: Also, make sure to prepare for the grand opening of your winery. This includes selecting a launch date, organizing promotional events, and ensuring that all staff and operational processes are ready for opening day.
Common Questions When Starting A Winery
How much does it cost to start a winery?
Starting a winery can cost between $500,000 to $3,000,000 or more, depending on location, size, and scope. Major startup costs typically include:
Land: The cost of land is typically the most significant expense, ranging widely from $5,000 to $200,000 per acre, depending on the region’s viticulture prestige, land fertility, and accessibility.
Vineyard planting: If you’re planting a vineyard, the costs include preparing the land, planting the vines, and installing a trellis system and irrigation. Expect to spend between $15,000 and $20,000 per acre.
Facilities: Constructing the winery facility with essential wine-making equipment can range from $150,000 to well over $1 million. This includes the cost of fermentation tanks, barrels, bottling lines, crushers, and other necessary machinery.
Initial inventory: Initial outlays for bottles, corks, capsules, labels, vineyard trellising and irrigation supplies, and winemaking ingredients can cost between $5,000 and $20,000.
Business registration: Registering your business, obtaining a winery license, and other permits can cost between $500 and $5,000, depending on the state and required licenses.
Insurance: Initial insurance costs to cover property, liability, and crop insurance may range between $5,000 and $10,000.
Marketing: Initial marketing efforts, including branding, website development, and promotional materials, might cost between $5,000 and $25,000.
Business insurance: The cost of a basic business insurance package for a start-up winery can range from $3,000 to $5,000.
Labor: If hiring a winemaker and/or other staff early on, some initial payroll, recruiting, and training costs will be incurred.
Contingency funds: Unexpected overages are common in new wineries, so budgeting extra as a buffer is a good idea.
Additionally, consider having three to six months of operating expenses available as a reserve.
How profitable is a winery?
When considering the profitability of a winery, the numbers can be as complex and varied as the wine itself. Here’s a snapshot using industry statistics and some assumptions:
A moderate-sized new winery producing around 10,000 cases per year could potentially generate approximately $2 million in annual revenue. The average price point for premium wine sold direct-to-consumer is $25 per 750ml bottle. With 12 bottles per case, 10,000 cases at $25 per bottle equals $3 million in revenue. However, about one-third of wine is sold at wholesale prices of around $12 per bottle, bringing total estimated revenue down to around $2 million annually.
Variable production costs per case average around $144 for items like grapes, barrels, bottles, packaging materials, and direct cellar costs based on industry benchmarks. With 10,000 cases produced, total variable costs would be about $1.44 million. Fixed costs like facilities, equipment, and general overhead might total around $300,000 for a mid-sized operation.
That results in $2 million in revenue, with $1.44 million in variable costs and $300,000 in fixed costs, generating a pre-tax profit of $260,000 annually. This assumes appropriate pricing for the quality of wine produced, efficient production, effective marketing and sales, and adequate financing in place.
Profitability can improve with higher production volumes due to economies of scale. Many variables affect actual financial results, but a meticulously planned and well-executed new winery can potentially achieve profits in the $250,000 to $500,000 range.
What is the NAICS code for a winery?
The NAICS code for a winery is 312130.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Resources:
Wine Business Monthly
Wine Institute
