It takes deep pockets to own and operate a stand-alone winery. Technical know-how aside, one needs to invest millions of dollars into land, vineyards, buildings, equipment, personnel, and marketing. But, owning a winery isn't the only way to create and market your own wine brand. In fact, most wine brands that you see on market shelves aren't actually created in facilities owned by the brand.
Chances are good that your favorite table wine was not actually produced by the "winemaker" whose name is on the bottle's label. In all likelihood, they didn't grow the grapes, harvest them, crush them, ferment them, fine them, age them, and then bottle them. Surprised? Don't be; it's common practice. Napa Valley alone produces 1200 brands of wine but has only 325 actual wineries with their own processing facilities. How do you know who produced your wine? It's on the label. Domestic wines may be “Bottled by:” (followed by the name and address of the bottler); “Produced by" if at least 75% of the wine in the bottle was fermented at the address given; “Vinted” if the wine was subjected to cellar treatment at the stated address or “Estate Bottled” if 100% of the grapes used in the wine were grown on land owned or controlled by the winery. If that's the case, then the winery must crush and ferment the grapes, finish, age, process and bottle the wine on their premises. The winery and the vineyard must also be in the same viticulture area.
Anyone with sufficient resources can have their own wine brand. You can, too. And, if you're famous enough or well-networked enough you might actually sell some. Celebrities do it all the time: lend their name and fame to a brand of wine in order to expand their dominion and make a little extra cash. Who's on the celebrity-labeled wine bandwagon? Rapper Lil John, Drew Barrymore, Francis Ford Coppola, Mario Andretti, and Mike Ditka, to name a few. Dozens, actually; the list grows daily.
Having a third-party label on food or drink has been an accepted practice for a long, long time (you didn't think that Paul Newman actually made Salsa did you?) The foundation for separating producers, distributors, and sellers of wine in the US goes all the way back to Prohibition in the 1920's and 30's. You'll recall that from 1919 to 1933 the Volstead Act made it illegal to make, sell, or distribute alcohol in the US. The law gave rise to an illegal liquor trade that was as big as today's illegal drug trade. Back then, what mountain moonshiners were to whiskey and bootleggers were to bathtub gin, the American Farmer was to the wine trade. For some reason, the Volstead Act allowed farmers to make homemade wine concentrates on the theory that they were non-alcoholic fruit juice that would be used for home consumption.
Clever farmers seized the opportunity and began to make semi-solid grape concentrates that became known as "wine bricks". Though non-alcoholic, the bricks came with a warning similar to this printed on the label: "Never dissolve the brick in a jug containing a gallon of water or add sugar and a pinch of yeast and then place the liquid in a cupboard for twenty days, because then it would turn into wine." "Grape juice" bricks were conveniently available in Port, Virginia Dare, Muscatel, Angelica, Tokay, Sauterne, Riesling, Claret and Burgundy. The demand for this "wine" was so high that California grape growers increased their vineyard acreage by about 700% during the first five years of prohibition. The bricks were sold to whoever wanted to buy them (distributors and sellers) with no limit on quantity. Wine bricks were purchased by individuals, restaurants, and bars and each commercial entity bottled their own wine and labeled it as their house brand.
The US government lost a lot of money during prohibition, while gangsters like Al Capone got rich. Local governments paid for law enforcement while the Treasury Department lost tax revenue. Bringing Prohibition to an end was almost as difficult as passing it in the first place. The deals that were cut to organize the repeal of Prohibition left us with a convoluted system for producing, distributing, and selling wine. Have you ever tried to ship wine from one state to another? It's tough to do, because it's a felony. When Prohibition ended, the government stepped in to regulate the newly legal wine, beer, and liquor business with the creation of the Federal Alcohol Administration Act. Treasury Department's Alcohol and Tobacco Tax and Trade Bureau (TTB) was responsible for administering the act, and the way that they organized the alcohol trade still impacts the wine business 79 years after the law was passed. The TTB has two primary functions: regulate wine labeling (to protect consumers) and collect taxes (after all, why should Al Capone be the only one who profited from the alcohol trade?). Anyone who wants to produce, wholesale, import, distribute or sell wine must first qualify for a permit and have their labels approved by the TTB.
Vineyards whose only business is the growing of grapes do not need a TTB permit, because there is no alcohol involved. However, if they decide to have their grapes turned into wine, then must obtain the applicable TTB permits.
Types of Wine Businesses - And Your Branding Options
In deciding to start your own wine brand, you have three primary questions to answer:
As you can see, the first decisions to be made are "business" decisions rather than "wine" decisions. Let's consider these questions in order.
Who will buy your wine?
Before you press your first grape (or have someone do it for you) you have to know how you intend to sell your wine. Marketing decisions are your first decisions. Too many would-be winemakers believe that the first consideration is the quality of the wine. Although quality is an important consideration, many great wines have led their owners and distributors into bankruptcy court because too few customers knew the wine existed. There weren't enough sales to support production. So first, know what your marketing niche will be; who will buy your wine and how will they use it? Is yours a "party" wine, table wine, aperitif? Are you aiming at college students? Oenophiles? What is your unique selling proposition? What will capture the imagination of your intended consumers? What story can you tell that can be connected to your wine? Are you the "oldest local winery" or do you have growing conditions that make your wine stand out? Is your wine the absolute "best there is" to drink with spaghetti? Know who you will sell to and why they will buy - then decide what you will produce and who will make it. Once you know what your unique selling proposition is, stick with it. Don't target more than one niche. As they say in horse country, you can't chase two rabbits with one dog. Your uniqueness defines your brand; you can't be unique and still be "all things to all people". Own your niche.
If you can't find a unique selling proposition, here's some good advice: don't start a new brand. Don't try to fill a need that doesn't exist. There are over 5,000 brands of wine in California alone. Consumers need a reason to buy your wine instead of another. Your wine should have a different and distinct identity.
Taking the time to define your brand will pay off in dollars and cents. Having a well-defined brand enables you to enjoy lower marketing costs, because you build brand awareness and loyalty with consumers. When consumers are loyal to your brand, they ask for it at retailers and retailers expect their distributors to provide your brand which gives you leverage with your distributor. When your brand becomes recognized and in-demand, you can charge higher prices. This, in a nutshell, is the marketing strategy behind celebrity wine brands: consumers transfer their affection for the celebrity to their wine brand and buy it because it's familiar. If the wine is actually good, then they will buy it again.
Building a market for your wine
Pop quiz: what steak sauce makes hamburgers taste like steakburgers? What credit card admonishes you to "don't leave home without it"? What car rental company claims to be "number two, so they try harder"? Product slogans - the sound bites of advertising - are effective ways to develop "top of the mind awareness" with your customers. Politicians and corporate brands spend a lot of money to develop powerful sound bites because they are easy to remember. Slogans help consumers (and voters) make a decision without giving the matter too much thought. When a consumer stands in front of a shelf full of wine and is having trouble deciding what to buy, a good slogan can help them make a decision.
Wineries use slogans to help define their brands. Consider these:
As you promote your brand through traditional channels (advertising, festivals, tastings, or whatever methods are allowed by your TTB license) slogan repetition defines your niche and appeals to the consumers you are marketing to.
Who will make your wine?
There are five levels of involvement in the wine business, and the financial commitment and licensing requirements differ for each. An understanding of how these levels interact with one another will give you a good foundation in the inner workings of the wine business.
Before we get into the specifics, it's important to know what is meant by the term "bonded". A "bond" is essentially a guarantee, either self-funded or purchased from an insurance company. The bonds required by the TTB serve but one purpose: to guarantee that the government will get their tax money. Alcoholic beverages are taxed, and in order to acquire a TTB permit to own any sort of wine business the business must guarantee to the TTB that it is capable of paying the taxes on the wine. That guarantee comes in the form of a bond. Bonds are paid by anyone who produces, warehouses, distributes or imports wine. The cost of the bond varies with the capacity of the winery and the alcohol content of the wine. So wineries and wholesalers are described as being "bonded".
Bonded wineries are stand-alone facilities that actually make wine; they may or may not grow their own grapes. If you've ever visited a winery and wondered where the vineyards were, they may not have vineyards; they may buy their grapes from growers. You'll often see bonded wineries (with or without vineyards) that have a tasting room, a restaurant, a small amphitheater for concerts, and wedding facilities. Bonded wineries, to stay in business, must become marketing machines. All elements of wine creation from crushing to bottling are encompassed by a bonded winery, and the owner bears all production costs, expenses, tax and legal liabilities. Recordkeeping, filing government reports, paying taxes, and meeting labeling requirements are a few of the primary responsibilities of the owner of a bonded winery. Owning a bonded winery is the most expensive and risky way to enter into the wine business. This aphorism applies: "Want to make a small fortune owning a winery? Then you'd better start with a large fortune".
If you have the know-how, recipes, and personnel to make wine but don't own (or don't care to own) your own facility, then becoming a bonded Alternating Proprietor may be a good option for you. An Alternating Proprietor rents production facilities from one or more Bonded Wineries in order to make their own wine. The host winery is used on a shared basis, with the details of the sharing worked out by the concerned parties. Such an arrangement allows a host winery to profitably use their excess capacity while allowing the Alternating Proprietor to produce their own wine without a major capital investment. Alternating Proprietors are considered to be Bonded Wineries for tax and licensing purposes and have all the benefits and privileges of stand-alone wineries (like on-site and off-site tasting rooms). Both the host winery and the tenant (Alternating Proprietor) wineries are responsible for their own record keeping, reporting, and taxes.
Suppose your expertise is in growing grapes; your vineyards are your pride and joy and you know that you produce excellent wine grapes. You can have your own wine brand by using a Custom Crush bonded winery. You do what you do best (grow grapes) and the winery does that they do best (make wine). You deliver your harvested grapes to the winery and they "take it from there": they crush the grapes, ferment them, fine them, bottle and age them. The Custom Crush winery is responsible for all the record keeping for the winery, the payment of taxes, the labeling requirements, and operating expenses. The Custom Crush client (you) is licensed by the TTB as a Wholesale Liquor Dealer. As a wholesaler, you have minimal requirements for record keeping and incur no liability for production, labeling, taxes, or reporting.
Some bonded wineries specialize in small-batch wines. The winery Crushpad (www.crushpad.com) specializes in assisting small producers to create and market a personal wine brand. Crushpad provides brands with anywhere from 50 to 5,000 cases with only a two barrel minimum. Such wineries provide an inexpensive entry into the wine business.
If you were a wholesale dealer, you would sell wine to resellers (rather than end-users). If you import wine, buy wine from wineries for resale, or have a custom crush made for selling to retailers, then you need a Wholesaler license from the TTB. Details can be found on the TTB website at http://www.ttb.gov/public_info/5170-2a.htm
Bonded Wine Cellar
If you owned a Bonded Wine Cellar, you would warehouse wine. Bonded Wine Cellars are licensed to store, bottle, blend, label, package, and distribute wine on which the taxes have not been paid.
You can own and operate your own wine brand without the high cost of owning a stand-alone winery. If you are a savvy marketer who understands how to define a wine brand, and you are able to assemble the supply, production, and distribution chain then you stand a good chance of having a successful wine brand.
-- Wayne Jordan