How to make your wine estate acquisition a smart decision

13. Juni 2017 • News • Views: 164

Some tips for would-be vintners

Part two of our “Vineyard Investment Series”

Buying a vineyard, planting vines, harvesting the grapes, making good wine and finally sell the wine. Sounds like a solid strategy. But building and operating a winery is neither a short term strategy (it can take about 10 years or more) nor as straightforward as outlined above. The process should be carefully thought out and if you follow some rules it will be an enriching and sustainable business.

1 Take your time and money

Finding the right property takes time. Many wine estates are privately listed or not even listed at all – and most of the wineries for sale don’t want their names disclosed as a winery that is for sale risks losing its staff, sales channels or customers. So it is important to work together with local experts that can help you find the ideal property. And you should start with the best wine estate that you can afford to buy. A good winemaker, vineyard or winery manager won’t work with a bad vineyard.

An investment in vineyards is anything but a short term strategy. Beside of the great and fulfilling experience of making wine, it is an expensive and time-consuming endeavor and realizing returns on investment can take up to 10 years or even more. The cost that you have to consider to run a winery are significant. The more prestigious a place, the higher the costs. A hectare of land in the famous Napa Valley in California amounts to USD 500’000 or more. For premium land in Bordeaux like Saint Julien or Margaux prices are about EUR 1 million per hectare or in Pauillac about EUR 2 million per hectare. But there are of course lots of options beside of the most prestigious and expensive spots of wine land- with plenty of potential. Have a look for example at Oregon or Washington in the US, at South of France, Argentina or Italy beside of the “hotspot” Tuscany, to name but a few.

2 Good people make your life easier

Purchasing a wine estate starts with the selection of experienced people who can advise you throughout the entire buying and operating process of a winery.

It is crucial to work together with experienced people with solid knowledge about the local conditions, such as the soil quality, tax issues, the financial situation, local land prices, etc. Experts (real estate agents, consultants, lawyers, tax experts) can help you setting up a plan and find the property that you want. Consider joining local wine associations that can help you networking within the industry and find the support you need.

From the grapes to the wine, there are many steps and people involved. A rule of thumb says, to run a small winery you need at least five people, including a winemaker, sales person and laborers.

3 The effect of the label “Premium Region”

In my opinion one of the most important factors when thinking of buying a wine estate is the geographical region. The land or in “wine language” called terroir can make a big difference in terms of value, marketing potential of the wine, reputation as well as of course the taste of the wine. It depends on your expectations and objectives. Would you like to have a holiday residence with vines in the background, establishing a winery as your basis of existence or hold it as an investment? There are various reasons why and where to buy a winery.

Buying a vineyard in a less prestigious region might save you money but the wine will sell for less. It is rare to see EUR 100-plus bottles coming out of anywhere than the Top- Wine regions. Vineyard prices in premium regions showed a steady increase during the past few years while there was a stagnation or slight decrease in less popular regions- even though they are often just as good but only less popular.

4 Taking into account the effects of climate change

Say goodbye to Bordeaux and welcome to Great Britain?

Picture Blog Climate Change

The most substantial effects on wine growing expected in Europe. Graph created by Conservation International

This is probably too dramatic and drastic, but nonetheless the effects of global warming are substantial for wine growing. According to a very informative study of Conservation International climate change will lead to considerable changes in the geographical distribution of wine production. Temperatures are increasing worldwide and many wine regions will be exposed to water deficits. As a consequence, according to the study the area suitable for viticulture will decrease by 25% to 73% in major wine producing regions by 2050. Most of the popular and important wine regions, such as Bordeaux, Burgundy, Napa Valley, Rioja Douro, Barossa or Stellenbosch will be exposed to excessive heat in summer time and drought. The weather is not just hotter, it is more unpredictable like the recent frost this April in Germany with not yet predictable damages to the vineyards.

 

Climate change might have the following implications on wine growing:

  • Establishment of vineyards in higher elevations, such in western North America or Argentina
  • New grape varieties replacing the existing, traditional ones. It is important to make a careful decision about the grape variety.
  • Water access or a solid irrigation system is essential
  • The warmer climate will shift the ripening period and therewith the harvest. Changing temperatures and water stress may have an effect on the yield and the fruit composition.

Adaptation strategies are needed to continue producing high-quality wines and to preserve their typicity according to their origin in a changing climate. Immediately, we will apparently see little changes, but in the mid-term we might be able to experience new grape varieties in existing wine regions or new wine regions more northern like in Great Britain, Western USA, etc.

5 Looking where the big companies are investing

And last but not least, assuming that the global wine consumption will continue to increase, then identifying where the wine demand will pick-up and investing in that wine region represents a solid strategy to successfully establish and operate your wine estate. The wine demand is a good indication that an area is beginning to develop.

In that sense I wish you all the best with your winery endeavor!

Cheers,

Frauke

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