Winery Economics to Consider in Pennsylvania

The following is a summary of small commercial winery economics as presented by Dr. Gerald White during the 2012 Eastern Winery Exposition (EWE) Conference.
Winery Economics to Consider in Pennsylvania - Articles

Updated: September 18, 2017

Winery Economics to Consider in Pennsylvania

When asked why an individual would choose to start a winery, Dr. White was most often answered with the following 5 reasons:

  1. To offset taxable income from another business or profession (want to show a loss).
  2. To attract members of the opposite sex.
  3. You have just won the state lottery, and want to invest the proceeds.
  4. To make a small fortune.
  5. Saying to one of your drinking buddies one night over a campfire, "It should be cheaper to make this stuff than buy it!"

All joking aside, Dr. White advised that in starting a winery, one is likely to have 4 years of negative income.

Planning for a winery should take at least 5 years with an additional 2 to 3 years for market development and vineyard settlement.

If one starts a winery the traditional way:

  • step 1: plant vines
  • step 2: make wine
  • step 3: sell wine

then a minimum of 13 years is required before the winery can bring in a positive income, assuming that the individual is only producing wine from estate grapes.

In a different scenario, Dr. White asked the audience to consider another option for the eastern U.S. in starting a winery: looking at custom crush facilities or making wine from someone else's Pennsylvania-grown fruit without the attachment of an estate vineyard. This results in less investment up front [in the vineyard] and creates a situation in which faster return on debt can be obtained.

Currently, there are over 150 licensed wineries in Pennsylvania, but only a proportion are actively selling wine. As of 2012, of the 145 wineries actively selling wine, only 127 of them had tasting rooms. This creates a conundrum for wineries built in Pennsylvania, as anywhere from 80 to 100% of the wines sales of Pennsylvania-produced wines are direct to consumers from within the tasting room.

Dr. White warned that winery owners should consider the impact of current economy on wine purchasing behaviors: projections indicate that economy is slowly picking up steam, but gasoline prices are still variable. In years of rising gasoline prices, there may be a detrimental impact to potential tourists' rates visiting the tasting room. When gasoline prices rise, there is also an economic effect on production costs. However, in years when gasoline prices decline, it is possible to see savings in the winery and, potentially, may impact the number of tourists visiting state wineries.

While wine consumption is expected to increase, as it has been steadily rising through the 2010's, many economists are thinking consumption will start to rise at a lower rate.

Based on these current economic situations, Dr. White compiled a list of suggestions for grape growers, or those new to the industry, who want to start a winery:

  • Consider outsourcing.
  • Minimize investments in building and equipment.
  • Round out product portfolios by buying grapes that are not grown on the estate (as it is usually less expensive to buy fruit or juice than to grow grapes).
  • Emphasize marketing on how the winery is processing unique products.

As with most economic planning, Dr. White noted that it is best to think of the winery's ideal customer, and hence the target market, before decisions are made about product, price, promotion, and distribution strategies. Economically speaking, it is generally better to start a winery with tasting room sooner rather than later during the business's development. In those cases, it may be better to source grapes or fruit before using estate fruit if wine products can be made of consistent quality and meet consumer expectations through the transition.

Authors

Wine grape production Grapevine physiology cover crops cold temperature stress

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