Super-Secret Winery Financial Data

March 2nd, 2007 → 11:46 am @ Josh Hermsmeyer


In a closed and largely privately held industry like Wine it can be hard to find solid financial numbers to judge your performance against. One of the very best sources of information on the profit picture for northern CA wineries comes from Silicon Valley Bank’s Wine Division. SVB has been lending to Sonoma and Napa Valley Wineries since 1994 and has amassed a tremendous amount of financial data in the process. One of the very cool things they do for clients is to break out average industry numbers specifically for your size and niche, so that you can evaluate your projections or performace against that of your peers.

In a recent presentation at Sonoma State’s Wine Entrepreneurship seminar, a representative from SVB shared some aggregate data with the class. Behold:

Data removed at the request of Silicon Valley Bank.

There are a couple of interesting things to note. The first is the oft-cited phenomenon that folks in the wine industry are prepared to accept a much lower return on investment than would seem rational given the risk and initial capital outlays. Clearly there is an emotional element that comes into play regarding lifestyle, the romance of farming or the glamourous nature of wine in general. Or perhaps it’s something else entirely. Like mass insanity. Or alcoholism.

The second thing to notice is that the 20-50K case segment appears at first glance to be the sweet spot in terms of size. The ROE (Return on Equity) is twice that of any other segment and is actually competitive with other, more rational investment vehicles. Also it looks like all the SG&A (Sales, General and Administrative expenses) effiecencies have already been squeezed out at this production level. The SG&A % actually rises for the larger wineries in the 50-120K case range.

But what to make of the 3-10K case segment? This will be Capozzi Winery’s production level, and it looks rather bleak. ROE of 2%? Bleh. Return on Assets of .8%? I just threw up in my mouth a little.

I think that the numbers are a bit misleading though. First of all, much of the reason for the poor return is probably due to the fact that owners, who had most likely not been taking a salary at lower levels of production, finally started seeing some real cash and decided to start paying themselves. Also looking at the fixed assets figure it is obvious that folks at this level either own their own wineries, vineyards, or both (like we will) which is both a marketing and quality advantage at the luxury level.

Finally looking at the average value of cases sold, it is only slightly down from the very high levels attained at the <3K case level. This means that folks in the 3-10K case segment are successfully marketing and selling direct, maintaining their high margins. This is not the case at the 20-50K level, where average value of cases sold drops 36%.

If the brands at the 3-10K case level reinvest profits (rather than raping the company) and aggressively pay down debt, eventually they will be able to capitalize on their vertical integration via Estate bottlings and increased quality without sacrificing margins. For a family that already owns vineyard land, this is an attractive segment to be in for the long run.

Or maybe I’m just insane.