Wineries Without GlitzIf you’ve ever visited Napa, you might get the idea that wineries require sprawling castles, chateaux, or elegant farm houses with polished floors and sky high ceilings, surrounded by acres of vines climbing hills. Not so. There are many business models for successful wineries, and one of them involves a garage and a tolerance for fruit flies in the house. The adage that it takes a fortune to make a fortune in the wine business applies only to those with fortunes. Successful wineries can also develop in modest surroundings without a capital investment other than the ability to buy grapes, rent space in a winemaking facility, and survive before selling the first vintage.

Recent poster boys for the low overhead business model would be Dan Kosta and Michael Browne, servers in a Sonoma Restaurant in 1997, who saved tip money for eight months to buy a half ton of Pinot Noir, a used barrel, and an old hand-crank stemmer-crusher. Twelve years later, they sold Kosta Browne for $40 million dollars without ever owning vineyards or winery. Many in the wine business looked askance at the sale and questioned why they were struggling with the costs of owning real estate, vines, and equipment.

So the way for winemakers to start modestly is to rent space and equipment in some sort of co-operative winemaking facility, where they can also store their wine in barrels while it ages. Such facilities exist in almost any county in California. Other winemakers will rent space in a winery with excess capacity. They may buy some of their own equipment as time passes and eventually own their own winemaking facility or vineyards, and maybe not.

Growers are, of course, an important resource even when winemakers own vineyards. Most wineries buy some portion of their fruit in order to fill out their portfolio of wines and hit various price points. For example, a winery may have vineyards in an area that can’t ripen Cabernet Sauvignon, but the owners may want to include that wine in the mix that they’re selling. So they will buy Cabernet fruit from a grower, who just farms and sells fruit to winemakers. The winery may own a small estate vineyard with premium fruit and purchase fruit of lesser quality in order to offer lower priced wines to customers and to increase production. Or the winery might wish to purchase fruit of superior quality. In any case, growers are available to fill these needs.

Kosta Browne specialized in Pinot Noir. At the time that the owners sold, they were making ten different wines from the finest Pinot Noir vineyards in Sonoma County. They were able to craft their diverse, super-premium Pinot Noir wines only because they were buying grapes. Had they owned their own vineyard, at least to some extent, they would have been restricted to that fruit, and its quality likely would have been inferior to what they purchased.

Of course, when grape supply is short, prices can rise and squeeze winemakers who don’t own vineyards. But especially now in this slow economy, both winery space and fruit are plentiful, so new wineries can continue to enter the business. Co-operative tasting rooms, where winemakers can sell direct to visitors, are also growing in number and provide an important sales outlet to those without real estate. One of the reasons that the California wine business is so dynamic and successful is that it offers opportunities to almost anyone who wishes to enter the field regardless of the amount of his or her investment capital. But even with ample funds available, winemakers might choose to avoid real estate ownership.