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Breaking Down the Cost, Part I

Written By: Kasey Carpenter on Thursday, April 3, 2008

Have you ever wondered about the breakdown of cost when it comes to making wine? Are the winemakers really gouging you?

Just what is the breakdown of a bottle of wine? Why do some guys get away with astronomical prices and try to justify them, and then why do we see some wines that frontline retail (no discontinued or closeout status) for well under ten bucks a bottle? Well, we know the why, as in why you pay more for one bottle versus the other, but have you ever considered the breakdown of costs that are required to make a bottle of wine?

Let's take a walk, shall we?

For the purposes of this article, we will start with a pretty common thing these days -- a $45 bottle of single vineyard Pinot Noir from a well-respected and highly sought after Russian River Valley vineyard.

I asked a producer to break down the cost of the bottle, so he gave me the goods for a financial model, on the condition of anonymity. Let's assume a total production of 4,000 cases, or 48,000 bottles. All of this production will go to this one bottling, to keep the math simple. Let's also assume that this is year four, the first three years having been a building phase, whereby you garnered some good reviews and love from the right press and restaurants.

So, from top to bottom:

Capsule: $.20/per -- Sure you could go with those shrink wrap generic ones, but you want heavy, cut-your-thumb-when-opening kind of foil, color matched to your labels, and with a raised and metallic logo on the top. Right? Right.

Cork: $.37/per -- You can go cheaper but 1) this is RRV Pinot we are talking about, and 2) you will have a lower incident of corkage with better-sorted, better-milled corks. Incidentally, I had a great discussion the other day with a winemaker who has seen the quality of corks go up and the price go down in the face of the monster that is Stelvin, so he has, in fact, seen a semi-renaissance in the use of cork...

Label: $.75/per -- From design and printing -- you still have to pay to have someone slap a label on every single bottle. (All winemakers tell me this is not an optional cost, and they will pay anything to have someone else do that kind of mind-numbing repetition.) And since this is a high-priced RRV pinot, let's assume the label should be heavyweight paper, with custom graphics, bar code, four-color ink, some metallic, and embossing. Not just an inkjetted sticker (I have seen retail wines that looked like this.)

Bottle: $.75/per unless you are from South Africa, and you ran into a "bottle shortage," in which case you could see costs two and three times that. This is for a blank "shiner" as they are called. Bonus: the cardboard box they ship them in can be used for your wine!

Juice: This one is highly volatile, but as we stated, this is a great and well-known fruit source out of Russian River, and we are paying all the premiums associated with total vineyard and yield control: We pay extra per ton to get the fruit farmed how we like it. You could pay less, but then you leave the control to someone who isn't making your wine and therefore won't apply the chess player's twenty-moves-ahead way of thinking about what happens in the vineyard and the subsequent outcomes...


  • Fruit/ton: $4000+ comes out to $6.67 per bottle -- this is your single greatest expense, as it should be.

  • Barrels: $1000/per (25 cases) which comes out to $3.33/per bottle.

  • Yeasts: Assuming you aren't going with 100% native yeasts, so as to have some measure of control, you will want to use a yeast with a proven track record for your style of wine and chosen varietal. This comes out to a whopping $.01 per bottle.

  • Labor: Picking/winemaking/admin (see below).

  • Aging: Storage/cooling -- this falls more under depreciation and utilities (next week).

  • Nitrogen: (for pushing wine from bin to barrel to bottle) -- You don't want to use oxygen for obvious reasons. You will go through many, many tanks of the stuff -- figure about $300 per vintage. The cost is negligible here, about $.006 per bottle.



Taxes: An average, for a three-man, full-time outfit, with production and lease and amortization figures, sales, etc., plan on about $8,500 bare bones, assuming you are profitable, or $.18 per bottle

Winemaker: Figure at least $100k, or at least. $2.08 per bottle

Assistant winemaker: If you can con an intern, then great, but if not, figure at least $35k. And hope they view their job as an affair of the heart. $.73 per bottle.

Vineyard Manager: This one is good as it is included in the cost of the fruit (but for those wineries that want their own acreage, they will have to factor this as well as a plethora of other costs associated with owning the vines (nursery, inoculations, lab work, equipment leases, year-round workers, government agency fees, land taxes, etc...)

Harvest workers: (less interns) $10/hr. 7 days a week for three weeks. Let's say you have 2 interns and 2 workers. And lets assume you keep them under overtime, capped at 40hrs/wk...which never happens because there are too many things to do at weird hours of the night (3am punch-down anyone?) $.08 per bottle.

Mobile Bottling Line: Assuming you haven't upgraded to the Gallo business model, you will probably not be looking to make the investment in a bottling line, so you will pay for the use of one when it comes time to bottle. This averages out to about $.21 per bottle -- which includes filling, corking, capping, labeling, and putting in the cardboard cases. You want to pay for this. Between the constant fill issues and the attempt at label perfection, and the immediate dryness and lacerations to your hands from foils and cardboard boxes, this is the bargain of the business (so I am told).

So that gets you a physical bottle of wine, finished and ready to drink or cellar. So far we are up to a total barebones cost of $15.36 for a vinified, bottled, labeled and packed bottle of wine. No tissue paper or three-color custom boxes, just a nice white cardboard box with a label slapped on the outside and dividers inside.

Now before you start thinking to yourself, "these cats are making a killing!" let's wait and see next week, in part two, where that remaining $29.64 really goes. Don't forget, you still have:

A winery
A full time tasting room/ mailing list employee
A website
Banking
Financing
Brokerage fees
State and Federal permits
Then the two additional tiers of Distribution and Retail.

Then we see where the dollars go. In fact, the old joke of how to make a small fortune in the wine business (start with a large one) will really begin to come into focus.

Read Breaking Down the Cost, Part II.

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  Be the first to comment on this article


JS12
Philadelphia, PA
Posted on 4/04/08

Because 2 buck chuck is buying (and I mean this literally) bottom of the barrell grapes. Unless the price of sugar skyrockets, they should be OK.


fernyb
Detroit, MI
Posted on 4/04/08

Another interesting study would be how 2 buck chuck and other cheap wines manage to stay so inexpensive.


csoma
Raleigh, NC
Posted on 4/04/08

Interesting. I wonder how gas would breakdown if examined like this.


bgmcws
Chester, PA
Posted on 4/04/08

Well done. I'm often curious about cost breakdowns of this nature (especially for gas).


ikigai108
Bernville, PA
Posted on 4/04/08

Nicely constructed breakdown. Looking forward to the conclusion.


bgmcws
Chester, PA
Posted on 4/04/08

awesome breakdown, I think we all wonder from time to time how the prices actually get set. I'd like to see a breakdown like this for other products too (including gas). Looking forward to the rest!


pandaa58
Boston, MA
Posted on 4/04/08

That picture looks like something out of Orwell's 1984!

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