How to make your fortune in the wine biz
By Mark Criden
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Many wine lovers are asking the two classic questions of speculators everywhere: “How do I beat them?” and “How do I join them?”
Last week, my friend Howard decided to jump head first into this froth and produce his own wine. I reminded him that the time-tested way to make a small fortune in the wine biz is to start with a large one. But he had that gleam in his eye.Howard’s favorite bottle costs $10, but making $10 wine’s a tough road to riches.Ten-buck wine costs about $5 to produce, but after the wine shop gets their $2.50 profit and the wholesaler their $2, there’s only about $5.50 for the winery—a 50¢ a bottle profit. Unless Howard wants to bottle millions of cases annually, we need to go where the serious money is.
To a point, the quality of a wine increases with the price. The maker of a $10 wine probably has as much invested in bottles as grapes. Wines costing $15 to $30 usually offer the best balance of quality to price. But once you’re north of $50, pricing—except in rare cases—bears little relation to the cost of what’s in the bottle.
“This is what I’m talking about,” Howard says. “I’m thinking $150 a bottle. I’m calling it ‘Howard’s End.’”Howard’s not a farmer, so he isn’t buying any vineyards. Instead, we’ll kick off Howard’s End with incredible, world-class, crème-de-la-crème Napa Valley cabernet grapes. High-end Napa Cab goes for $3,900 to $4,800 per ton. I figure sixty tons will do.
Scarcity is the rule for high-end bottles, so Howard’s End is going to be a boutique operation, producing only 36,000 bottles annually. The grapes run $300,000, but—even with spillage—that’s less than $9 per bottle. We buy 120 of the best oak barrels for aging, at $600/barrel. This adds $2 per bottle, but we’re still under $11.Wait, we can’t forget … A star winemaker who’s earned top Robert Parker scores, someone who can show that Howard’s End wines—his masterpieces—are a bargain at $150. Figure $100,000 a year here, an assistant at $30,000, other sundry workers, benefits (health, dental, vision, massage, espresso, country club membership), and that’s another easy $200,000, bringing us to ... almost $16 a bottle.
Wait, we forgot …Overhead! What’s a star winemaker without state-of-the-art equipment? Order a crusher/stemmer, pumps, new forklift, a state-of-the-art press, and assorted cellar equipment. Toss in a good winery building and utilities, and Howard’s easily out an additional $300,000, bringing total costs up to around $25 per bottle.
Now the wine is ready to bottle. Forget normal 50¢ bottles or 20¢ corks. Howard’s End deserves Dale Chihuly-designed glass bottles and cork molded by blind Portuguese artisan monks; figure another couple of dollars here. Labels and foil normally run about 33¢, but each bottle of Howard’s End will feature a dollar’s worth of hand-applied gold leaf. Toss in another buck or so for the Al Gore-approved, gravity-driven bottling operation, and Howard’s invested almost $29 per bottle.
At this point, we’ve pretty much run out of ways to spend money to better the quality of the wine or its packaging, but let’s face it, Howard’s End is not gonna sell itself. Might as well buy the back cover of the Wine Spectator for $28,000. Heck, it’s only 78¢ a bottle. Add a “reasonable” profit—let’s say (no sense being greedy your first vintage) $45 per bottle to the $30 cost, and Howard’s End wholesales for $75 a bottle. Taking the standard markup, the wholesaler will sell it to a wine shop for $100, and the lucky consumer can buy it for $150. Life is beautiful.
And because of his price point and the winemaker’s star appeal, Robert Parker will anoint Howard the next great Napa Visionary, and every single bottle will sell, netting Howard a tidy profit of $1,620,000. Because of the feeding frenzy, Howard will be able to sell every bottle next year through a mailing list, and keep the entire markup—winery, wholesaler, and retailer—for himself. And next year’s price will escalate—the damn cost of gold leaf keeps skyrocketing!—because if the public liked Howard’s End at $150, they’ll positively adore it at $200.
Caveat emptor:
a fool and his money are soon popular
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Very few wines can be counted on to appreciate in value. First Growth Bordeaux Reds from top vintages—like Latour, Lafite, and Margaux—are gold standards, and red Burgundy has a decent gamble in Romanée-Conti. Bottles of Guigal’s top Côte-Rôties and Chave’s Hermitages deserve respect, as does Screaming Eagle and Harlan from Napa and Penfolds Grange from Australia. But that’s the whole safety list; everything else is a total crapshoot.
But far be it for me to call you nuts. If you’re determined to be that guy who finances his retirement or mother’s operation from shrewd wine investment, you have two ways to roll the dice:
1. Sell at auctions. Some collectors have earned a handsome return by reselling their wine at wine auctions, like those run by Zachys in New York and Christies in London. But you need to tip the odds in your favor:
a. Buy cheap and sell high. Selling high isn’t a problem these days, but given the run up in the premium wine market, buying cheap is.
b. Only invest in wine Robert Parker has rated 95 points or higher.
c. Account for your cost of money, storage and delivery.
d. Make sure that what you’re buying—and selling—is the real thing. Now that premium wine is ridiculously expensive, there’s growing incentives for counterfeiters. The FBI is investigating numerous claims that auction houses and collectors have sold trophy wines in the face of serious doubts about their authenticity.
2. Buy shares of a Wine Investment Fund. London is home to three such funds which tout fine wine as a legitimate investment vehicle. There’s even a benchmark index, the Liv-Ex 100, composed of top wines that have earned maximum Robert Parker points. “He is the Standard & Poor’s of the wine market,” says one fund’s tout.
Now that every collectible is a commodity, the notion that, at some point, someone is going to buy these top wines and drink them seems like a quaint anachronism. But hark back to the year 2000. Isn’t the fact that more and more people are investing in wine an indicator that it’s time to get out? Investments like this only make sense if you are ahead of the curve, not if you are the curve. After all, don’t the wholesale justifications for wine as an investment vehicle—about billionaires worldwide creating huge demand—sound like the same ones that drove Infoseek from $5 to $120 a share seven ye
Captain America, R.I.P.
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This month, in memory of the star-spangled avenger, our wine suggestions hail from the land of the free and the home of the brave. If you’re drinking red at Cap’s wake, grab a class of Marietta Old Vine Red, a kitchen-sink blend of Zinfandel, Petite Sirah, Carignane, Cabernet, Syrah, and various Italian varietals. Over the past three decades, California’s Marietta Cellars has made forty-two different iterations of this consistently excellent blend; all have been round, smooth, and balanced, and although the price has crept up over the years, it’s still a major mouthful of wine for $13.
But if you’d rather be dead than red, the 2002 Edmunds St. John “blonk!” is as delicious a white as you’ll find for $14. A blend of Rhône varietals Viognier, Marsanne and Roussanne, the wine’s highly aromatic and rich, vivid and long, with a firm structure and great finesse. It’s a great wine to sip while contemplating when—yet again—Cap will be resurrected.
Mark Criden (mcriden@yahoo.com) is a non-profit executive and the former chair of the Buffalo Branch of the International Wine & Food Society.
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