|Tuesday, March 12, 2002
My life is ruled by "Cashflow." Cashflow to me is how I account for my money. If I have as much money coming in as going out, I am happy. Over the years, I have saved very little money. I like spending very much. I do have a small SEP-IRA, but the rest of my money has gone to either my family, sound and video equipment, and equipment for the winery and our new building. My expenses have gone up every year and thus I have raised my prices for our wine each year. In April of each year we offer pre-harvest futures on wine that will not be made until the Fall. Our average price in April and May of 1999 on our 4 main 1999 wines (Estate Cuvee, Zinfandel, Petite Sirah and Carignan) was $11.40. In 2000 the average price came out to be $12.40 and in 2001 the price was $12.70. The rate of increase in our expenses has gone up much more than that, especially if I consider how much the new building has cost. BUT I must get back to Cashflow again!!
In the year 2000 I refinanced and borrowed an additional $100,000 to use for the new building. (We have been able to pay for the rest of the construction with cashflow). I have also leased back some of our new winery equipment. Sure, profit wise, we are not making much money, but with this infusion of cash our Casflow has remained the same (the amount of money flowing in as flowing out). Also, our income tax payments have skyrocketed upward, mainly because I cannot deduct the equipment and expenses on the building all at once. These big payments of estimated taxes have really been a challenge for even a finance major such as I. Now I must get into the cost of producing wine--
As many of you know, I think wineries are charging too much for wine (for much more on this, see here). It does not cost a great deal to make wine. In 1999 I made 3500 cases and in 2000 and now in 2001 I have made 4400 cases. If I am selling wine for more than it cost me to make, I am bringing in more cashflow.
Now I would like to state a little about how much it costs me to grow my Estate grapes versus the cost of buying grapes from my neighbors. It cost me about $50,000 to maintain my vineyard. It also cost me about $175 a ton to harvest this fruit. Since I can make about 65 cases of wine per ton, the actual cost to me is about $1.15 a bottle. (There are 70 tons on average grown in our vineyard each year). Now, if I buy a ton of grapes at $2500 the cost to me would be $3.21 (65 cases into $2500). Oh sure you say, but if you sold the grapes, I could receive the $3.21 and thus I should figure that cost into the cost of my wine. BUT I choose to only consider "Cashflow".
Of course I could consider the cost of my debt service. The whole debt service on our property is about $45,000. The vineyard part of my interest expenses is about $20,000. That would equate to only $0.37 per bottle. I do not pay myself a salary and Brendan's costs are about 50 cents per bottle. BUT I am deviating.
I want to get back to my reason for making this diary entry. I want to talk briefly about the cost per bottle of our new 2002 pre-harvest furures offering. Our price last year was $13 per bottle with a 3% deduction for a check. Our credit card costs of processing has actually gone down somewhat to under 2% in most cases so we won't be offering this discount anymore. As I have stated earlier our costs have gone up this year, so we are going to offer our basic wines for $13.25 per bottle. We will be also offering a Pinot Noir and a Syrah from Bennett Valley (Matanzas Creek) area near Santa Rosa. This is a very cool climate growing area and should give us the opportunity to produce great quality wines. Since I have explained that my costs will be higher for this purchased $2500 per ton fruit, we will be charging $15 per bottle for these two wines.
Now I will talk about our Bordeaux blend Aca Modot and our field blend Block 4. We are using a great deal of new oak in the Aca Modot and this site is a very low yielding section of our vineyard. This has added $2.50 a bottle to the cost of making the wine. Also since we sell out of the wine before bottling (we've been out of the 2001 Aca for a few months) our average sales price is lower. Remember the other wines can be sold at higher prices as the year goes by. After all we still have a third of our 2001 Zinfandel to sell and that average sales price will amount to about the same as we sold the Aca Modot originally. Even though we use less oak for the Block 4 than the Aca Modot, that section of the vineyard yields less than any other. We also sell out of this wine before we bottle. Some of the same points apply to our Petite Sirah, but I am hoping to produce more of that wine in the future.
The bottom line is that we will be selling our Aca Modot and Block 4 for $17.50 per bottle and will ask that our customers keep the initial purchase of the 2002 Aca Modot to one case and the Block 4 to 6 bottles. The problem we have with the Block 4 is that in lean years that section could yield as little as 150 potential cases. That means until fruit set we will only be selling 100 cases of Block 4.
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