|Tuesday April 22, 2003
All our Cabernet vines are planted, thanks to Steve and Caterino. We have many clones of Petite Sirah that are being grafted at a nursery. Those vines will be planted in May or June. I am excited about all these different types (clones) of varietals that will produce more complex vines in the future. But it will be at least 3 years until we produce our first crop. In the mean time, I will be buying fruit from at least three different sources.
Today we started bottling our 2002 Sauv Blanc Late Harvest and Dry Sauv Blanc. We had many problems, but we did finish the late harvest.
Wednesday April 23, 2003
7:00 AM I need to spend about an hour on e-mails this morning before Steve and Brendan arrive to start preparing to bottle our dry 2002 Sauv Blanc.
8:00 AM I've finished with the e-mails and Steve and Brendan have arrived. I now have some time to discuss things that have developed over the last two weeks.
Sabate and I have come to an agreement regarding our 97 and 98 Altec corked wines. They have agreed to purchase 42 cases of wine from me, do some tests and then dispose of the wine. I have received some comments from customers concerned about these wines thus I would like to offer again that I will purchase back any wine that any of you do not want. Actually we have always offered to purchase our wine back for any reason. I need wine to drink!
Brendan has done a great job coordinating the placement of some of our 2001 wines to the states of Indiana and Florida. He will receive a commission in return. He has also helped to arrange for a new broker to represent us in Northern California. At this time we will not pursue the distribution of our wine to new states. It would not be too smart to run out of wine for these new sources. With these new avenues, I plan to produce 5000 cases of wine in 2003 again.
On April 9, The New York Times ran an article referring to the pricing of Napa Cabernets. [Note: free registration required to read.] AMANDA HESSER did a fine job with what she had to work with. Brendan has written her and they have communicated. She has been impressed with information Brendan has provided her and she wants to purchase some of our wine. I will have Brendan publish to our site the letter sent to Amanda.
11:00 AM We are ready to bottle about 350 cases of Sauv Blanc. Yesterday we bottled 149 cases of 2002 Late Harvest Sauv Blanc half bottles. We have about 25 gals of wine left that we have decided to bottle in full bottles. This will take away about 10 cases of bottles to be used for our Dry wine. We made a decision to keep one barrel of dry sauv blanc in a new barrel bought last year. This wine will be inoculated with malo lactic culture and be bottled in July along with our red wines. It will have the same labels, but we will keep it separate and mark the bottles. Let's hope some of you will like the resultant wine.
I'd like to comment on the N.Y. Times article. Amanda states that Paul Hobbs had to decide on a price for his 1999 Beckstoffer Cabernet so that it would pay off his debts and draw attention to serious wine drinkers, but still be low enough to sell the wine. He chose a price of $135 a bottle. That is 7 times the price of our Aca Modot. Do I think it is 7 times better; I sure don't. BUT because of the pricing, no one will ever think that my wine is any where the quality of his. I don't have a complaint about what Hobbs charges for his wine; but, as most of you know who read this diary, I have no respect for someone who implies that the reason for his pricing is because of cost. There is little correlation between what it cost Hobbs to produce his wine and his decision on pricing. Let me make this clear, Hobbs has all the right to sell his wine for what ever the market will bare, just as designers of clothing do.
Now, let me get into the relationship of what I read in Amanda's article and what I think is the true production costs of Hobbs Cabernet. I agree that if Hobbs sold the wine to a distributor, and did not sell any of the wine at full retail, he would have received half the price or $67.50 per bottle. If you use Hobbs production of 800 cases (actually the number of cases is stated as 841 on his website), I come to a gross to the winery of $648,000. Amanda says that Hobbs has a profit of 40% built in so that his real cost is $48 a bottle. NOW let me see if I can come up with his real cost.
The highest component cost that Hobbs incurred was for the cabernet grapes he purchased in 1999. I figure at 3.2 tons to the acre mentioned by Amanda, Hobbs bought approximately 14.4 tons of fruit. Every winery is required to report the price paid for grapes to the State of California and report it in the "Grape Crush Report". In 1999 the highest price for cabernet was 4.3 tons at $9,400.71 per ton. There was one purchase of 14.9 tons at $5670. The most likely one was a purchase of 14.5 tons at $3180. The average price sold per ton in Napa in 1999 was $2634.20. Let's assume Hobbs did purchase grapes at $5670 per ton making him in the 99.5 percentile. That would mean that almost all other producers of $100 wine paid less for their fruit. The article mentions that Hobbs can produce 700 bottles of wine from one ton. So the price per bottle from grapes would be $8.10.
The next amount to consider is the price of barrels. I see from his site that he uses 75% new French oak which cost about $600 for a new barrel in 1999. Since 300 bottles can be stored in a barrel, the cost for one year would be less than $2 a bottle, but wineries don't mention that they can re-sell the barrel. Hobbs uses oak for 21 months So even if he aged the wine in a brand new barrel every year, his cost could not be more than $1.50 per bottle. I arrived at this figure by selling a one year old barrel for $400.
It is said in the article that more labor is involved in making quality wines. From what I read, I spend as much time and money as did Hobbs. It is said that the vineyard Hobbs buys from yields 3.2 tons to the acre. My vineyard yields less. Since Hobbs buys by the ton, the yield has no bearing on cost except to produce less wine in certain vintages. All labor involved in growing and harvesting and delivering is included in the price per ton of grapes Hobbs pays to the grower. Let me be accurate! Labor is cheap in the wine country. One employee could easily take care of 800 cases of wine and have another full time job. But let's assume someone is there every day looking over these 32 barrels (I can't imagine what he or she would do). Let's even say he is paid twice the amount of a normal worker or about $25 per hour. That would amount to $50,000 per year or about $5 per bottle. Obviously for $50,000 you could hire someone to do a lot more than just take care of 32 barrels of wine. BUT let's use that amount. Probably Hobbs could have someone take care of all 9 wines he produces for $50,000 since he is the winemaker.
Now let's get into bottling and packaging. Hobbs says his bottle costs $1.25. Mine costs 60 cents. Corks cost him 75 cents each. That is higher than any price I have heard of and would not guarantee them to be free from TCA or taint. And his fancy wood box costs him a whopping $1.83 a bottle. That is amazing since this wood used to store the wine costs more than the oak used to age the wine; just too impress you. I should throw in another $1 for overhead. Hobbs doesn't even own a winery building. I owe $500,000 and $1 is the cost of my overhead.
Ok, let's see what we come up with. Grapes = $8.10; barrel aging =$1.50; production costs = $5.00; Packaging and overhead = $4.83. His total cost per bottle could not be over $19.43. Now why is he implying $48. On his website he is offering this wine for $135 per bottle. Thus he is not selling all the wine to a wholesaler for $67.50.
I have to emphasize again: I really don't care if he sells all the 841 cases of wine at $135 per bottle grossing 1.362 million and making a profit of 1.17 million. I just don't like the fact that he is misleading consumers regarding how much it costs him to produce this wine.
Wednesday April 30, 2003
As promised, we have extended the 2003 Futures prices until May 31. But we do have to raise our prices on the 2002 Futures since they have not been changed since early November of last year. All of you who have bought from us since then do not want to see me keep my prices at the same level, because you could have kept the money and paid me later. Today will be the last time to order 2002 Futures at the present prices.
My 60th birthday is Saturday so we are having some close friends and relatives over to celebrate the 129th running of the Kentucky Derby. Pat is planning this great party including informal betting on the race. Mint Juleps and Kentucky Fried Chicken well be part of the festivities. We will have to close down to accommodate all the relatives in the parking lot.
The weather has been rainy for the last two weeks and has some of us concerned. I worry about everything. But I do have confidence I will make some great wines. What follows is a reply that I made, to entries on the westcoastwine.net wine forum. These posts were in reference to my diary entry regarding Paul Hobbs last week:
"It is simple, when I talk cashflow, it is money in and money out. If you are taking less money in than out, you must borrow. I make up a cashflow statement every month and I do have to borrow quite often. My labor is free (I pay myself a salary, but I have to take it as income, thus a wash). We sell per year about 4000 cases at an average cost of $14 per bottle which provides about $672,000. We had been taking in about $25,000 from our vineyard by selling grapes. I've been paying about $60,000 in taxes to the IRS and $170,000 in living expenses and debt service on the property. Equipment, supplies and chemicals were about $100,000, shipping and insurance was $20,000 and about $30,000 in purchased grapes. We paid about $70,000 in salaries (not including mine) which included all production and vineyard maintenance; and $50,000 for corks, bottles, labels and foil and $10,000 for utilities. I had misc. expenses of $7,000 including buying wine to see what my competition is up to. That leaves me with $180,000 and that was all put back into replanting the vineyard and building a guest house with a storage space for all our wine."
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