Accept what life offers you and try to drink from every cup. All wines should be tasted; some should only be sipped, but with others, drink the whole bottle.
― Paulo Coelho, Brida
Washington wineries run the gamut, from estate wineries, with facilities located at the estate’s own vineyards, to virtual wineries, some of which are quite large and buy grapes from independent vineyards and produce wine by contracting with one or more wineries. Between these two extremes are the non-estate wineries, located in owned or leased industrial buildings, often in urban areas far from any vineyards.
Private Valuations, Inc. has been a local, full service valuations firm in Washington since 1995 and we have had the pleasure of working with several local wineries as well as other entities that are ancillary to and driven by the wine industry, such as distributors, vintners and nurseries. We appraised a California-based vintner that had just purchased several parcels of land in the Walla Walla AVA to expand their winemaking and viticulture practices not long ago. That company’s focus is in producing high-value wines, that is, wines with exceptional quality relative to their dollar value.
More recently, we have appraised two wineries. The first was a 12.4 acre winery in Rattlesnake Ridge AVA near Outlook, Washington that grows grapes, casks and bottles wine, and offers wine tastings all on-site. The second project involved a vineyard on a 129.7 acre combined vineyard and pear orchard located in the Columbia Gorge AVA. One of the few appellations in Washington where there are more white grapes grown than red, the Columbia Gorge possesses an extraordinary combination of climate, soil, and geology creating distinctly different “micro-climates” perfect for growing premium grapes of almost every variety, from Arneis to Zinfandel. In addition we have appraised a vine nursery in the Horse Heaven Hills AVA, which supplies young vines to many of the vineyards throughout the State of Washington.
Wineries present some valuation challenges. Some wineries are entirely vertically integrated businesses, from vineyard to wholesale and retail, requiring the valuation of several different business components, commercial real estate, and vineyards. All winery valuations require careful consideration of seasonality of cash flow and adequacy of working capital. There are also multiple risk factors – crop concerns, competition, changing tastes, legal restrictions on sales channels and state and federal regulations and taxes.
Population dynamics and trends, as well as structural industry characteristics are also important from a valuation perspective. The wine industry is expected to experience continuous growth largely due to a drive in demand for varietal wines by the millennial generation. Whereas previous generations did not begin to enjoy wine until their late 30s or 40s, millennials pose the largest and youngest generation to enjoy premium wines, likely ensuring continuous purchases over the next several decades. Furthermore, tighter supplies of bulk wine, vineyard planting that lags sales growth, and decreased global wine imports are also likely to contribute to greater pricing power for those in the industry.
Many of the smaller wineries in Washington started as “hobby” businesses. They often struggle and “wear out” the founders, who find that they are unable to give up their day-jobs. Because of this, we expect a lot of consolidation in the years ahead, even as total Washington wine output continues to grow. Thus opportunities exist for those looking to grow or exit the business.