Transcript: HOW TO START A WINERY like an OG

- Hi there. Welcome to another episode of Lucky Rock Wine Lounge. I'm Jesse Inman and today I'm wearing my brown shoes.

- I'm Aaron stock options Inman. I'll be here most of the episode.

- Potty breaks.

- [Child] My poop is coming.

- All right, so today we have a little bit of a different style episode for you. We're gonna teach you a little bit about what it takes to start a wine business. A lot of people drinking wine have always dreamed about starting their own wine business.

- Don't do it.

- We started, don't you become our competition. And we started our own wine business almost 16 years ago. So, we're going to pull back the curtain a little bit and talk a little bit about some of those things that you might need to know, if you're gonna start your own wine business.

- Well, Aaron, I'm so excited about this topic, I could cut glass. Today's episode is sponsored by Lucky Rock wine company, because we own it.

- [Aaron] Here, let me get my wallet.

- [Jesse] Yeah, and I just wanna see if this works. that sounds nice.

- [Aaron] Oh, that sounded like a gold medal.

- So contrary to popular belief, you don't have to drink it out of the can, although, you should.

- Be a lot cooler if you did.

- Let's see, these came from Alexander Valley, which is Northern Sonoma County. How did we get those grapes, Aaron?

- We don't own that vineyard, believe it or not. A lot of people think, in the wine business, you roll up to the beautiful winery. The vineyards are behind there. The vineyard owns those grapes, harvests those and makes them into wine.

- [Jesse] Yeah.

- That is totally a model that exists. There are a state wineries out there where they grow the grapes, and they make the wine.

- Very romantic.

- It's super romantic.

- You grow the grapes, you pick out the grapes, you make the wine, you drink the wine.

- Quite expensive.

- Yeah.

- Quite expensive, probably the most expensive way of procuring grapes.

- Unless, you bought land in the thirties here in America.

- So as the train comes back to the station, we did not do that, and as a lot of people do, that make wine, had a contract with a vineyard, that we knew what we wanted to make, kind of the style we wanted to make, and sought out a grower in that area, had a contract with them and bought those grapes from them. They're not a winery. They exclusively grow grapes.

- Yep. Yep, and we have been working with some of the same vineyards since 2006. So, that's a long time.

- [Aaron] That's like two or three years.

- Yep.

- So outside of the estate model, owning the grapes or buying the grapes, there's also leasing the vineyard. Some people will lease the vineyard, so that they can do all the farming themselves. And then, one thing that a lot of people don't realize that a lot of people do, Like they buy bulk wines. And so, they made already pre-made wine from other wineries and, either, blend it or bottle it by itself.

- And, there's even one step in between those, because I fill out the paperwork every month, you can, actually, buy juice.

- You like the juice? That's what I said. ♪ Juicy, juicy, juice ♪ ♪ Juice, juice, juice ♪ ♪ I love you more than anyone ♪

- And bring it to your winery and ferment it. You can buy somebody else's juice. You didn't grow it, you didn't press it. You just brought it in and fermented it however you wanted to ferment it, so it's kind of that. Not a lot of people do it, but it is an option, as well.

- Totally, and kind of the final one that we'll touch on here is actually buying a Shiner bottle. That's an option, as well. So, it's pretty much-

- Imagine this can with no label on it, we bought it, put a label on it.

- Yeah, and there's not a right way or a wrong way. I think a lot of times in the wine business, you know, at least peer-to-peer winemaker to winemaker, or business to business, there's a little bit of a stigma of, "Oh, you're just buying grapes," or "You're just buying wine." And it's kind of like this cascading level of less sophisticated wine, maybe.

- I heard a stat a long time ago about how many grapes are bought versus owned, and I can't remember what it is, do you recall?

- No, I don't.

- I think it's gotta be relatively high. I think it's something like 70% of grapes are actually bought and sold versus grown and made into wine.

- And there's definitely a risk factor that is also decreasing 'cause when you're owning the land, growing the grapes, there's a lot of risk involved there. But you get all the way down to a Shiner, usually, you're buying a wine that's completely finished at that point. You know what it's gonna be. You know what package it's in, for the most part, outside of, if you saw our other episode on wine labeling, you obviously still have to handle all that yourself, but your risk level is a lot lower, so, there is that too.

- Yep, Cost to entry, low. Okay, so now that you've bought your grapes, or you've grown your grapes, then what?

- Then you gotta make it into wine. And there's kind of like there was with the procuring of the grapes, there's a lot of different ways to do it. You can own your own winery, you know. Obviously, just like building your own house, there's a lot of different ways to do it. You can buy the gold fountains, you can buy the optical sorters. You can go, you know, tits mcgits, I think that's a word.

- That's actually slanderous.

- I don't know, ah. But then you've got as a little bit more of a cost effective way, custom crush. And that, why don't you talk a little bit about custom crush.

- Well, that's a virtual winery in essence, you don't have your own physical winery because that can cost you anywhere from $1 to infinity dollars.

- To infinity and beyond.

- But it's usually on the closer to infinity dollars side. I mean, we've always been custom crushed because we got started in a winery we worked for. So we were able to make our wine there. After that winery was sold, then we had to move. We were homeless.

- Spare change, spare change mam. So we moved somewhere else and we basically paid for a roof over our head.

- Please sir, may we make our wine here?

- He said yes, for money.

- Yeah. And then we went in there and did all the work and this and that. So you can do that. Or you can literally just pay somebody to make your wine for you. And on paper, you made your wine, but they're actually making the wine for you. So there's a pretty big spectrum from you doing every little berry sort and this and that to you do some paperwork, do a little magic keystroke and all of a sudden you made the wine legally.

- Sure. The model we have is actually called alternating proprietorship, which is a type of a custom crush, but allows us, Jesse, since he's our wine maker these days to make... hair flip time?

- Phantom hair toss.

- Hence why we can do all the wine making ourselves.

- Can I stop right there and just say, is that a pretty sign behind us?

- Yes. I'm currently getting a tan. It's a blue tan. But I'm getting a tan. If you don't want to do, you know, you don't want to have the winery. You don't want to make your own wine. You don't want to do the AP or the con. Oh thank you, sir. You don't want to do the custom crush. You don't want to pay a winemaker to make your wine. Then you could buy bulk wine. Like we could sell you wine that we made. And then you have very low risk. You're going to pay a gallon price for that. So you're going to know exactly what your cost structure is, as opposed to, if you're making the wine, you usually know, but it can get a little bit.

- And that's like, Cameron Hughes. He's buying wines that are of a certain caliber. So his name is, when you put Cameron Hughes in the label, people trust him to produce a certain, not produce, but purchase, a certain caliber of wine.

- So there's that. And then again, you could go all the way down to not making any wine and just buying shiners.

- Yeah.

- And that's totally a business model too.

- And that's a pre-bottled wine, cork and everything. You just slap a label on it.

- Yep. So one way of making wine that we didn't really discuss here, cause it's not that popular in the US, but it is popular in Europe, is the co-op. That's where there's a lot of growers that have banded together under one entity and they kind of negotiate on how to make the wine. Like I said, it's not a model that I know a ton about because we don't do it a lot in the US.

- And frankly it sounds complicated.

- Can get a little bureaucratic, but it is a model.

- I think we've covered them all.

- And we'll move on to, how are you going to sell your wine?

- To the hard part. They always say making wine is the easy part, selling it is the hard part. And let me tell ya, not hard for us, flies off the shelves, wine's so good.

- Oh, you're at our web store right now? Perfect. Just hit that confirm button.

- Yeah.

- You always in business want to have an idea of what you're doing, but you really want to have a model of how am I going to sell this wine.

- Romance does not sell wine and idealism does not sell much wine.

- And there's a massive difference between having a hobby and a business. And I think we had to make that distinction very early on because when we started making wine in 2006, it was really more of a hobby. We wanted to make wine for ourselves. We were working for somebody else making wine and we wanted to have ultimate control over wine-making. We got that stuff in the bottle and we said, oh now we've got to sell it.

- Yes we're handsome. And yes, that helps sell wine.

- But it's actually really hard. You know, it's a saturated market. There is tons. Just go to your local grocery store shelf and see how many different wines there are. And then expand that to the beer aisle, the cider aisle, the seltzer aisle and the spirits aisle. There's a lot of competing factors there.

- Indeed.

- So you really want to have a plan on how you want to get that wine to market. You've got your traditional route. You've got your going out and getting distribution where you're going to sign a distribution contract and they're going to sell your wine.

- You're selling wine to somebody who's going to go sell your wine.

- Then you have, you could be out, if you're in certain states, you could be selling your own wine. And then you have your e-commerce. That's a big thing now, especially during COVID, we really learned that e-commerce it really skyrocketed in popularity. So that's basically selling through your web store. Well, if you're gonna sell through a web store, you need to have a website you need to manage it.

- It becomes more complicated.

- There's shipping involved.

- Your margins get better. So if we sell you a bottle of wine, our margins might in theory be better. But at the same time, we had to spend more money on our website, our marketing our this or that. So margins start to get whittled down and it almost works out to be, it depends on your price point, the same as distribution.

- And Mr. Bezos really humped us hard by, now everybody thinks you're going to get free shipping. And that's really tough to swallow when you're a small winery. So keep that in mind. And then you've also got kind of the traditional way that a lot of people think about buying wine too, is just walking up to the winery. In Europe, in the old world, they call it more the cellar door. And so that's going to a tasting room, tasting the wines, buying wine, bringing it home or having it shipped or joining their wine club and having reoccurring shipments.

- I still can't get out of my head that Jeff Bezos humped us.

- Yeah. He was gentle.

- I didn't see any money for that. I didn't even get free shipping.

- If you look up the word hump in the dictionary it's actually just means effect.

- Or Wednesday.

- [ Camel] Leslie, Guess what today is?

- [Leslie] It's hump day.

- [Camel] Woop woop.

- So those are kind of the main ways to sell wine. There's export to other countries which has its own, you kind of have your, you need to have somebody to kind of show you the way they're like, we do export. Lucky Rock goes to, you can buy this can in Canada, not this one, but you know what I mean.

- Someone else's can.

- And Japan, Taiwan, we've done some stuff to Denmark. So we've had to learn that and we have a great international broker that's helped us learn to navigate that export market.

- And remember we started off being cellar rats, just making wine and then putting in a bottle, putting it in a bottle then trying to sell it. And now we're like, oh , we better learn how to do the wine business. And now we're like exporting wine. We're doing direct. We have websites. We're managing writing blogs. It gets really complicated.

- It gets fairly complicated, fairly fast. And that's why why we really stress knowing how you want to sell it. Because there is a lot of, I think this is where a lot of people, the passion can blind you a little bit. And maybe this is with any industry, but with our industry, it can really be a nail in the coffin. If you don't know how you're going to sell your wine. I think you're going to have a real problem when it comes time to do that.

- And then when you try and sell it, you're gonna have a real problem 'cause we're going to come after you and break your ankles.

- All right. Lastly, this is one of my favorite ones because we're constantly working on it.

- How do you differentiate yourself? How do you set yourself apart from the crowd? Because there is a crowd.

- I talked a little bit about earlier just go to that grocery store and see how big the wine aisle and the spirits aisle and the hard seltzer and the cider and the carton of kombucha and and and.

- And people are more promiscuous drinkers now. There used to be just wine drinkers, just beer drinkers, just this, just that. Now people kind of drink whatever, whenever.

- Blending categories yeah.

- Canned wine, bottled wine, whatever.

- And so that's where differentiating yourself there. I mean, that's why a lot of times it seems like wineries do a really poor job at this because it's hard. A lot of times how they differentiate themselves is, hey we have this plot of land and that's what we need to talk about because that's what makes us different from other people. Or another classic one in wine is our winemaker because nobody else has that winemaker. But you know, if everybody starts differentiating themselves on the same attributes then it's really not that different anymore. And Jesse and I really came to realize that with Lucky Rock. I was at a trade show in Houston selling wines,

- With our old brand.

- With our old brand and everybody, we were all saying the same thing. You know, it was really, there was a couple people, a couple of tweaks, you know,

- And at that point we had tattoos and we cursed a lot. We were younger then too, and we were a little bit more rough around the edges, rougher. You know, we just realized, you know, we don't want to do what everybody else is doing. So we kind of kind of rolled our sleeves up, showed our tattoos, kind of speak how we speak and made the wine we want to make. It's not that hard to be different from everybody else in the wine business, because everybody's doing the same thing.

- And that's also, we're making some generalizations here, obviously, right? Like the wine business,

- It's changed a lot recently.

- The wine business is growing a lot and you are seeing more differentiation and I really applaud that. And so it's an interesting thing. I think that that's definitely, how you're gonna differentiate yourself is super important. I mean, obviously here we kind of focus on high price to quality ratio, which isn't that unique, but that's a driving quality for us. A little bit more modern take on maybe like wine culture, as far as partnering with food trucks, doing to-go winemaker dinners, partnering with tattoo artists to do labels or t-shirts or giveaways. I mean, just those kinds of things there are a little bit different than some really embracing video, like we are. A lot of people are doing social media, but we're really committing to social media. Like those kinds of things all start to come down as a way of starting to, you have a way of differentiating yourself and then you're embracing a medium to get that out to the masses that, that are resonating with you.

- Well if you're not sold, I am.

- These are things that, you know, I wish somebody would have sat down and told me this kind of stuff 16 years ago because by the time you get it said and done, it is quite a lot. There's a lot of decisions that you need to make.

- Yeah. And the thing is that we're a small business and you start to do too many things, you're not really good at any one thing. So it takes a lot of money or a lot of hard work to do everything correctly.

- So anyways, we could go on and on about this because it's our lives. But at the end of the day, I think a lot of people do want to start wine businesses or alcohol businesses because they're fun. And they can be a lot of fun, but you do need to critically think about that. Do I want a hobby? Do I want a business? And these are some of the things that you might want to think about. If you're going to dip your toe into that water.

- Good luck.

- All right, folks. Now, you know how to go start your own wine business. Just take out a massive loan and get going.

- And we'll see you on the next episode.

- Cheers.

- Cheers