We have years of experience in this industry for the valuation of the business, equipment and real estate. Let us help you with our valuation consultation in all areas of the valuation of winery businesses. Below is a brief synopsis of the industry.
Description of Business
Establishments primarily engaged in manufacturing wines. This industry also includes bonded wine cellars engaged in blending wines.
General Industry Information
There are approximately 20 million acres of vineyards around the world, producing an annual supply of more than 25,000 million bottles of wine. However, commercial wine production is concentrated in relatively few areas in the world. Today, Europe still accounts for the majority of global wine production and consumption. California, Argentina, South Africa, Australia and Chile are becoming increasingly important. (Source: California trade and commerce agency)
The California wine industry now ranks sixth in the world in terms of production, and accounts for more than 90% of total U.S. wine production. Three out of every four bottles of wine sold in the U.S. come from California, and International Sales of wine are strong. California has more than 400,000 acres devoted to wine grape production. Increasingly, wineries in California are applying advanced science and technology to growing and production. Water tracking satellites and soil mapping tool are more commonplace, along with cloning high demand varieties of grapes. Anti-contamination technology is also utilized to detect presence of growing contaminants.
Distribution of wine products is a significant residual industry which is closely related to wine manufacturing. Currently, there are only 12 states in the U.S. that allow free trade of wine across state borders. Wine shipment regulations prohibit the shipment of wines to personal addresses, intended to protect in-state wholesalers and retailers.
US leaders in the wine making business include Ernst & Julio Gallo, Robert Mondavi, Beringer Wine Estates, and Sebastiani Vineyards, Inc. Wineries are capital intensive businesses, and seasonality in weather impacts this industry heavily. A prerequisite for production is obtaining a winery use permit. Obtaining such a permit is a lengthy process, and these permits dictate the allowed uses of a facility (commercial versus direct retail). Permits for on-site tasting have added value than permits exclusively for commercial winemaking.
Red Flags and Risks
Buyers should consult with agricultural specialists in reviewing soil reports and water sources to ensure future success in vine cultivating. Issues including potential plant disease and weather history should be considered in reviewing a possible site. Some wine producers operate without a vineyard, opting to purchase cultivated grapes from an outside grower. The loss of a relationship with the key input supplier can be devastating, and working agreements should be settled prior to a business acquisition. Equipment sold with the business should be valued independently. Functionality and condition should be evaluated prior to acquisition. Finally, buyers need to review current permitted volume at the facility. Common problems include low volume permits and structural violations. Expiration and renewal issues should be fully disclosed during the due diligence period.
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