Cost of Goods Sold for Wine

What determines the price of a bottle of wine? There's definitely supply and demand, for certain wines and for certain grapes from certain places. What we'll cover here are the basics or labor, material, and overhead.

A winemaker sees this as their hard work resting 
before reaching its full potential 
An accountant sees it as a cost center full of
inventory and depreciating assets

The Vineyard

Land prices are often high in grape-growing areas. Vineyard land is very expensive in Napa and much less so in Washington State. Some vineyard land was a recent purchase, some has been with the same owners for decades. Cabernet Sauvignon and Pinot Noir are examples of grapes that cost a lot, if they're planted in the right place. Some vineyards get more care than others. Organic vineyards require more labor.

Winery Production

There are lots of capital expenses such as the building, tanks, barrels, bottling lines, crush equipment, etc. Other expenses include packaging, chemicals, fees, permits, and taxes. There is a production staff that increases significantly at harvest with temporary workers. Time in inventory is an expense for any business. Wineries hold some whites and usually all red wines in oak barrels for a year or two. After bottling, the wine can sit for a few months before it's sold. 

The Office and Other Overhead

The tasting room is an expense for the staff and equipment used to host guests. That fancy winery with the big, beautiful tasting salon; you're paying for that, too. Someone is doing all the business duties of management, HR, IT, marketing, shipping, and accounting. Office buildings and equipment is another expense.

In the "olden days," you would see tiny wineries operating out of their garage or a shed along the road. There are some low expenses! 

Retail Sales

If you buy wine at a retailer, rather than directly from the winery, there are middle men or women and the retailers all with their own expenses.

So What Does a Bottle of American Wine Cost to Make?

This varies widely, but it's said to be between $3 to $45. The low end is "industrial" wine that you probably don't want to drink. The higher end wines can have high grape costs and a high winery mortgage. 

• Labor - California, for instance, has high labor costs. Small production wines means more care, but higher per bottle cost. You can either buy expensive, or very expensive, barrels. The cheap stuff gets oak chips.
• Material - Grape prices are all over the place, from about $300/ton to occasionally tens of thousands of dollars. Napa Valley's To Kalon Vineyard Cabernet grapes are reported to sell for over $50,000/ton sometimes. Typically, Napa Cab grapes sell for about $9,000. Cheap California grapes might be bulk wine from the Central Valley. Some wineries grow their own wine grapes.
• Overhead - Some sell out of their barn with a wood plank over a couple old barrels. Some have a palatial estate on a mountain side, with granite and Italian marble everywhere. You are paying for the fancy digs.

I've had a couple of winemakers tell me it costs them $5 to $7 to make a bottle of wine, but they aren't accountants (neither am I) and have forgotten the upfront costs of their equipment, the depreciation, property tax, the water and electric bills, and a hundred other things. 

For the lucky few that have owned their vineyard land and modest buildings for decades, the costs are lower. In Sonoma County, some that fall in this category are Alexander Valley Vineyards, Foppiano, Gundlach-Bundschu, and Robert Young. Although, Foppiano was sold a year ago to another local wine company, so we'll see if that affects their wine prices.

As the saying goes, if you want to make a million dollars in the wine making business, then start with two million.