Winemaking sustains allure-Starting a winery is pricey, but industry statewide has tripled; 10 in Spokane

If you want to make a small fortune in the wine business, the old saying goes, invest a large fortune.

Winery owners in the Inland Northwest say that’s not too far from the truth, yet the attraction of making and bottling fine wines keeps pulling in new participants.

By Addy Hatch Spokane Journal of Business

Two new wineries, Townshend Cellars and Robert Karl Cellars, have introduced their products to the market here in the last two years. Two more, Barrister Winery and another that hasn’t yet been announced but is planned by a winemaker here, are expected to open by this summer, bringing to 10 the number of Spokane-area wineries, says Mike Conway, a member of the Spokane Winery Association and owner of Latah Creek Wine Cellars, one of the oldest wineries in town.

Statewide, the number of wineries has tripled in the last six years, from 80 in 1996 to 240 today.

“There’s just a lot of interest” in the wine business, Conway says. “The wineries that are here now are showing that the industry is something that is quite viable.”

Latah Creek, for example, has been in business 20 years, and its sales last year were up almost 20 percent compared with 2001, Conway says. Another industry veteran here, Arbor Crest Wine Cellars, sells its wines in 32 states, Canada, Japan, and Europe, says Joe Algeo, the winery’s longtime marketing director.

Spokane wineries also include Wyvern Cellars, Caterina Winery, Mountain Dome Winery, and Knipprath Cellars.

Potentially viable the wine business might be, but it’s not for the faint of heart or the empty of wallet.

“Starting a winery takes a lot of upfront cash,” says Stacie Jacob, spokeswoman for the Washington Wine Commission, in Seattle.

Jacob cites a recent University of Washington study that estimates it takes an investment of $370,000 to start a winery that produces about 2,000 cases of wine a year. Assuming that the winery doesn’t expand, after 10 years in business it would be worth $381,000, meaning that’s how much someone would have to pay to buy it.

A winery that produces 5,000 cases a year—far larger than the most recent local startups—is “the most efficient winery size in terms of return on investment,” Jacob says. The owner of such an establishment can expect to spend about $600,000 opening the winery, but after a decade in business it would be worth $1 million, she says.

Those startup costs include the price of grapes, which most wineries here buy from Washington state vineyards; equipment; and the cost to lease or buy space in which to make wine, Jacob says. Many wineries are able to obtain at least some bank financing for their ventures, she adds.

Despite the high entry cost, Washington’s wine industry has been stable, Jacob says. “People are finding it to be a successful business opportunity. We haven’t seen too many wineries in the last 20 years go by the wayside,” she says.

Algeo, at Arbor Crest, says that historically, Northwest residents have been loyal to Northwest wines, but the industry has grown so much that wineries now are being forced to look outside the region for customers. Fortunately, he contends, Northwest wines generally are very high quality and are becoming recognized as such by the wine press and wine drinkers nationwide.

“A labor of love”

Greg Lipsker, a Spokane lawyer who owns Barrister Winery with fellow attorney Mike White, says the cost of opening a winery is tempered by the fact that running one is “a labor of love.”

“Both Mike and I really enjoy the whole culture that surrounds wine,” Lipsker says. “We enjoy wine, food, friends, and travel, and they all seem to interrelate. Being winemakers places us in the center of that.”

Barrister Winery, at 434 W. Cataldo, has produced about 500 cases of its first release, a 2001 Cabernet Franc that will debut this spring and retail for $24 a bottle. The winery plans to release a Cabernet Sauvignon in the fall, and to release Merlot and Syrah vintages in the spring of 2004, Lipsker says.

Although Barrister’s first wine will come on the market this year, Lipsker and White spent the money to make it more than two years ago, buying equipment, barrels, and grapes, and leasing space to store the wine while it aged.

He estimates that he and White have spent $200,000 on their winery so far and don’t expect to break even until their fifth or sixth year in business.

Family business

Rebecca Gunselman says that she and her husband, Joe, a Spokane anesthesiologist, wanted to open their year-old winery here, Robert Karl Cellars, so that their young sons could join them someday in a family business.

“We like the whole deal of our children moving into the business with us,” Gunselman says. “That’s very common in the wine business—it’s a generational thing.”

A generational approach makes sense in an industry where a business plan might look ahead 15 or 20 years, rather than the more typical five years.

The Gunselmans decline to disclose their investment in Robert Karl Cellars, except to say that it’s at the high end of the $500,000 to $1 million range, which Joe Gunselman believes is more common for winery startups than the lower figures in the UW study. The couple paid most of that themselves and financed the rest through a bank, and Gunselman says he figures the winery still is seven years away from breaking even.

Given the level of investment necessary, Gunselman says it would be hard for a small winery to make a go of it unless it were producing a premium product, which comes with a premium price tag—more than $10 a bottle, sometimes a lot more.

Robert Karl Cellars, at 115 W. Pacific, produced about 600 cases of its first release, a 1999 Cabernet Sauvignon that it began selling last May for $29 a bottle.

Sandpoint winery

Sandpoint’s 8-year-old Pend d’Oreille Winery has found success by adding lower-priced offerings to its mix, says Steve Meyer, who owns the business with his wife, Julie. The winery’s lower-priced products, Bistro Rouge and Bistro Blanc wines, which retail for $10.50 a bottle, “have been taking off,” Meyer says, and now represent 50 percent of the winery’s 5,000-case output.

The Bistro wines “have universal brand appeal, (whereas) Pend d’Oreille is kind of difficult to pronounce once you leave the Inland Northwest,” he says.

Eventually, he says he’d like to contract with other wineries to produce the bistro wines, and concentrate his efforts on the Pend d’Oreille line, which ranges in price from $13 to $30 a bottle.

Last year, Pend d’Oreille winery moved from an industrial park on the outskirts of Sandpoint to a downtown storefront there, which has increased its visibility and, Meyer believes, made people more aware of the brand.

Meyer declines to disclose how much he and his wife have invested in Pend d’Oreille Winery, but says it’s been a lot more than they anticipated.

“I assert that generally when people get into the wine business, they have an idea of what it’s going to cost—and then a good rule of thumb is to double that,” Meyer says.

Don Townshend, owner and winemaker at Townshend Cellars, in Greenbluff, says he still works full time as a commercial air-conditioning sales representative to “keep from going too far in the hole” with the winery business.

Townshend Cellars released its first products in late 2001, and Townshend figures he’s put about $500,000 into the venture so far. That includes construction last year of a 5,000-square-foot production facility and tasting room, at 16112 N. Greenbluff.

He says he hopes that by the end of this year, his revenues from the wine business will at least equal his expenditures, but “profit-wise, who knows?”

He says the economy has dampened sales of high-end wines—Townshend’s Cabernet Sauvignon and Merlot wines retail for $29.95 a bottle, and the Chardonnay for $12.95—and the rising number of boutique wineries means “everybody’s fighting for that same dollar.”

Still, Townshend says, “it’s a positive business to be in. You’re making a product that people seem to like. I’m optimistic about the future.”

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