In 2017, the wine industry produced $62.7 billion in sales. Showing a 3% Year-Over-Year growth from 2016.
In the United States there are currently 9,744 wineries, with 20 new wineries added since the start of 2018.
Most of these wineries however are small and produce less than 5,000 cases of wine annually.
In fact of the 9,744 wineries in the United states, 4,105 wineries produce less than 1,000 cases per year. 3,713 wineries produce between 1,000 – 5,000 cases annually which is the second largest segment of winery production.
Since 1995, the wine industry has nearly doubled, with an estimated 770 million gallons of wine being consumed in 2016.
Perhaps as a result, or the cause of this burst in consumption, the amount of U.S. wineries has been on a rise at a similar pace since the 1990’s. In this same time frame, the number of domestic wineries has nearly quadrupled.
The majority of wine produced in the United States is not mass produced by one single winery. The production is simply broken up between thousands of small wineries.
Although these may seem like small amounts of production for a winery, a lot of work goes into each case of wine.
It can take years of planning and refining processes before a winery is profitable. It takes time for grape vines to adjust to the soil and climate they are in. Young grape vines are capable of producing quality fruit but generally, the older the grape vines are the higher quality grapes it will produce.
Because of this, wineries have a steep total investment cost when they start. The total investment cost pertains to the cost of the building, plants, land, and equipment needed.
A winery that expects to produce the nations average 2,000 cases annually should expect investment costs of $560,000.
A winery that projects to produce an above average 5,000 cases a year should plan to have $810,000 in funds to start the winery.
More than half of the total investment cost is set aside for plants and equipment. These account for the most expensive aspect of the wine industry due to the constant care and maintenance that is needed.
Craft Beverage Modernization and Tax Reform Act
The government recently passed the Craft Beverage Modernization and Tax Reform Act which went into effect on January 1, 2018.
This Act cuts the federal excise tax on beer, spirits, and wine producers.
According to the Wine Institute, taxes on wines with 14 to 16 percent alcohol by volume (ABV) will decrease fifty cents from $1.57 per gallon to $1.07 per gallon.
Here are some specific provisions of the Act:
- Reduces tax on first 750,000 gallons produced
- $1 per wine gallon on first 30,000 gallons produced
- 90 cents per gallon on next 100,000 gallons produced
- 53.5 cents on the next 620,000 gallons produced
This act will save wineries across the nation thousands of dollars on taxes. Both large and small wineries reap the benefits of this act, and estimates show that it will allow some 30% or more of what used to be paid in taxes to be reinvested into production.
Although the wine industry grew 3% this past year, volume growth is projected to plateau in years to come.
The main reason being is that consumers are shying away from lower price segments to purchase higher quality wines. The wine industry in the United States is maturing.
This may come as a surprise, but 55% of wine sold in the U.S. is under $8 per bottle.
Premium wines, although becoming more popular, are still expected to see a decline in sales compared to the past year. In 2018, premium wines are projected to grow 4 to 8 percent which is down from the 10 to 14 percent growth in 2017.
Even though this is positive growth for premium wines, sales are overall starting to plateau.
Wineries that produce sales via direct to consumer (DtC) from their winery should not see a decline in sales as this segment makes up 2 percent of the overall market.
Companies who can succeed in the coming years will have to adapt to a different consumer with new marketing strategies.
Wine Production in the U.S
Wine is produced in almost every state in the United States but a majority of the wine production comes from these five states.
Top 5 States with the Most Wineries
- New York
California is home to 4,300 wineries which is almost half of the United States’ total wineries.
860,000 acres of California are devoted to vineyards and wineries. The typical vineyard in California yields roughly 5 tons of grapes per acre which translates to a little more than 10 barrels of wine.
The average price of Farm Land Real Estate in California is $8,700 per acre.
California has a dry mediterranean climate where the temperature is typically a hot 80 to 95 degrees during a summer day and drops to cool 50 to 60 degrees at night.
Recently, there has been raised concerned for water irrigation around the state. California has been in a draught forcing the state to place restrictions on the amount of water that is used. The state has passed legislation that will limit groundwater use but will not be in effect for years to come.
The areas that are the most well known for their wine are Napa County and Sonoma County.
When it comes to wine, Napa County is known across the globe for their fine Cabernet Sauvignon.
When it comes to land, Napa County is known for its value.
An acre of land in Napa County is valued at $310,000 to $400,000 per acre. The value of this land is expected to increase and within the next 30 years eclipse $1 million per acre.
The average price of a residential property in Napa County is $648,300.
Napa County is made up of 600 wineries and is responsible for 4 percent of the states wine.
Napa County is 30 miles long and 5 miles across at its widest point. These wineries are known for their Cabernet Sauvignon (which competes with Bordeaux’s) and their Chardonnay.
Sonoma County is the second largest American Viticultural Area (AVA) in California to Napa County.
Sonoma County operates 60,000 acres of vineyards and over 425 wineries.
Vineyards in Sonoma County are valued at $70,000 – $150,000 per acre. Their is open plantable land which ranges from $45,000 – $100,000.
The average price of a home in Sonoma County is $635,800.
Sonoma County is notoriously known for their Chardonnay, Cabernet Sauvignon, and Pinot Noir.
The price of wineries and vineyards in these areas is fairly high but the average home price in California is $541,800
The average cost of a home throughout the state of California is $541,800. The price of a house in Napa County is $100,000 greater than that price sitting at $648,300. A house in Sonoma may be less expensive than Napa but with an average price tag of $635,800 they too are almost $100,000 greater than the mean.
As a result of this high amount of value and quality land, Sonoma and Napa County both hold residential prices to higher standards. The wine industry has a direct effect on the residential housing market in California.
Washington has more than 900 wineries across the state and is the second largest producer of premium wine in the country.
These 900 wineries operate from the 55,000 acres Washington has filled with vineyards.
Many Washington wineries are small family owned wineries that produce less than 25,000 gallons a year.
The average price of land for sale in Washington is $403,000.
Washington is mostly known for seattle but has received a lot of recognition for their prestigious AVA Columbia Valley.
Located on the eastern side of Washington, Columbia Valley is one of the largest AVAs in the nation. Of the 55,000 acres of vineyards in Washington the Columbia Valley makes up 50,300 acres on its own.
Columbia Valley is larger than Napa County and accounts for 99 percent of Washington’s wine production.
This large piece of land contains 12 other AVAs.
Small vineyards of 15 acres or less in Columbia Valley can be found for $350,000 to $500,000 while larger vineyards can be priced at $2 million.
The temperature in the summer ranges from 80 – 60 degrees while in the winter it’s 35 – 25 degrees.
Columbia Valley is prosperous because it has the longest consistent growing season. There are 300 days of sunshine in Columbia Valley which make the area perfect for Cabernet Sauvignon, Merlot, and Syrah.
The average price of residential real estate in Columbia Valley is $155,000 while the average price in all of Washington is $287,000.
At first glance this may seem concerning but it is possible that because Columbia County is so large the average price of property is skewed.
There are more than 775 wineries in Oregon which is the second greatest amount of wineries in the U.S.
The leader in vineyard planted acreage and production is Pinot Noir accounting for 64 percent of all planted acreage.
The vineyards of Oregon on average produce roughly 6.25 barrels an acre.
Farm land real estate cost $2,300 per acre in Oregon while the average price of a home is $336,600.
Other than Portland, Oregon is popular for its wine especially in the Willamette Valley and Southern Region AVA.
Willamette Valley is Oregon’s largest wine appellation.
Just an hour outside of Portland, Willamette Valley is made up of 719 vineyards and 554 wineries.
The vineyard properties in Willamette Valley typically have a value of $1 to $2 million.
Willamette Valley has cool temperatures during the growing season and only sees highs of 78 degrees in the summer.
This type of cool climate is perfect for growing Willamette Valley’s most famous wine, Pinot Noir.
Southern Oregon AVA
6,000 acres dedicated to vineyards and there are 120 wineries located in the Southern Oregon AVA.
The Southern Oregon AVA is known for warmer temperatures than Willamette Valley. They have hot drys summers and cool evenings.
This weather brings a variety of grapes that produce Cabernet and Merlot in the warmer regions and Pinot Noir, Sauvignon Blanc, and Chardonnay in the cooler regions.
A residential property located in the Southern Region of Oregon is priced at $413,800.
The average price of a residential property in Portland, Oregon is $460,000.
The highest price for residential property is not within the wine industry. Portland Oregon is the main attraction to people in Oregon as you can tell. The demand for housing in Portland is much greater with a value of $460,000.
The price of a home in the Southern Oregon AVA is still greater than the average price of $336,600 showing the correlation between the valuable land and the real estate market.
New York is famous for New York City but is also famously known for some of these nicest wineries on the east coast.
The average value of farm real estate in New York is $3,000 per acre. This is the cheapest of any on the list due to the tough climate conditions.
New York has the fourth most wineries in the U.S with 400 wineries.
Out of all of the wine locations in New York, Finger Lakes is the most renowned.
Finger lakes accounts for nearly 25 percent of New York’s wineries with just over 100. There are 11,000 acres of vineyards across this American Viticultural Area.
The main reason that the Finger Lakes has been so successful in the wine industry is because of the climate the lakes provide.
New York has cool climate but the lakes create a microclimate. The extreme cold weather winter is avoided and warm breezy days help ripen the grapes.
The lake serves as a natural, air temperature regulating system. Steady water temperature of the lakes help prevent extreme temperature swings. This also allows for a longer growing season and mitigates early frost exposure.
The finger lakes cool temperatures make for a perfect climate to produce Dry Riesling.
Finger Lake waterfront property is valued at $403,000 while finger lake property this is not on the water is valued at $100,000. These combines for an average of $250,000.
The average home value in New York State is $282,000. This is a very large difference from the waterfront property but that is simple because of the waterfront access. The mean of the two types of property is still below the average residential property value.
Texas is well known for an extraordinary amount of things from bullriding to barbeque, the last thing people think of when they think of Texas is wine.
The average price of land in Texas is $2,563 per acre. There are about 5,000 acres of vineyards in the lone star state and almost 400 wineries.
The average price of residential real estate in Texas is $186,700.
Popular places in Texas range from Austin, Dallas, Houston, and the list goes on… but the one that is forgotten is Texas Hill Country.
Texas Hill Country
Texas Hill Country is the second largest American Viticultural Area in the nation.
Out of the entire land mass there are only 50 wineries that take up 800 acres with their vineyards.
Texas Hill Country has your typical Texas weather where it is very hot and very dry. Summer temperatures range from lows of 75 to highs of 98 degrees.
The hot and dry growing season makes it a perfect climate to produce Chenin Blanc.
The average residential property in Texas Hill Country ranges from $150,000 – $250,000.
This price point is fairly similar to that of the average residential property throughout the whole state.
Common Types of Wine Properties
As we stated earlier, the growth that the wine industry has seen the past few years is starting to slow down. The companies that will prosper will be able to market to a different type of customer.
People are starting to drink more premium wine. Millennials are slowly starting to consume the most wine of any generation and are predicted to do so by 2026.
Wine properties, utilized properly, are a great way for a company to make profits in years to come.
There is much opportunity to be had as the market transforms.
Five Types of Wine Properties
- Wine Estates
- Industrial Space
- Bed & Breakfast
Grapes are one of the world’s most farmed fruit. In the United States there are nearly 3,000 vineyards and over 1 million acres devoted to producing grapes.
Vineyards are tricky however because grapes used for wine have to be grown in a specific climate.
The climate directly correlates with how your wine will taste. Although expensive, an ideal vineyard would be in Napa Valley. The climate produces grapes that are sought out across the world.
Napa Valley Grape Growers saw the largest increase in price for their grapes of 11% in 2017.
The land that is purchased for a vineyard can be a great investment as value is expected to reach $1 million in 30 years.
As we stated earlier, there are 9,744 wineries across the nation. Some are attached to vineyards some are not.
Like grapes, wineries depend on the plot of land they are on. Wineries can be found in almost every state now but there are a few states that they are becoming more popular.
California has the most wineries in the nation by far but is not growing as fast as some states like Maryland (11%), Pennsylvania (4.8%), Colorado (7%), and Arizona (14.3%).
These states are up and coming in the wine industry. Opening a winery can be an expensive investment but the returns in a growing industry within one of these states will not disappoint.
Completing the whole production process in one American Viticultural Area can be challenging. The climate has a great impact on the quality of the product produced.
Purchasing a wine estate in a growing economy can be very beneficial. Although, the states that are growing may not have an ideal climate for grapes to be grown for years.
Due to the fact that consumers are gravitating towards premium wine Washington would be a great location for a wine estate.
They are the second largest producer of premium wines and land is much cheaper than in Napa Valley, California.
Wine tourism is a booming space. Napa valley alone attracts 3.5 million visitors annually. The industrial space is growing attraction as it should be.
Companies should be creating tour friendly wineries. Creating an environment where visitors can truly experience what it is like to make wine while they enjoy their glass.
This is a growing hobby among experience driven millennials.
Companies who can utilize their wineries space in the most efficient way will find success in this field. This goes for vineyards too. Although consumers may not tour through the grape vines themselves, they should be aesthetically pleasing to entice consumers to do so.
Bed & Breakfast
The bed & breakfast industry is reportedly worth $3.5 million. Owners that can place their inns next to highly populated wine estates will profit the most. Although having a B&B in Napa Valley may attract a lot of tourists, B&Bs need to have the service to back it up.
79 percent of B&B owners live on the premise. People who own wine estates may another simple way to earn profits by turning their home into a bed and breakfast.
Tourists as well as weekend getaway customers are a great target for any vineyard B&B.
Wineries that can market themselves to a different customer will find the most success in the future.
Future Values of Wine Properties
Short Term (5-10) years
The wine industry will plateau for the beginning of the next 5 years until wine properties realize how to market to the new consumer.
The distribution of wine will change in the next 5 to 10 years. With online retailing becoming more and more popular.
Consumers are willing to purchase bottles online that they normally would not have access to. No longer constricted to what is available in the local supermarket premium wines should see more future growth.
States like Maryland and Arizona will grow within the industry. The amount of grapes imported for wine may increase due to new demand if vineyards do not adhere to future demand.
The United States is already at a shortage of grapes importing $41 million a year. Vineyards are essential in improving this process.
Long Term (10-20) years
In the next 10 – 20 years, millennials will dominate the wine market influencing the preferences once again. Millennials, so far, have taken a similar liking to the path the baby boomers took.
Starting out with low priced whites like white Zinfandel and Chardonnay and progressed towards dark reds like merlot.
California will produce less of the nation’s wine than they do today because of growth in other states and possibly irrigation issues.
As projected earlier, vineyards like Napa Valley will become more valuable. The need for more grapes will provide the opportunity for more vineyards to start.
Wineries in other states will double due to greater population and demand for the iconic beverage.
The wine industry may plateau in the next few years but overall, the long-term future seems promising. The wine market is in a stage of transition from purchasing large quantities of lower priced bottles to smaller quantities of premium bottles.
With more wineries opening in growing markets, residential property values in those markets will rise due to the tourist attraction and the increased value of land when it comes to yielding grapes.
Realizing which environments are best for the changing demand of consumers will be vital for purchasing wine estates.
The companies that will truly succeed will be able to adapt to the new different type of consumers in the years to come.