The fact that wineries are springing up all over the place is old news. But there's a new wrinkle: More and more of them are setting up shop in cities, doing their thing in converted industrial spaces, surrounded by asphalt, not vines. It's urban warehouse winemaking, and it looks like the future of wine.

Since the 1970s, the dominant narrative about founding new wineries has gone like this: Someone with a pile of money from another career spends untold millions on expensive vineyard land and spectacular facilities, in order to fulfill a dream to make (read: hire someone to make) great wine--thus the currency of the famous one-liner about making a small fortune in the wine business by starting with a large one. Now it's more likely to be the tale of a passionate, young, self-trained winemaker who maxes out the credit cards and the home equity loan to buy top-notch grapes and make a thousand cases of snazzy wine in a converted factory space on the low-rent side of town.

The reason for the change is simple: money. The capital outlays required for doing it the old-fashioned way--buying land and building a winery--are prohibitive; possible for only a fraction of those interested in making wine. In a sense, the success of the founding generation of modern winemakers has frozen the next generation out of the market. Buying and developing 20 acres of vineyard land, enough for 3,000-4,000 cases of wine, at $50,000-$75,000 per acre--if you could find it at that price--and $30,000 per acre for land preparation, irrigation and trellis, means starting with $1.5 to $2 million in expenditures before a single grape is picked. Add the cost of building and equipping a bare-bones winery--at least another $250,000--the recurring costs of wine production, and the salaries of two to four employees, and you're out somewhere between $2 and $3 million before a single bottle is sold.

Urbanists can produce more or less the same quantity and quality of wine for less than $100,000, and then put the income back into the next year's expenses. Urban wineries often pay more per square foot for rental space, and more per ton for grapes than their larger, rural counterparts, but the entry costs to the world of commercial winemaking are dramatically lower. Creative arrangements are the order of the day, starting with making use of custom-crush services, cooperative winery facilities, or rental space in neighborhoods zoned for light industry.

Keep their days jobs

Each urban wine venture has its own idiosyncratic story, but some rough generalizations hold up. Nearly all of these citified boutiques get rolling with generous dollops of unpaid help from friends, and nearly all the winemakers hold onto their day jobs for several years. All of them plan to keep production limited--often no more than a couple thousand cases--in order to keep quality high. Their focus is primarily on red wines; production costs are higher than for whites, but potential returns are higher, too. Nobody bothers doing warehouse winemaking to produce $8 wine; prices generally run in the $20 to $35 per bottle range. Not surprisingly, nearly all of them use the Internet as one of their marketing channels.

Great wines, it seems, are no longer made just in the vineyard.

Making wine in cities isn't a new phenomenon. At the turn of the 20th century, the California Wine Association had a monster wine plant right in downtown San Francisco; after the 1906 earthquake, it relocated across the Bay to Richmond as Winehaven, a 47-acre, 10-million-gallon mega-winery with its own private railroad to move product around. On a somewhat smaller scale, Pierre Lafond started the modern wine industry in Santa Barbara County with his urban Santa Barbara Winery in 1964; in the mid-1980s, Edmunds St. John, Rosenblum Cellars and several other labels were established on the eastern, urban shores of San Francisco Bay. With nearly 20 wineries, the East Bay is the epicenter of the most recent wave of city wineries, and Seattle isn't far behind.

Harrington Wines and Eno Wines
HAULING GRAPES IN BY HAND

The tiny space where Steve Edmunds started work had already been a winemaking facility (Fretter Wine Cellars); after Edmunds left to seek more room, it begat a succession of other labels, including GrapeLeaf Cellars (sadly departed) and the current occupants, Harrington Wines and Eno Wines. There are bigger garages in many private homes, but few as thoroughly stuffed with French oak barrels. The crush and open-top fermentations happen on the equally diminutive cement patio out back; grapes are unloaded from pickup trucks backed into the narrow driveway and are hand carried through the winery. This is not Constellation Brands.

Bryan Harrington got pulled into winemaking by the allure of Pinot Noir, the only grape he works with. His first vintage was 2002; he makes about 1,000 cases and has no plans ever to make more than 2,000. "It's a one-man operation," he says, "and I'm not interested in employing other people." Seed money came from savings from a prior career as a successful artist; he put roughly $50,000 into the project and is now showing a small profit after five years. He admits it's a constant struggle to compete with the big boys for prized Pinot grapes, but with his wines retailing for about $35 a bottle, nothing else will do.

Permitting and licensing were not all that hard, he recalls, since the facility had been a winery for many years. Rent on the current three-year lease is $2,100 per month (split with Sasha Verhage of Eno), approximately $1.50 per square foot. The location in west Berkeley, near a fashionable shopping district, is both a blessing and a curse, Harrington says: "It's great having all these fellow winemakers to help each other out, and there are some fun parties, but it's nothing like having a tasting room on the Gravenstein Highway (a major Sonoma wine route)."

Eno's Verhage expects to keep his day job as an Internet designer, partly for the income, partly because he enjoys the feel of working with a business team as an alternative to sitting by himself watching barrels age. He started with the 2001 vintage, knowing "a bit more about winemaking than business;" he currently makes about 800 cases of Pinot, Zinfandel and Rhône varieties, expects to get to 2,000 in a few years, and has no intention of going beyond 5,000. He has also financed his effort through savings, not by borrowing, and by plowing all the income from one year into the next. By avoiding major capital costs (other than equipment, which he and Harrington own together), he's willing to pay what he knows are higher prices for certain things--urban rent, small lots of grapes, and the flat daily fee for a mobile bottling line to process relatively undersized lots.

Verhage and Harrington have been unusually successful in finding distribution outside the Bay Area; between them, they have distributors in New York, New Jersey, Colorado, Tennessee, Massachusetts and Illinois. Besides being persistent and making good wine, they leveraged some positive reviews their wines received on alternative, online wine media--the Robert Parker discussion boards, the West Coast Wine Network, food and wine blogs--to attract passionate wine drinkers and potential distributors.

Periscope
FINANCED WITH SBA LOAN

Nearby in mostly commercial-industrial Emeryville, Brendan Eliason makes 1,000 cases of varied red wines (on his way to an eventual 5,000 cases) at Periscope Cellars, named for the building's former function as a submarine repair facility. (Continuing the undersea theme, Periscope's signature wine is Deep Six, a multi-grape blend.) Eliason pays his personal bills by serving as the wine director for a fashionable East Bay restaurant/wine bar; Periscope was financed in part by a 10-year, $120,000 Small Business Administration loan, secured, as Eliason puts it, "by every personal and winery asset I have."

Like many urban winemakers, Eliason emphasizes direct sales of his wines at full retail price, that way "eliminating people between me and the final sale." Besides operating a Saturday tasting room, he sells futures for his wines and tries to get restaurant by-the-glass placement for visibility. "We aren't located where people look for wineries," he says, "but we do have 8,000 people living within a quarter mile, including lots of high-end condos." His winemaking style emphasizes blending for complexity and forward fruit; wines are turned around in a year, facilitating cash flow.

To help cover the $3,400 per month rent for his 6,000-square-foot space, Eliason produces wine there for three private clients ("I make the wine, they do the marketing") and plays host to two start-up wineries currently producing under his bond. At one of them, Urbano Cellars, Rob Rawson has graduated from home winemaking (a common urban winemaker résumé entry) to his first release, a rosé, part of an initial 750-case debut. Rawson and his partner pay Eliason approximately $25 per case for space and the use of equipment, and buy their own grapes, bottles, labels, corks and so on.

Hip Chicks Do Wine
HIP MARKETING, LOWER PRICES

One of the most successful of the recent urban start-ups has the defiantly non-traditional name Hip Chicks Do Wine, located in an industrial district of southeast Portland, Ore. "Wine Goddess" (and winemaker) Laurie Lewis and her partner Renee "the Wine Maven" Neely crushed their first 500 cases worth of grapes in 2001--although a slow-motion permitting process meant they had to make their wine at Duck Pond Winery, where Lewis had worked in the tasting room. Since then, they have taken over two adjoining warehouse buildings, totaling 6,000 square feet ($3,000 per month), and ramped production up to a planned 5,000 cases from the 2007 harvest. Financing has been done on credit cards and a second mortgage.

Two things help explain Hip Chicks' rapid expansion. Like many of their urban peers elsewhere, they focus on quick turn-around wines, but in a departure from the norm, they make whites as well as reds. Their wines are mainly priced in the teens, several dollars per bottle lower than the warehouse average. The second factor is clearly great marketing: flip wine names (Bad Girl Blanc, Riot Girl Rosé); a near-perfect attendance record at Oregon's numerous wine festivals; promotional stunts like a calendar, Wine Hotties, featuring customers with various costumes and props; and visibility with local causes, including Gay Pride events (for which they have made special labels). It's all part of a mission to snare a younger segment of the wine market, and it's working.

Cadence
CLUSTERED IN A BUSINESS PARK


Ben Smith and Gaye McNutt have been at it since the 1998 vintage, with initial financing coming from a home equity loan. In that time, they've moved the winery twice in search of larger and more usable space. (At one site, the floors sloped away from the drains.) They now have 4,000 square feet, at $3,500 per month. Both have given up their day jobs to devote full time to Cadence. But what sets them apart from most is that after starting their venture with purchased grapes, they have now developed a vineyard, 10.5 acres in the prestigious Red Mountain AVA in Eastern Washington. Once it is in full production, they expect it to provide 40% of the grapes for their roughly 2,500-case production. The distance between the winery and the vineyard, however, highlights one of the pricey parts of urban winemaking: Hauling grapes over the Cascade Mountains costs a flat fee of $1,000 per truckload, and Cadence's deliveries average only about 3 tons.

Kiamie Wines
OWNS ITS EQUIPMENT

Besides the stand-alone operations, numerous urban wineries take advantage, at least initially, of custom-crush facilities. Central Coast Wine Services in Santa Barbara County created the model there; today it and its sister operation, Paso Robles Wine Services, are home to dozens of small labels. These and similar facilities offer services on an al la carte basis, letting winemakers pick and choose what they do themselves and what they buy from the service provider. Custom-crush operations like these are mainly populated with wineries that at least hope eventually to move on, but Central Coast Wine Services has, for example, been home for several years to Lane Tanner and Hitching Post, two premier Santa Barbara producers.

The busiest man at Paso Robles Wine Services has to be Steve Glossner, former winemaker at Justin Vineyards and Adelaida Cellars. Glossner makes ends meet by serving as the consulting winemaker for three labels within the Paso warehouse, plus the wines for a start-up, Kiamie Wine Cellars, in which he is a partner, plus wines for his own dessert wine label. Unlike most of the inhabitants of the building, Kiamie owns all of its own equipment, including enough tanks and barrels for a 4,000-case production of red wines, making it the most expensive project in this survey (though still much less costly than it would have been to buy vineyards and build a free-standing winery). Kiamie is expected to head for other space--probably rented within an existing winery--soon.

Glossner and his partners are also aiming to maximize direct sales, which require a tasting room. Several have opened in downtown Paso Robles, but Glossner has his eye on a deal to open an outlet on the grounds of another soon-to-be winery on a hot stretch of the Paso wine trail. While the host winery develops its estate vineyards, and has no wine, Kiamie would use the tasting room, then turn it over to the owners, and move to a (hypothetical) Kiamie-owned location. The underlying business model, which you won't find in any textbook, is classic urban bootstrapping.

Variations on a theme

Beyond custom-crush, there's now mini-crush--companies like San Francisco's CrushPad that will help an aspiring winemaker produce as little as a single barrel of high-end wine for a mere $7,000-9,000, depending on the grapes. All the "winemaker" has to do is write a check, and out come bottled, labeled cases of wine that can be sold under CrushPad's bond and licenses. Wildly popular for vanity winemaking, CrushPad can also be a first home to those with larger ambitions. The Best of Show prizewinner in this year's San Francisco International Wine Competition was a Syrah from Canihan Wines. Though the Canihan family owns vineyards in Carneros, this particular wine--seven barrels of it--was made at CrushPad.

If these aren't enough variations on the theme, there's a condo complex in Tempe, Ariz., with a fully equipped winery using grapes shipped in by Napa's Signorello Vineyards; through the PurVine program, residents and others can buy their own barrel for $9,000.

There seems to be no end to new ways to skin a grape. "This is the only way to get into the business," Glossner says. "Real estate isn't getting any cheaper in California." But besides the economic factors, there may also be a personality type involved in the urban warehouse momentum. I recently asked Steve Edmunds what he'd do if he won the California Lotto and suddenly had a spare $15 million; would he buy land and build a chateau in Napa? "Nope," he said, "I'd get a bigger warehouse and have room to make wine with my friends."