May 2017 Issue of Wines & Vines
 
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Financial Considerations for Bottling Equipment

Cost, manpower and bottling frequency should be addressed before purchase

 
by Jeff Clark
 
 

Every drop of wine produced by a winery represents countless hours of hard work and expertise dedicated to creating the perfect taste, body and balance. While bottling may seem like a final logistical step in the process of creating the perfect bottle of wine, it is actually a critical component to becoming a successful, profitable winery.

Many winemakers are presented with a plethora of options when it comes to bottling and equipment, each of which have their benefits and drawbacks. There is no one-size-fits-all best option for wineries. There are, however, several considerations when determining how to bottle; these include capacity, delivery deadlines, future growth plans, available staff and more.

No matter how you decide to proceed, careful consideration is crucial. Depending on the number of cases bottled, winery location and production volume, mobile bottling costs can range from $2.20 to $2.50 per case. On the other hand, a state-of-the-art mobile-bottling unit can cost as much as $1 million or more. The size of your winery, your bottling schedule, bottling needs and geographic location will determine whether you should own a bottling line or contract outside bottling services.

If you choose to invest in bottling equipment, it should provide a reasonable return on investment and be sized to meet the needs of your winery today, tomorrow and well into the future.

What are my options?
Build/buy: Building or buying a bottling solution for your winery is what many winemakers aim to work toward over time. First and foremost, if your winery is successful and growing, then owning bottling equipment will require an upfront investment that needs to pay off in a reasonable amount of time. This option also ensures quality control, as you can oversee the bottling process.

There is a large investment required in purchasing bottling equipment, not only in the equipment itself but also sourcing and retaining quality personnel. Some of the considerations include:

• Do your current and projected bottling needs justify the cost of installing bottling equipment in-house?
• How soon can you recoup your initial investment?
• How does the cost of ownership compare to what you are currently paying for outside bottling services?
• Can you create additional revenue by bottling for other wineries?

By asking yourself these questions, you can get to the heart of whether buying a bottling line makes financial sense for your winery. If you answer these questions and still decide that buying is the right option for your winery, then it’s time for you to do some research. Points to consider:

• Will you require financing? If so, what type of financing is available?
• Will a down payment be required and, if so, how much?
• Will the debt service associated with the financing be acceptable to your current and projected cash flows?
• If the unit must be built, will your lender provide progress payments? Will those payments be interest-only or principal-plus-interest payments during the construction period?

There is much more to owning and operating a bottling line than simply paying for it. You will also want to determine if you have the skills and staff time required to operate a bottling line.

Production considerations: Do you have bottling experience? If not, can you recruit and retain competent personnel with sufficient experience? Does the current winery location allow for an efficient production facility?

There are several factors that make a location less than ideal for bottling. For example, a loud bottling line next to your tasting room might detract from customer traffic. Likewise, exposure to rain or heat can prove detrimental to wine quality and make employees uncomfortable. Finally, you will want to purchase product-liability insurance if you choose to bottle for other wineries.

After carefully considering the above questions, the challenge of selecting bottling equipment begins. Deciding what type of bottling equipment is right for your winery could justify an entire article on its own. Your product offerings, production volume, bottling schedule and geographic location all drive the decision whether or not to buy your own bottling equipment.

Case studies: owning your bottling equipment
Susie Selby is the winemaker and proprietor of Selby Winery in Healdsburg, Calif. Selby owns and operates her own bottling equipment. Her current annual production is 13,000 cases with 8,000 cases bottled internally. The remainder is sourced to an outside mobile bottling line. She purchased new equipment in 2000 that includes a 12-spout rotary filler and single-head corker. The mobile line provides screwcap closure application.

“I use my own small bottling equipment for most of the wines we produce, which range from small lots of 150 to 500 cases to larger production wines of 2,000 to 3,000 cases,” Selby says. “Not only are my costs lower than a mobile bottling (vendor), but I have scheduling flexibility and more creative freedom with bottling decisions. The key to my ability to do this is my equipment-savvy cellar master, who has been with me for 15 years. We are able to service the bottling equipment in-house, which keeps costs down through the life of the equipment.

“The exception is when I bottle wines that need a strict sterile environment such as my Sauvignon Blanc, which does not go through malolactic fermentation, or Zinfandel with 0.05% residual sugar. I do contract a mobile bottler for these wines, but I am careful to use a company that has an appropriate truck size for the lot size. The mobile bottler I use has trucks that range from 1,200 (cases) per day to 3,000 per day, and by choosing the appropriate truck, I can maximize the utilization of equipment and labor. With increasing labor costs, it is becoming increasingly important to streamline any production process,” Selby adds.

William Chris Vineyards is located in Hye, Texas, and its annual production is about 20,000 cases. Chris Brundrett and Bill Blackmon bottled their first vintage in 2008. In 2016, they purchased a new in-house bottling line from Collopack Solutions that includes a Bertolaso 12-nozzle bottle rinser, a 12-valve filler with a single-head corker, capsule dispenser/spinner and a two-head pressure-sensitive rotary labeler.

Cost savings, additional revenue opportunity and quality assurance were the main reasons for the investment. Brundrett says, “We are able to reduce our bottling costs by almost half by bringing the operations in-house.” In addition to bottling their own wine production, they will bottle an additional 2,000 to 5,000 cases for local wineries, generating additional revenue while maximizing asset utilization.

William Chris Vineyards bottles anywhere from 300 cases to 1,500 cases per wine offering. The ability to bottle on their own schedule allows them to give each wine lot the attention it deserves. “Bottling lead times in this area are three to five months. We found it challenging to prepare five to 10 wines for a mobile bottling line, overshooting to blend and bottle two to five wines with limited tank space. If a wine was at the edge of stability prior to bottling, we would be forced to make a choice to bottle or postpone for the next mobile bottling visit three to five months later. With the line in-house, we have greater flexibility in bottling that allows us to maximize quality control.” They expanded an existing building at the winery to create a dedicated bottling facility.

Fireside Winery is in Marengo, Iowa. The owners also own Ackerman Winery in nearby Amana, Iowa. Ackerman produces a wide variety of wines, including fruit-based wines, and has year-round bottling needs.

Zach Bott, Fireside’s winemaker, found the decision to buy a Eurostar bottling unit from the Criveller Group to be an easy one. “We have one mobile-bottling option, which is located in Wisconsin,” Bott says. “Since we have year-round bottling needs, we would need to contract their services 12 times per year.”

Bott recently purchased a cross-flow filter due to the same lack of locally offered services. “If we were located in California, we could employ a mobile-filter service, but we don’t have that option here,” he adds.

Bott utilizes bottling equipment that can apply either screwcaps or corks. It was installed in early 2016 and can operate at full capacity with three to four employees. The winery is bottling every other week instead of every week due to the new machine’s capabilities of 1,800-2,000 bottles per hour. It is a 12-spout rinse-and-filler system and a pressure-sensitive labeler. Fireside Wines and Ackerman Wines are sold exclusively in Iowa at 160 different locations.

Adirondack Winery, located in northern New York near Lake George, was established in 2008 by Mike and Sasha Pardy. Total annual production is 12,000 cases, with bottling runs ranging from 100 cases to the largest of 4,000 cases. A new eight-valve filler with corker, capper and pressure-sensitive labeler was installed by Prospero Equipment in 2016.

“We bottle, on average, about once per week starting in late December through August,” Pardy says. “The average bottling is about 400 cases, and with bottling line setup, cleaning and sanitation it takes about seven hours. We have about 30 different wines to bottle, and with our schedule it works out pretty well. Having a bottling line has really helped reduce our bottling time and saved enough labor time to pay for itself while greatly improving our quality both of the wine and our presentation.”

Mobile bottling services
Mobile bottling services provide wineries with a solution that comes to the winery with all the necessary bottling equipment. The service providers are growing both in number and in the number of units they own. This option is flexible, can scale with your winery and ensures quality control since you oversee the process.

Noel Arce in McMinnville, Ore., launched the new Pacific Bottling mobile bottling line in 2016 to address growing demand for bottling services in the Willamette Valley. There is a GAI 18-valve filler, cork or screwcap application and an Impresstik pressure-sensitive labeler. Although the bottling line averages 2,000 cases per shift, it can handle up to 2,400 cases. The 18-valve unit can bottle an extra 300-400 cases per shift. The minimum production run is 1,000 cases. Arce has operated bottling lines in the past and consults on locally owned fixed bottling lines. He estimates 10% of the wineries in the area own bottling equipment.

Tom Eddy of Tom Eddy Winery in Calistoga, Calif., has utilized mobile bottling lines since working at Chateau Souverain in 1981. He has used mobile bottling for clients since 1995 and at his own Tom Eddy Winery since 2014. He is a big believer in the technology, stating that mobile bottling units are so good, “They do a better job than if the winery did it themselves. In addition to the quality they provide, there is recourse to the bottler if there are quality issues.”

Since Eddy occasionally serves as an expert witness for insurance matters, he is familiar with claims regarding bottling and finds there are less and less quality issues with mobile trucks. One aspect he likes about contracting outside bottlers is that he knows the exact cost per bottle.

Some wineries have issues with mobile bottling because of scheduling high-volume orders. Tom Eddy Winery, however, is a small winery producing 5,000 cases per year of very high-quality wines and only needs bottling services three times per year. This allows Eddy to schedule well in advance.

Securing funding for new bottling equipment
Financing bottling equipment is a specialized area due to it being a small market with a handful of experienced lenders. The down payment amount required by the lender (if any) as well as term and amortization are key considerations. The bottling line manufacturer will require a down payment and progress payments. Your lender will need to understand and be comfortable with this process.

During the construction period, a lender may charge you principal and interest, interest only or may allow the interest to accrue to the loan balance. The inherent risk of the request and the lender’s credit policy will determine the structure but also the total cost of borrowing. The total cost of borrowing will impact when your investment in the bottling line will pay for itself.

The term and amortization will be determined by the lender’s credit policy. Many conventional lenders utilize IRS depreciation schedules for this purpose (i.e., three, five, seven and sometimes out to 10 years). Other lenders, such as a government-guaranteed lender like the Small Business Administration, may utilize the useful life of the equipment as determined by an equipment appraisal. Substantial pieces of equipment such as a bottling line will commonly have a useful life of 15 years or more. This can significantly decrease the debt service associated with the purchase.

No matter what you decide in terms of financing specifics, it is beneficial to select a lender with experience in the wine and craft beverage industry who can lend and also advise you on the right financial decisions for your specific need.

 

Jeff Clark is the domain expert for Live Oak Bank’s Wine and Craft Beverage Group. He began his wine and craft beverage lending career in Napa Valley, Calif. Clark works with wineries, breweries and distilleries throughout the United States.

 
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