The Business of Growing Grapes

Throughout the class we’ve talked about a number of businesses like Cannonball Cabernet and The Middle Sister, which produce wine but do not grow their own grapes. This got me thinking, what about the opposite end of the spectrum - businesses that grow grapes and sell to brands like Cannonball Cabernet and Middle Sister (rather than making wine themselves)?

I’ve discovered that the business of growing grapes is heavily focused on the vineyard site and reputation of the land where the grapes are grown.   The origin of grapes is important because winemakers are able to justify a premium price for their wines if the grapes are sourced from desirable locations like Napa Valley (for Cabernet) or the Russian River Valley (for Pinot Noir).

As a result, many grape growers will target selling their grapes to either 1) bulk wine producers or 2) high-end, boutique wine labels.  In California, gapes sold for bulk wine production are typically planted in central California. If you’ve ever made the drive from LA to San Francisco, you’ve likely seen rows and rows of unmarked vineyards planted for bulk wine production.  For these grape growers, low prices and high yields are valued over the quality of the fruit.

On the flipside, there are a number of high-end grape growers that have top winemakers vying for the opportunity to buy their grapes. These ‘premium’ grapes are so in-demand that winemakers will often include the name of the ‘premium’ vineyard on their wine label. 

Hirsch Vineyard: Sonoma Coast

One of the most notable Pinot vineyards is the Hirsch Vineyard, located high on a ridge on the Sonoma Coast, 2.5 miles from the Pacific Ocean. The remote Hirsch Vineyard provides fruit for some of the finest Pinot Noirs in California, including Littorai, Williams Selyem, and Failla. 

Beckstoffer To Kalon Vineyard: Oakville, Napa Valley

Another source for high-end grapes is the Beckstoffer To Kalon Vineyard in Napa Valley.  Owned by Andy Beckstoffer, this site was first planted in 1868 and has long been a source of great Napa Cabernet Sauvignon. Grapes from this vineyard have historically been sold to Opus One, Paul Hobbs and other high-end Cabernet producers.  Beckstoffer To Kalon Vineyard sells their grapes for a price that’s ~5x higher than the going rate for a ton of premium Napa Cabernet.

Overall, growing grapes and selling to wine labels is a challenging, capital-intensive business. These growers are susceptible to weather risk, changing consumer tastes, and the reputation of their vineyard site.  As shown in the table below, the market price of grapes can vary drastically based on the grape varietal and the vineyard site. I find this data fascinating because it shows how much power consumer preferences have on the price of grapes.