|Sunday June 4, 2006
I've decided to take a big step forward. I want our winery to comply to all State shipping laws. Before the decision by the Supreme Court last year there were very few laws regarding shipment of wine from one State to another. There were only 12 States that were reciprocal, meaning there were no laws and wine could be shipped direct to consumers legally. There were many States that considered it a felony to ship wine directly to consumers. Over the years we have used many different shippers who were willing to ship to most States. We actually have shipped to almost every State but Utah with little difficulty. About two years ago Fed Ex started to ship to about 40 States as long as the customer was in the winery at the time of purchases. Fed Ex did not ask us to comply with individual State laws. That is not their job. It was our responsibility.
Since the Supreme Court decision regarding shipment, many States have become permit States requiring sales tax and permit fees. There are now 31 States that do not have a limit on the amount of wine that we can ship, but we would have to sign up, keep records and pay fees. There are another 10 or so States that have no requirements. I am in the process of finding someone who can take over the responsibility of complying with all the laws in these many States.
Now I am sure you are wondering: Who will pay these extra fees. We obviously could raise our prices to cover the expenses. That would be unfair to California customers who already pay sales tax, but of course many of them do not pay shipping costs because they are close enough to come back and pick up their wine. This is a hard decision, but the fact is that we legally should be complying and thus should have been paying these fees all along.
I do have an idea. We may be able to absorb the costs and not raise out prices next year.
Our sales are up about 20% over the last year. That brings in more money. Our fixed costs (Living expenses, Mortgage payment and certain winery costs) have remained the same, excluding all the new equipment I have been purchasing each year. The key words there are "each year". It seems like each year I have spent about $200,000 ($2.50 a bottle) on equipment or ventures which do not work out, such as Plaza Farms. That means we have been spending all our money and paying little taxes. Really, I have been able to spend all the money I want but I have saved little. But with the increase of sales in the last year or so, I have slowly been accumulating a little money in our savings account. We actually only had to borrow $30,000 on our line of credit in January and paid that off after the Russian River Barrel tasting in March. We did hire two new employees. Matt has been here one year now, but the sales he generates more than makes up for his salary. The other employee, Salvador was hired to help Catarino in the vineyard. That cost is not much since we have had to hire part time employees in the past.
What I am trying to say is that by producing and selling more wine the average cost of producing a bottle has gone down. Let's assume our average price has gone down by 7% and the fees required to ship out of State will add 7% to our costs. That would mean we will break even and not have to charge more. Remember I am not greedy and I really am not in this to accumulate a great wealth of money in the bank. I like to spend money. My wealth lies in the Winery and property it is on. If something should happen to me, my Family will be well taken care of.
Let's look at a few specifics. I have three pieces of equipment which will be paid off this year amounting to a saving of 30 cents a bottle and that should offset the increase in salaries. We have incurred higher costs, like fuel, including the price of the glass bottle and that would add about 15 cents to a bottle of wine. I am estimating that the costs to comply to all States will be about $10,000 or only about another 15 cents a bottle. What is interesting is that all the equipment I have purchased in the last two years has been paid through cash flow and not financed. That means I have no new loans.
We are now selling at the rate of 6,500 cases a year. That is about 80,000 bottles. I once calculated the cost to produce additional bottles above 4,000 cases. I figured in the additional cost of the glass, capsule, label, labor, utilities, barrels and grapes and came up with $6 a bottle. The fixed costs remain the same so we could lower our cost to produce a bottle from $10 to $8.50. That should more than offset the cost of compliance. As long as our sales remain strong, at this time, I plan on holding my prices for at least another year. That would mean our prices for The Russian River Barrel Tasting, 2007 Futures and Passport will be the same next year.
Monday June 5, 2006
I just got back from walking through the vineyard and was amazed that all varietals are in bloom at once. A few days ago when I reported, I saw mostly Zinfandel in full bloom, but today every varietal including Cabernet has responded to this terrific weather. The berries in the zinfandel should show signs of swelling next week. Right now the bunches look like they could be big. What is scary is that this could be one od those years when everything is harvested in a short time. We have all the equipment and room and we will be ready. This could also be an early harvest again. Remember short hang time has produced the best grapes for wine. Last year was one of the shortest years on record. The vines didn't even start growing until the third week in May. We harvested Zinfandel in the first week of September, normal for this vineyard. That is probably the shortest hang time on record and last year was one of the best years for zinfandel wine. Hang time is way over rated.
Wednesday June 14, 2006
I am sort of lost. Pat has flown off to the Azores with both my daughters so most of what I care about is off in Portugal for two weeks. I am surviving since I do most of the cooking around here anyway, but it is lonely at times. I do not like to socialize without my wife so please do not invite me for dinner or think you have to come by to visit.
I have a problem with Brown. We are out 8 miles from Healdsburg and miles from Cloverdale, the only residential areas around us. UPS has failed me for months. About 6 months ago my regular UPS driver disappeared. He has appeared a few time since because the new drivers had screwed up the route, long story.
I have always had reliable UPS delivery and thus great organized delivery guys. I have not had a lady on my route, but I know they can be great also. ALL of them have come by 2pm to deliver. The last driver which I had for atleast 7 years delivered by 1pm, sometimes much earlier unless it was xmas. Since he disappeared the time of delivery has varied greatly, but never before 1pm. I have had deliveries here as late as 5:45pm.
At times in the last several months we have had the same driver for a few weeks and delivery can be calculated to be consistent. But it has gotten worse lately. I have been told, by the many drivers, that the route has been reconfigured. I take that to be no one wants it.
Last Wednesday I ordered a 2 Gig card for Kate's camera so she could use it in the Azores. Of course I ordered it over night UPS since she was leaving Monday. I got delivery of it on Friday at 6pm. I was told by the driver that it was routed incorrectly and he felt it was important to get it to me so he went out of his way to deliver it. He was a driver who had been on the route many times and he was familiar with us. I sent him off with a bottle of wine and as he left he said I don't no what will happen here next week.
Today I went online to see I had a delivery of a great Australian Riesling to be delivered, but it did not show up. I know that wine is in someone's truck tonight. Hopefully it will be delivered tomorrow. Don't worry, this has gone on way too long. I will call BROWN tomorrow.
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