Always wanted to own a port company?

[RonnieRoots]

I've heard that both Quinta do Ventozelo and Castelinho are for sale. So this is your chance to own a port company!

But all kidding aside, I'm not surprised that these companies are for sale. Both seem to have put much effort into expanding volumes in the last years (if you drive past the vineyard of Ventozelo, the amount of recently planted vines is stunning), but haven't been able to give the quality of the products the boost that it needed, while both companies own some very respectable vineyards. A possible buyer will have a good deal of work to do there. Moreover, I wouldn't be surpised if other companies of more or less the same scale face the same problems and come up for sale in due time as well.

[uncle tom]

Any idea what the asking prices are, or which agent is handling the sale?

Tom

[RonnieRoots]

No, nor do I have any specific information on the exact size of the companies. I know that Ventozelo has more than 100ha of vineyard, but IIRC they also work with bought in grapes. Castelinho has a large winery in Regua, as well as a huge visitor centre, and several vineyards, the best of which is Quinta do Castelinho itself, located near S. Joao d. Pesqueira. Both produce both table wine and port wines. I've never been a fan of anything of Castelinho. The aged tawnies of Ventozelo used to be quite good and the vintage port 2000 was decent (about Kopke level), but the rest is under par.

[g-man]

You know, that would make for some good information.

I wonder how much a winery would cost to run also.

Barring any renovations, let's say you have a run production of 100 cases.
or 5 barrels.

Fixed costs:
5 barrels at about 600$ / barrel = 3k$ a year in barrels

bottles and labels are 2$ per bottle .. 2400$ a year or so.

no idea how much corks costs.

Taxes on land

Electricity for storage/cooling

import taxes to ship it to the states.


Floating costs:
you need about 1.4 metric tons worth of grapes or 1-2 acres of land.

Plus you have the labor

[uncle tom]

bottles and labels are 2$ per bottle .. 2400$ a year or so.

A lot less than that, I think, although I don't have the exact numbers.

It's possible to calculate that the cheapest supermarket rubies are sold 'ex works' for about 2 euros per bottle - including not only the wine, but the bottle, stopper, label, capsule and carton. Some profit must come out of that price too, or they wouldn't bother to bottle it!

However carefully you tend your vines, at least 80% and probably more than 90%, will not make the grade for VP and will have to be sold for a much more modest price.

And unless you can get all the wine writers to wow about your VP, you will have to accept around 100euros/dozen (or less..) for much of your production.

Even for a modest SQ, a total annual production of 5,000 to 10,000 cases is probably necessary to be an economic operation.

Tom

[jdaw1]

Do the current owners of Quinta do Ventozelo and Castelinho have lots of short-term borrowing? If so, that might explain the sale — and offer a purchaser comfort about the negotiability of the price.

[g-man]

better glasses and corks are very expensive tho

the 2 euro bottles at tescos would have reconstructed corks, ie cork bits that they've glued together or plastic caps.

and the glasses are thin, light and allow alot of sunlight to go through.

but in terms of economy of scale, if you were to try and pull a "cult" wine like some of the garage bordeaux's and cali cults. I wonder if it would be possible still to pull a sustainable winery.

[uncle tom]

Do the current owners of Quinta do Ventozelo and Castelinho have lots of short-term borrowing? If so, that might explain the sale — and offer a purchaser comfort about the negotiability of the price.

That thought crossed my mind also. Spain has seen wild property speculation fuelled by cheap money that is now morphing into a full blown crash.

I'm not quite sure to what extent that has been mirrored in Portugal, but when I looked at some properties offered last year, the asking prices were ludicrous; especially when you consider that rural Portugal is absolutely littered with abandoned, derelict houses.

If people have been buying Quintas in the belief that they would increase in value (irrespective of their ability to turn a profit) then we may see some interesting distressed sales.

Tom

[uncle tom]

the 2 euro bottles at tescos would have reconstructed corks, ie cork bits that they've glued together or plastic caps.

Nothing as posh as that - they have plastic T-stoppers!

Tom

[Simon Lisle]

The house prices in Oporto have lost about 10% .

[RonnieRoots]

I know Ventozelo is owned by a rich Spanish company. Can't recall exactly what their business is. Don't know who the owner(s) of Castelinho is/are.

[Andy Velebil]

If people have been buying Quintas in the belief that they would increase in value (irrespective of their ability to turn a profit) then we may see some interesting distressed sales.

Tom

People, or more so companies, have been buying them to increase their benificio. That is why TFP and the Symingtons have been scooping up land as fast as they can.

[Roy Hersh]

Top grade VP corks are about 1.5 Euros wholesale according to Adrian Bridge.

[mosesbotbol]

If Symingtons or TFP aren't buying it, there must be a reason? Maybe they are carrying too much debt?

I see no mention of labor costs in the previous calculations.

[uncle tom]

I see no mention of labor costs in the previous calculations.

The least impressive lots of Ruby are not going to sell for a price that covers the cost of production; indeed I would not be surprised if all Rubies are inherently unprofitable, and that the better returns on the reserves, tawnies and special categories are needed to compensate.

Armed with a modern bottling plant, pallets, forklifts etc.; the bottler needs very little labour to turn a tanker load of ruby into a truck load of bottles ready for Tesco.

Anyone seeking to produce a 'cult' wine from a small quinta would probably have to resign themselves to selling the majority of their production, in bulk, to the likes of Cruz (for a miserly sum..), so that none of the wine offered under their own label failed to impress.

One part of the economic equation that I am very unclear about is the exact extent of EU handouts, which for many years have been a lifeline for the small French peasant growers, and should therefore, in theory, be available to someone operating on a small scale in the Douro..

..in theory!

Tom

[jdaw1]

One part of the economic equation that I am very unclear about is the exact extent of EU handouts, which for many years have been a lifeline for the small French peasant growers, and should therefore, in theory, be available to someone operating on a small scale in the Douro..

..in theory!

Diminishing. One third of EU farmers are Romanian, and even the French have realised that, when payments to Romania start in about half a decade, CAP can’t afford it. So payments will change and diminish. Caveat emptor.

[g-man]

I would have thought that with a winery
it's your lower generic ends that you sell to the tescos/marks spensers that would run your business and the cult ports would be where you pad the profits.

A winery is hardly a multimillion dollar profit business, but i figured it would be able to sustain say, 200k$ USD a year in profits - money losted on all the alcohol you wished to drink.

[Andy Velebil]

The least impressive lots of Ruby are not going to sell for a price that covers the cost of production; indeed I would not be surprised if all Rubies are inherently unprofitable, and that the better returns on the reserves, tawnies and special categories are needed to compensate.


Tom

Tom,
Curious as to why you think this is so. G-man is right, in the wine business it is the lower end stuff that makes the money. A great example is Bronco Winery here in the states. They sell a line of dry wines call Charles Shaw (also known as "Two Buck Chuck") as it sells for only $2 a bottle

The winery has sold millions of bottles, and probably single handedly helped put daily wine drinking back on the map here in the states. bronco winery has made millions off of it. Quite a profitable operation.

Lower end stuff is relatively cheap to produce, the bottles, corks, and labels are all lower quality and bought in high bulk for further discounts. Allowing a producer to sell tons of bottles at a slim to moderate margain and still make lots of money.

most of the top end stuff is where profits are either very low, break even, or even at a loss.

[JacobH]

One part of the economic equation that I am very unclear about is the exact extent of EU handouts, which for many years have been a lifeline for the small French peasant growers, and should therefore, in theory, be available to someone operating on a small scale in the Douro..

..in theory!

Diminishing. One third of EU farmers are Romanian, and even the French have realised that, when payments to Romania start in about half a decade, CAP can’t afford it. So payments will change and diminish. Caveat emptor.

Indeed, in France at least, there are quite substantial payments available for farmers who stop growing grapes, in an effort to stop overproduction of wine.

I suppose, therefore, another option might be to live of the “no production† payments, whilst just keeping enough vines in production to produce a few pipes for personal consumption!

[uncle tom]

If you are making bulk unfortified wines from vineyards on moderate slopes that are suitable for highly mechanised viniculture, then it is perfectly possible to turn a profit from very cheap products.

But in the Douro, the very labour intensive cultivation coupled to the additional cost of aguardente makes the average price realised for standard rubies and tawnies - 2.50 euros/bottle - look very mean.

However, the production cost for reserve ports cannot be very much greater, and at an average sale price of 3.90 euros per bottle, there is clearly much more profit to be had, and the LBV's, at 5.00 euros, are even more attractive.

Tom

[DRT]

in the wine business it is the lower end stuff that makes the money. A great example is Bronco Winery here in the states. They sell a line of dry wines call Charles Shaw (also known as "Two Buck Chuck") as it sells for only $2 a bottle

The winery has sold millions of bottles, and probably single handedly helped put daily wine drinking back on the map here in the states. bronco winery has made millions off of it. Quite a profitable operation.

Lower end stuff is relatively cheap to produce, the bottles, corks, and labels are all lower quality and bought in high bulk for further discounts. Allowing a producer to sell tons of bottles at a slim to moderate margain and still make lots of money.

most of the top end stuff is where profits are either very low, break even, or even at a loss.

Andy,

Your argument stacks up but only if you use the correct method of apportioning the investment costs. With any variable quality product business it is relatively easy to make it look like your bulk low-end product is the one making the profit. All you do is tweak the apportionment of overhead costs so that most or all of that is allocated to the higher priced outputs. You can then also claim that your expensive stuff doesn't make you any money!! For, example, if your accounts show that you bought 5 lagars, 5 trucks and 40 hectares of Grade A land to produce VP ad LBV then your production costs for those look high whilst any ruby and standard tawny that pops out using those "paid for" resources looks like it cost almost nothing to make.

$2, £1 or 1.3 euro on a bottle of VP doesn't register with the consumer - £0.50 on a bottle of ruby destined for the french alchoholics makes a huge difference in the company's annual accounts

You can do anything you want to with numbers

[Andy Velebil]

Yes you can. But in the wine business it is the cheap stuff that is the actual money maker. The higher end stuff requires a lot of annual recuring expenses, whereas the cheap stuff doesn't because its massed produced as cheaply as possible to maximize profits.

[DRT]

Yes you can. But in the wine business it is the cheap stuff that is the actual money maker. The higher end stuff requires a lot of annual recuring expenses, whereas the cheap stuff doesn't because its massed produced as cheaply as possible to maximize profits.

I predict a long debate about this over a fine bottle of port in the Scottish Highlands in mid-October Mr V

[jdaw1]

I predict a long debate about this over a fine bottle of port in the Scottish Highlands in mid-October Mr V

Only one. Well, at least one of the Americans and the Scots must be lightweights — my money is on the former.

[DRT]

I predict a long debate about this over a fine bottle of port in the Scottish Highlands in mid-October Mr V

Only one. Well, at least one of the Americans and the Scots must be lightweights — my money is on the former.

So is mine.

[RonnieRoots]

I don't know what the current situation is for growers, but I do know that some years ago, they were selling their low end stuff at loss. Competition in the lower end is stiff (meaning that consumer prices remain low) but costs of labour, land, transport etc. are going up. And labour is a very important factor here, given the labour intensivity of the Douro. If you compare the look and feel of northern Portugal now and as close by as 5 years ago, the difference is incredible. The standard of living (while in many parts still poor) is going up at an insane rate. And costs rise accordingly. But a 5 euro bottle of port is still a 5 euro bottle of port. Costwise impossible. It is no co-incidence that there has been such a shift towards the special categories the last years. That's where the real money can be made. Not cheap rubies, not vintage port, but ruby reserve and LBV.

Given all this, it is also no co-incidence that companies like Castelinho and Ventozelo are in need of a cash injection and come up for sale. These companies had a pretty strong reliance on the bottom range, and struggled to get a position in the special categories market (or rather, struggled to get their quality up to par).

[morteno]

A great example is Bronco Winery here in the states. They sell a line of dry wines call Charles Shaw (also known as "Two Buck Chuck") as it sells for only $2 a bottle

This reminds me of the episode of Oz Clarke and James May's "Big Wine Adventure" (season 2) where they head off to California and in this episode visit the quoted winery and meet with Two Buck Chuck himself. Chuck is disgusting - on several levels. It's hilarious . Great series by the way.

[ajfeather]

Hard times for smaller players in Douro article in Bloomberg of all places http://www.bloomberg.com/apps/news?pid= ... refer=home

[JacobH]

Surely this cannot be true?

Foreign Competition

Winemakers in countries such as the U.S. and Australia are vying for a larger share of the market for table and port-like wines. U.S. dessert wine sales increased 61 percent in the five years to 2007, according to the California-based Sweet and Fortified Wine Association. New Zealand more than tripled its area of vineyards in a decade.

I wonder if the 61% increase represents in absolute terms.

[DRT]

Surely this cannot be true?

Given the exremely high price of real Port in the US I can see how this could easily be true. I am sure some of these port-like wines are very gluggable, especially in a market that has a strong tendancy towards drinking young wines. What would be interesting to know is whether or not the 61% increase in the consumption of imposters is balanced by a corresponding reduction in Port sales or is it part of an overall increase in demand for fortified wines.

[Andy Velebil]

It has become very popular here in the States for wine producers to produce a "dessert" wine. Usually they are just late harvest Zinfandels that have 17ish % ABV. Think of a super jammy and ripe zin and you got the idea. Not really my cup of tea, but some people love these things There are also wineries making fortified zins and cabernet sauvignon that are in the 18-20% ABV range. Basically they are like drinking high octate zins and cabs and have no bearing to real Ports. But they sell a lot as people are already at the winery or on a mailing list so its easy to get them buy a bottle or two with their other wine purchases.

The sad thing is these imposters are most often more money than the real deal. I was at a Paso Robles winery last week that had two "ports", one a basic ruby and one an aged tawny (IIRC, around 8 years of age). While the basic one was not that great, the aged tawy was actually sorta decent....until I inquired about the price. It was $60 for a .375ml That translates into $120 for a full bottle. I can get a great 1970 or 77 VP for that price, or a 40 year old tawny that would blow the doors off this imposter. But people buy them, especially after tasting wine at a winery tasting room and getting a bit tipsy. Good selling strategy if you ask me...but I won't buy any.

[Glenn E.]

Yeah, I've noticed that Ficklin (CA) and a few Aussie companies have basic rubies available in my corner grocery store... but they're more expensive than Graham's Six Grapes and not nearly as good. Makes no sense to me.

The Aussies do manage to produce some very good dessert wines, but I haven't found a port from down under that I like.