A few years ago, a friend decided he wanted to put out a wine under his own label. His strategy was to test the markets reception and then decide whether to sell the wine in the future. His wine was a chardonnay named after his wife. He randomly contacted a custom crush facility in Napa to explore the options involved. Ultimately, he decided he wanted to buy his own fruit directly from a vineyard owner and have the fruit delivered to his custom crush facility. The rest of the work was in the hands of the facility staff. He specified in laymen terms, his label look, specifications relative to taste, tannins, alcohol, oaky aromas, and acid levels. In 12 short month’s his family and friends were toasting his new wine. Do you have a similar dream?
Digressing for a moment. In the late 60’s I visited the Robert Mondavi Winery; they were finishing building their new winery. And for a long time after that I equated a bottle of wine with a physical winery; one having a grand building and surrounding vineyards. Reality isn’t that. In reality, a winery may not include a physical plant and support facilities surrounded by their vineyards. In the past, consumers perceived premium fine wine was considered premium if made by wineries that owned their own vineyards and buildings.
Today premium wines can be made by winemakers who neither own the physical facilities or the vineyards. Boutique wines, varietal and blended, are not a function of a building or owned land. As Celebrations Wine Club notes, “Many of the wines that are now cutting edge are made by winemakers without their own vines, who are hunting down extraordinary fruit from small, often old, and usually obscure vineyards in out-of-the-way places and making extraordinary wines that command handsome prices. Ultimately fine wine is the result of winemaking technique and vineyard quality, regardless of who owns the land.”
In the case of vineyards/grapes, winemakers don’t need to own the land and the vines, if someone else produces quality fruit, then buy from them. Relative to winery facilities, over the past 10-15 years, there are more options for winemakers to ply their skills through “Custom Crush” and “Alternating Proprietors” options. I will explain both, but the focus now is on Custom Crush because that is where boutique/small case production winemakers can get the most help in crafting their wines while exerting various levels of control in the winemaking process.
Alternating Proprietor-Where two or more entities take turn using the same space and equipment to produce wine. These arrangements allow existing fixed facilities wineries to use excess capacity. The TTB (Tax and Trade Bureau of the Treasury Dept.) must approve all proprietors as an operator of a Bonded Winery. These are the same requirements as if owning 100% of the winery.
Custom Crush-The wine ‘Producer’ is authorized by TTB to make wine and is entirely responsible for producing the wine and following all regulations and taxes. The ‘Customer’ is not responsible for interfacing with the TTB or paying taxes directly. Once the finished wine is transferred to the customer the sale is completed and taxes are paid by the “Producer”.
Note: Unless the “Customer” chooses to give his wine away to friends or even sommeliers as a free sample, no filing with the TTB is required. However, to sell the wine, the former ‘Customer’ now becomes and acts like a winery and must file with the TTB for a license to sell the wine-remember there are two things in life that are unavoidable, one being “taxes”. This notwithstanding, some custom crush facilities can assist in selling a Customers dream wine “Direct-to-Consumers” by acting as a licensee for the Customer.
The above explanation is only to explain that there are two options for winemakers to craft their own wine absent owning a physical winery. A custom crush facility is free to help the winemaker based upon agreed fees, but ultimately, the custom crush operator is responsible for everything from label approvals, to record keeping relative to bonding, and taxes.
The growth of the Alternating Proprietors and Custom Crush options has been so dramatic that in 2008 the TTB came out with an Industry Circular to remind wineries and custom crush operators as to the rules/laws that apply to their operations as set forth by the TTB.
The “virtual” winery industry of 2015 in the U.S. was 1,477, out of a total of 8,287 wineries (6,810 were bonded). The Custom Crush universe now represents 18% of all wineries and had a 23% growth 2015 versus 2014. With California representing approximately 50% of U.S. wineries it is easy to understand that the big push into custom crush is California driven.
The true magnitude of just how impactful the custom crush business has become can be realized when we explore the definition of a winery. Basically, it is defined as an establishment that produces wine for proprietors or owners of the winery and pay taxes on the finished product. Most boutique wine sellers have their own licenses to sell their wines and are therefore wineries. In the case of custom crush, there is only one entity paying the taxes, yet it is not uncommon for them to be producing wine for 100 plus people. Looking at the client list of two custom crush companies in Sonoma and Napa, they produce wine for more than 100 clients each. Wine Fountains