Western innovator: Vintner makes cash flow like wine
Updated: Friday, October 14, 2011 9:38 AM
Winemaking business built 'on the fly' with limited capital
By MATEUSZ PERKOWSKI
When Joe Dobbes struck out on his own in the wine industry, he decided to avoid the traditional path many vintners take.
"We're a different animal than 99 percent of the wineries in Oregon," he said.
The conventional route can best be described as capital intensive: buying land, planting vines, building a winery, accumulating an inventory of bottled wine and then trying to sell it.
Dobbes opted to bypass most of those steps and start generating cash flow. He found markets for bulk wine, contracted with growers for grapes and fermented the product at rented facilities.
"It was literally on the fly," he said. "This was spot market stuff."
Under this arrangement, Dobbes accepted excess grapes from farmers and agreed to turn them into wine and find a sales outlet -- in return, he got to keep a hefty portion of the wine to sell himself.
The strategy allowed his company to immediately start generating money, rather then spending it in large quantities and then hoping for a return on investment years down the road.
Over time, Dobbes' bulk wine relationships became cemented with multiyear contracts.
In the decade since setting off on his own -- Dobbes previously worked as a winemaker for other companies for 17 years -- the business has also diversified.
"There's multiple legs to the stool in terms of income," he said.
Bulk wine still comprises most of his production, but he also contracts to produce wine for other companies to sell under their own brands.
Under such "custom crush" agreements, Dobbes is paid for the service of making wine, so he doesn't have to take ownership of the product or worry about marketing.
It's great for paying overhead costs, he said.
Custom crush facilities offer more options for aspiring winemakers who don't want to immediately invest in bricks-and-mortar wineries, said Dixie Huey, owner of Trellis Wine Consulting.
"If you look at the cost of entry, it becomes lower," she said. "The existence of custom crush facilities and the availability of bulk wine reduces the cost of entry to the business."
In addition to working behind the scenes, Dobbes produces his own wine labels: the value-oriented "Wine by Joe," the premium "Dobbes Family Estate," and the restaurant-specific "Jovino." He also makes wine for the Trader Joe's grocery store brand, "Vintjs."
The advantage of producing wine for Trader Joe's proprietary line is that Dobbes can move a large volume of bottled wine "in one whack," he said. "The profit margin is lower, but boom -- it's out there."
Unlike most winemakers, Dobbes can react quickly to consumer demand for wine, said Mark Freund, a Silicon Valley Bank senior lender who specializes in wine.
That's because he's not dependent on selling cases of his own wine brands, Freund said. Dobbes has numerous ways to generate income from the wine he makes.
"He has a very flexible, elastic business model," Freund said. "If he doesn't feel that demand pull, he'll use his contacts to bulk that wine out."
Dobbes credits his success in part to timing. When he launched his company in the early 2000s, the market was primed for bulk wine sales.
"Grapes were starting to exceed demand in Oregon, but there was more interest outside of Oregon," he said.
Since then, his company has settled down at a leased facility in the popular wine country town of Dundee, Ore., grown to 22 employees and acquired more than 200 acres of vineyards near Perrydale, Ore.
Dobbes decided to buy the property to lock in a certain amount of fruit each year. Grapes from the vineyard contribute to roughly a third of his company's annual wine production, which ranges from 115,000 to 125,000 cases.
"It gives us control over our costs and supply," he said.
Apart from his multiple business segments, Dobbes also aims to produce wine -- notably Pinot noir -- at a variety of price points.
Due to the cool Oregon climate, much of the Pinot noir produced in the state is at the luxury end of the price scale.
That's because vines don't receive enough sunlight to ripen large quantities of grapes. Growers must prune grape clusters to reduce the amount of fruit per vine, which boosts the likelihood of ripening.
The slow ripening process produces more complex flavors, but the lower yields drive up wine prices.
Dobbes has found ways to reduce the price point for his "Wine by Joe" Pinot noir, bring it to the value end of the spectrum.
He uses lightweight glass, cheaper labels and screw tops instead of corks, cutting packaging expenses by up to two-thirds. In the vineyard, he employs less vigorous canopy management to save on labor.
"You do everything necessary but nothing extra," Dobbes said. "It doesn't have to look like the most beautiful vineyard in the world to make excellent wine."
Education: Bachelor's degree in biology from Southern Oregon University, 1982
Family: Wife, Patricia, and two children
Quote: "We're a different animal than 99 percent of the wineries in Oregon."