Owning a Vineyard, an Interview with the Shadicks

L: Does the management company operate a bunch of different vineyards?

PS: Yes.

TS: They manage about 650 acres, and ours is 32. But, he treats us like we're his only client, he's wonderful.

L: Do you consider your vineyard a business? Are you able to make a profit?

TS: Make a profit, no.

PS: It is a business.

TS: Strictly a business.

PS: It's just not a profitable business.

L: How did you choose your vineyard?

TS: We looked for three years before we found this property. Literally.

PS: Well, at first we weren't quite sure what we wanted. We didn't know if we wanted to be on a hill, down in the valley; if we wanted grapes, if we wanted an already established vineyard or if we wanted to plant our own grapes -- until we learned more about how long it takes for a vineyard to get going. Then we knew, "okay, we want grapes, we want it there."

L: Did you know you wanted Sonoma?

PS: Yeah, pretty much. We spent a little time in Napa looking, but we really liked Sonoma better. It's a bigger valley, the people are really real, great people.

TS: Much more agricultural than Napa.

L: What's Napa like?

PS: They say that Napa makes good auto parts and Sonoma makes good wine. (laughter)

L: And [Deux Amis] is not the only wine made from your vineyard.

TS: Oh, no. There are many others.

L: How did you foster these relationships with wineries?

TS: Well, The Bella [Winery] owned the vineyard when we bought it. So, they sold us the vineyard, and now they're a customer of ours; they buy grapes back from us. And they're Minnesotans.

L: Is it important to you who buys your grapes? Do you find yourself protecting your brand identity that way?

TS: Yes. That, and the good relationship. The winemaker tells us everything about the vineyard as to how to farm it. They tell us when to pick it, they tell us when to thin it -- if there are too many grapes, they go through and thin, so that you get the good quality and you're not spreading the goodness into too many grapes; they concentrate it into fewer grapes.

L: So it's your land, and your vineyard, but the different winemakers will say specifically how they want their harvest done.

TS: And how they want it farmed throughout the year.

L: Are you happy with the vineyard you found?

TS: Oh yes.

L: I can see you've done beautiful things with the house, as well. You've made it a vacation home for yourself.

PS: Yes. We entertain a lot of our friends.

TS: The property is 55 acres, the vineyard is 32, and from [the house] you can see five to eight miles all the way around, one hundred and eighty degrees.

PS: It's a beautiful view.

L: How much time do you spend there in a usual year?

TS: Three to four months.

L: And is your presence important? How much input do you have in the day-to-day operations?

TS: Well, it's a daily, weekly thing from the office with John Clendenon.

L: Are you contact with him every day?

TS: No. We can be, though. I e-mailed back and forth with him today. We probably talk to him twice, three times a month when we're not there. And then, with the people we sell the product to, we always want to make sure they're happy, so I check in with them. They'll say they want us to do this and this and this, and I'll contact John, and he'll say, "well, do you want to pay the extra expense?" Then we'll go back to the winery and say "You sure you want all that done? It's gonna cost you $250 a ton." And they'll come back and say "Oh, well, let's talk about this ..." A lot of that goes on.

L: So, you manage the relationships, mostly.

TS: Yeah.

PS: And we negotiate all the contracts.

TS: And the contracts are what they call "evergreen contracts." They go for three years, and they renew every year automatically unless the buyer or seller says no to the next harvest. I've got, and they've got, till March first to say "I want out of the contract," but they still have to take the 2010 harvest.

L: How has the economy affected your part in this? Do you find you're doing a little extra romancing of those relationships?

TS: We're doing a little more fine-tuning in the vineyard to keep the wineries happy, because people are drinking just as much, if not more. Hopefully the price per bottle goes down. Our friends down at Hennepin Lake [liquor store], they sell a lot of high end wine -- but not as much as they were selling. If you've got a $10 bottle, great, but we're not in that price range, we're in the $28 and above.

PS: When we were out in California during the harvest, they were saying it's kind of the new shabby-chic to bring a bottle of wine to a party for $10 and have it be a good wine.

L: So, why do your grapes go into $28 and above bottles? What puts them at that price point?

PS: It's the wineries we work with; that's what they produce. They're going for a better wine. They also work with a lot of vineyard designates, meaning that all of the grapes are off one property. That automatically puts it at a higher price than if [the bottle] just said "Dry Creek Valley" or "Sonoma County."

L: So, what are the challenges of owning this place?

TS: Hmm.

PS: The raccoons?

TS: Weather.

PS: Weather. A big challenge. Disease.

L: It's farming.

TS: Yeah. We're farmers. It's not a lot different from corn and soybeans in the midwest. The big threat is in the spring: if the buds come into the vines -- in March, they start to push, as they say, "they're pooshing" -- and if the buds come out and we have a frost, that's a problem. The frost starts up high and it rolls down. In '08, we lost about ten percent of our harvest due to frost. It was 30 years since that had happened.

PS: April 19th.

TS: Frost goes to the low spots.

L: So, what happens? Do you just tell the wineries "Sorry, we don't have the grapes"?

TS: Well, they're aware of it. They know all about it. We don't have a lot of that area. Down by the river, they have sprinklers to keep the vines in ice and big fans to blow down the warmer air, and other methods of frost abatement.

L: If someone you knew was thinking about buying a vineyard, what advice would you give them?

TS: Same advice they gave me when I bought this: You know how to make a small fortune in the vineyard business? Start with a large one. (laughter)

L: And you?

PS: Well, right now might not be the best time to do it. For one thing, there's a large quantity of vineyards already there. In some cases, people are starting to take vineyards out and putting fruit back in -- that whole area we're in used to be plums or prunes. There's a big market for that.

L: What about in regards to running it, like if someone did just buy one?

PS: They've got to have a really good management company.

L: How did you find yours?

TS: They were already there. And you ask anybody. I went out there and interviewed everybody, and bankers to politicians said "if you can get John Clendenon to be your manager, you've got a great piece of property."

PS: We've also been fortunate because we have contracts. Our grapes are sold. We have a pretty small vineyard, but the smaller ones -- some people have ten or twelve acres and they don't have contracts. This year, because of the economy, though it was really a banner year for grapes and every vineyard had an abundant crop, a lot of grapes didn't get picked. The wineries didn't want any more grapes than what they had contracts for. So, that's hard.

L: What would be the minimum someone would have to put into a vineyard to get it started, to purchase and get the management company rolling? What would the startup cost be?

PS: And to put in the vineyard, you mean?

TS: Well, let's just say this: To plant an acre of vineyard, it's about $25,000.

L: Is that yearly or just the first time?

TS: Just the first time. And I think it might be up to $30,000 now.

L: And how much would it cost just to buy a vineyard?

TS: Well, an acre Napa is $150,000 to $400,000. It's a little less in Sonoma.

PS: It depends on where you're located ...

TS: ... What your contracts are, what kind of grapes you grow, and your track record. If someone were going to buy [ours], they'd come in and taste every bottle of wine that's ever come off here that they could get their hands on, if they were serious about it.

L: And is depreciation part of the cash flow?

TS: Yes, the property can be depreciated for a number of years.

PS: We had a friend who came up; he got out of his car and said "Wow, this is a million dollar view," and we said "Just add a few to that." So, that gives you an idea.