086: How To Start Your Own Profitable Virtual Winery With Kale Anderson

086: How To Start Your Own Profitable Virtual Winery With Kale Anderson

Today I’m really happy to have Kale Anderson on the show. My wife has known Kale for quite a while now but I met him for the first time recently at a wedding where I learned that he owns and runs his own winery.

And what’s cool is that he runs his winery without having to grow his own grapes or own any of his own equipment.

Kale’s Winery was named one of 4 wineries to watch in 2014 by Wine Spectator magazine. He’s been featured in Wine Enthusiast, the Chicago Tribune, Cuvee corner and countless other publications.

What’s cools is that up until this point, I thought that it wasn’t possible to create your own winery without an enormous up front investment.

Listen in to learn the steps it takes to create your own winery.

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What You’ll Learn

  • What it takes to start your own winery
  • How much initial investment does it take and how does one begin?
  • How do the economics of wine work
  • How much does it cost to produce a bottle and how much profit can you make per bottle
  • How to price a bottle of wine
  • The best way to market a winery

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Steve: You are listening to the My Wife Quit her Job Podcast. And if you are new here, it’s a show where I bring in successful bootstrapped business owners to teach us what strategies are working and what strategies are not. Now I don’t bring on these famous entrepreneurs simply to celebrate their success. Instead I have them take us back to the very beginning and delve deeply into the exact strategies they used early on to gain traction for their businesses.

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Welcome to the My Wife Quit Her Job Podcast. We will teach you how to create a business that suits your lifestyle, so you can spend more time with your family and focus on doing the things that you love. Here is your host Steve Chou.

Steve: Welcome to the My Wife Quit Her Job Podcast, today I’m really happy to have Kale Anderson on the show. Now my wife has actually known kale and his wife Ranko for quite a while now. But I met him recently at a weeding where I learned that he actually owns and runs his own winery. And what’s cool is that he runs his winery without having to grow his own grapes or own any of the equipments. So in effect he kind of has like a virtual winery. Now Kale Wines which is the name of his company was actually named one of the four wineries to watch in 2014 by Wine Spectator magazine.

He’s been featured in Wine Enthusiast, the Chicago Tribune, Cuvee Corner, and countless other publications. Now up until this point, I actually thought that it was not possible to create your own winery without an enormous upfront investment. And I’m really eager to hear, to learn the steps that it takes to create your own winery, and with that welcome to the show Kale, how are you doing today man?

Kale: I’m doing great, thanks to you, thanks for having me.

Steve: Yeah, Kale, so give us a quick background, and how you decided to create your own winery.

Kale: Yeah, well it’s something that I have wanted to do for a while ever since I got into the wine industry. So I ended up going to UC Davis, this is back in 1997, thinking that I was going to be a pre-med, and I was discovering the [inaudible 0:04:16] program. And I wanted to — I got into the wine industry after I joined some tasting groups and went on finding out that I had a good talent, and I had some passion to go travelling and learn about the wines around the world. So I embarked on this in 2000 — well, pretty much in 2001 I met some people that were wine makers — or they were in the financing of wine for wineries.

And they had their own little brands and I thought, I always assumed that you would either have to own your own winery, or own your own land or your own vineyard to produce your own wine. But that was not the case, and after seeing this model done and succeed in a few different cases, I knew I wanted to have my own eventually. So it’s been a long term goal for a while, but in 2008, my wife and I embarked on the whole journey together here, and now it’s a full time job.

Steve: Okay and I just want the listeners to know is Kale is actually the director of wine making, is that right?

Kale: Correct.

Steve: For a winery, and he kind of does this on the side with his wife, which I find really cool, because it’s kind of similar to our story. So Kale I admitted to you early that I actually knew very little about wine, but and I may ask you a couple of stupid questions, so please bear with me.

Kale: No worries.

Steve: Let’s start from the beginning, because I know nothing or very little about the wine making process. So what does it take to start your own winery, can we kind of start from the basics, like let’s say someone else who is listening wants to start their own winery, what do they need to do?

Kale: Well, you need to get all your licenses, permits, and all that kind of stuff in order. Making an alcoholic product obviously there’s a lot of bureaucratic red tape and what not, to get started, but it takes a little bit of knowhow, where to find things, and where to go and stuff like that. There are actually classes that you can take about this, like in [inaudible] [00:06:35] they have this extension and what not, I know that [inaudible 00:06:38] state also has a program– an extension program as well. But we knew we didn’t — we weren’t able to purchase our own land or plant our own vineyard, and we don’t have the capital to build our winery.

So what we did was we started a — we found a winery partner and started an alternating proprietorship, which is the license that you get through the TTB and the ABC in California. And I went through the whole interview process and…

Steve: Can you describe what that is actually, alternating proprietorship?

Kale: Yeah, alternate proprietorship is basically a wine making license, but you can have that license without owning your own winery, you can lease space in other wineries that have free space. Those wineries that have free space are called custom crash wineries. And they house multiple alternating proprietors who utilize all the equipments, and basically share the equipment to make their wines.

Steve: It sounds like someone is mowing their lawn back there.

Kale: Yeah, oh, yeah, let me close the door.

Steve: Okay.

Kale: Is that better?

Steve: Yeah, it’s better.

Kale: Okay.

Steve: Okay, so these custom crash wineries, they are kind of like places where they all have the equipment all ready to go, and you just need to kind of lease some time for this equipment?

Kale: Yeah, exactly, I mean a lot of this equipment is — cost out tens of thousands of dollars, sometimes hundreds of thousands of dollars, or even millions. But most of the year, nine months out of the year a lot of this really expensive equipment is sitting idle. The way that a lot of wineries, people who buy larger wineries, they pay the bills is to lease free space in their facility to small people like myself, and other alternating proprietors to make the most use out of all their capital. So there’s definitely kind of a partnership going on, and finding that partnership I would say is probably one of the most important pieces there.

Steve: Okay, and then what about in terms of the grapes and all that?

Kale: Yeah, that’s the other really important relationship to have, I mean you need to know what you want to make, you need to know where you want to get it from, and you need to build a relationship with growers who sell their grapes. So I built a network of relationships over the years working for different wineries in Sonoma and Napa counties. And met a lot of the growers in that area, and knew what I wanted to make. So when I started Kale Wines focusing on Syrah Grenache and Morvendre [ph] mainly those three varieties, I knew I had a little book of growers to call who might want to sell me a few tones here and there, I just got started.

Steve: Okay, actually I’m just really curios how much initial investment did it take for you to start your winery?

Kale: I mean it was — gosh, it was probably a total of, over two years probably $20,000.

Steve: That’s not much at all actually.

Kale: Which is not much at all, and we started — we knew a lot of processes, that were going to take a long time and we read these processes, we started quickly. And in 2008 another thing that prompted me to start the business was, it’s a little bit of a story here, so little background. I was the assistant wine maker at Cliff Lede vineyards in Napa in Stags Leap District. And I was thinking of taking a position elsewhere as a wine maker, and then the owner of Cliff who is a fantastic guy, I worked for him for eight years.

But at the time he asked me like, okay what is it — what do you want to do long term, and what would make you want to stay here? I was like, okay, well one of my long term goals is to start my own wines. And he said, okay, well if you starting an alternating proprietorship you can use that little space in the back of the cave that isn’t being used right now, and make your wine, and I will be your custom crush partner, and that was part of my compensation. I had to pay him a penny per year to use that just the back of the winery that wasn’t being used.

Steve: Interesting, okay.

Kale: And that’s how I got my start, and like any business it’s a lot about relationships and that’s really what got Kale Wines started. Again he knew that I wasn’t interested in making wines that would be in direct competition with the ones I was making for him. They are at different price points, made out of different varieties, at the time they’re being made from fruit in different counties. So there was no conflict of interest.

Steve: So let me ask you this, what’s the advantage then of having your own grapes, or you growing your own grapes, as opposed to just having the freedom to just buy grapes from local growers?

Kale: Basically whether you want to invest in real estate or not, I mean that’s really when it comes down commercial real estate, agricultural real estate. And obviously we are not building equity, or building value in real estate when we are doing our own grapes. But we also like that flexibility that it affords us where if things don’t work out, or turn out the way that we wanted them to, we can move quickly into using fruit from a different vineyard. So it’s a more of a short term commitment rather than a long term commitment.

Steve: Yeah, it just seems like it’s a lot more flexible doing what you are doing as opposed to growing your own grapes, where you are kind of limited by geography and what you can grow right?

Kale: Right and it’s a big risk no doubt, and a big capital investment, I mean it’s a different part of the wine making industry, and it’s just not a part that we are ready to dive into yet, just because we don’t have — mainly because we don’t have the capital.

Steve: Yeah, I know that make sense. So what equipment do you need to get started? So you mentioned your boss was actually your crushing partner?

Kale: Yeah, so he was — I was able to start my alternating proprietorship at the winery that I was working at. And in my spare time, make my own wine on the side in the spare space, in the winery, that we helped him build in fact. It was a brand new winery and the winery needed to be as large as the ten year plan, in the first five years that — not the entire winery wasn’t being fully utilized. And they weren’t totally comfortable with just bringing in people that they weren’t familiar with, so offering some space to me was really — it was a win-win situation.

Steve: And let me ask you this, and since I don’t know a whole lot about wine it’s probably going to sound like a stupid question, but when you are trying to produce a wine, like there’s like thousands and thousands of different wine and wine makers out there right? So when you’re deciding how to formulate your wine, like what are some of the strategies that are involved in creating a wine that’s going to be popular?

Kale: Just being inspired, the Syrah Grenache and morvendre ph] or — really inspired wines were the wines that originally got me into the wine industry in the first place. When I was at Davis, I wasn’t even 21 yet, I joined some tasting groups. I took an introductory class to wine making which was great, because it satisfied all the sort of the requirements, like scientific requirements, writing requirements, kind of on the whim and for fun. And then I realized it’s something I could really get interested in. I joined a bunch of tasting groups.

And the first tasting group that I went to that really got me inspired was a tasting called Syrah Around the World. So all the wines are brown bagged and numbered, lettered A through F and we had to rate all the wines blinded and take notes on them. And then kind of add up everyone scores in the room, and tabulate everything and figure out which ones everyone liked. I remember that taste was really hard for me, because I had a tough time picking out which ones that I liked because they are all so different.

One was Shiraz from Australia, another one was Syrah Grenache blend from the [inaudible 00:16:21] area in southern France where they’ve been growing Syrah for a long time, Syrah Grenache as well as some domestic ones. I think there is one from [inaudible 00:16:33]. And the most fascinating thing to me about it was that the wines were so different, but they were from the same variety namely Syrah, and it really proved to me there was something to [inaudible 00:16:49] where the wine really does reflect where it’s grown.

Steve: Let me ask that question in a different way. Was there some sort of business related like tasting that you did to know that a wine was going to sell? So for example, like my mum for example loves drinking wine but she knows nothing about it. She likes wines of a certain taste which may not conform to like what the award winning wines are. So when you are deciding to create a wine, do you kind of do tastings based on what the masses want to drink, or do you kind of go based on your own personal palate.

Kale: Well for my own project, it was purely passion. And it started so small where if I couldn’t sell the wine over time, we’d probably be able to drink it all.

Steve: Okay.

Kale: So it kind of started as you know, hey I’m making something that I really—that I want to drink, and we’ll just see where it goes from there. And then, we made 200 cases in 2008. And then when we started finding that– we started a little wine club, and selling out through mainly through our website. And then we just started making more and more. And then we got in front of some critics, and in front of some distributors that really liked it.

So it just kind of taken off from there. It started as a passion project, making something that I loved drinking, where my upfront investment wasn’t so much that I was going to be out of a lot of money if it didn’t work out, so it kind of started there but then it kind of blossomed into something else down the line and now I’m making 800, I think this year I’m going to making around 1000 cases, and now we have distributors in other states as well. So that is where it blossomed from. I mean it was not a really targeted kind of market driven research panel, or anything like that to drive what I wanted to make. It was more out of passion. That being said, that’s what I– we do that for the larger wineries that I worked for, for sure.

Steve: Okay, and let’s just talk a little bit more about selling the wines. So how has distribution work? So in your first year you made what, 200 cases. How did you sell that?

Kale: So we made 200 cases. In this case I was making red wine. It takes around 24 months from the day that you bring the fruit into the winery until you have the finished product, so it wasn’t until 2010 that we had a finished product with the label that was legal to sell.

Steve: Wow. Okay.

Kale: So we didn’t have anything to sell until 2010. And then at that time we simply, through friends and family, we ended up selling almost all of it. But in the meantime we had saved about the same amount in 2009 about the same amount in 2010. And then we realized that we could sell it very easily, and we weren’t taking as much library as we wanted to, and for ourselves. We started making more wine in 2011 we made about 200 cases, but in 2012 we started upping our production a little bit little by little. In 2015 we’ll be making a lot more because we got some really nice, like I said some really nice pricing. Some distributors are really interested in carrying it in their respective states.

Steve: So there’s friends and family for that initial batch. I should back up real quick. So you have to plan two years in advance based on what your inventory you think is going to be?

Kale: Yeah, it’s tough.

Steve: Yeah that is tough.

Kale: Yeah and talking about scalability. It is a slow moving industry, no doubt where you know if– we knew we had, in 2010, we had a significantly more demand for our product than we had when we decided to make more wine in 2012, years had gone by. It’s slowly– it’s been a slow moving process, but I think kind of growing organically slowly like this is– there’s a way that we want to do it, so we don’t have to get any investors involved really.

Steve: So if you decided to make 200 cases in 2008, what did you do in 2009 for example?

Kale: Well, like I said, it took us $10,000 over two years. We spent $10,000 in 2008, and we spent $10,000 in 2009. 2010 we sold the 2008 to basically float the 2010 investment in the grapes.

Steve: Okay. I think I understand.

Kale: Yeah so that– getting started was tough. There is capital investment, no doubt and there’s kind of– so the red wine, a two year layer of until you get sellable products.

Steve: So you mentioned that you sold to friends and family in the beginning. But where did the other demand come from, because you wouldn’t increase production based on just friends and family purchases, right?

Kale: No. It just kind of– it just went through mainly word of mouth, and then we started a website and then we increased our social media presence. Before we were only using Facebook. Now we are using LinkedIn as well as Twitter, and Instagram, and that kind of stuff.

Steve: Interesting. Let’s talk about that. What’s working the best for you?

Kale: Well, what seems to be working the best for us right now is really, it still comes through just friends and family. Our friends, our friends of friends—our friends will share a bottle of wine that they purchased from us with one of their friends, and tell them our story and then they’ll go online find us, however they do it whether that’s directly through the website, or through goggling us or on Facebook and see just ads. So most of them are—most of the people who have joined our mailing list have heard the wine somewhere and seeked us out, and joined our list and our repeat buyers year after year.

So I don’t know. It’s hard to say exactly where everyone’s come from. Most of everything has come through word of mouth. I mean we also got a really nice bump when we got some nice scores from the Wine Spectator and the Wine Enthusiast. We immediately kind of see a rush of, kind of collectors to all of our channels.

Steve: How does one get in those publications?

Kale: It’s by submitting samples. It’s a relationship again. I knew [inaudible 00:24:32] who was friends with one of the writers, and then there was a soft introduction, and then sent some samples out. They were able to taste it when they were doing their domestic grown issue, and they ended up liking my wine. You know, we got some nice scores. I think in the Spectator we got them to 92 and in Enthusiast I think we got up to 92 I believe, and some other publications up to 94.

Steve: Interesting, okay.

Kale: You know so it’s just been kind of it’s been a slow growth, it’s hard to say what method ass worked for the best, but I think like a holistic approach through as many channels as possible has probably helped us the most. We’re still getting better at you know making sure that we’re taking care of our customers; we have customers who are hard core collectors. We have customers who are friends of friends and discovered us through social media.

We have customers who have met us at a wine maker dinner, or at a tasting, or they have read about us in publication, or like we have people who stumbled you know they were looking for a Kale recipe rather than go on Google, and it’s that way. So we have also– and trying to make all of our different customers uniquely satisfied is you know it’s been a challenge but it’s something that we’re getting better at it.

Steve: Have you purchased any ads, or is it all been kind of organic?

Kale: It’s all been organic.

Steve: Okay.

Kale: We’ve never purchased an ad.

Steve: Okay. And you mentioned an email list, how do you convince people to sign up for you email list?

Kale: Well, most people who sign in for our wine club list are people who have tasted our wines before.

Steve: I see.

Kale: You know either at a tasting, or you know some function or through restaurants, so now were distributing in restaurants you know mainly fine restaurants in northern California. People have it at the restaurant and be like wow they really like it, and then they’ll go online generally through our social media channels to find us, and then get on our list that way.

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Steve: How does one get a wine in a restaurant, do you just kind of go door to door to find restaurants, or what’s the strategy there?

Kale: I mean the short answer is yes, but what we decided to do is I get a broker in Northern California to help us with that. We were– we did start doing that ourselves, and we realized very quickly that that was going to take up simply too much time and were going to need some help from people who already had contacts at these nice restaurants.

That’s where our broker came in [inaudible 00:28:33] from marketing, you know they have twelve sales representatives around northern California who have contacts at the best restaurants in their respective regions, and generally speaking it’s either them taking the sample to them by themselves, or having myself or Ranko kind of meet them somewhere to introduce a [inaudible 00:29:01] or a general manager who I will explain the wine to our wines to see if it fits in with their wine program.

Steve: Okay. So are you in any retailers and when you were deciding whether to go to the restaurant or the retailer route, what was the decision making process like?

Kale: Well we like to keep; we like to think of our website as our retail.

Steve: Got it. Okay.

Kale: You know we really like to have our own culture, or our own community I guess. That’s online and that’s the retail that we generally like to work with. I think people are, when they are introduced to a wine that when they are out a nice dinner at a nice restaurant, that seems to be the best way for us to kind of introduce customers that are looking for the wines that we are producing.

Steve: Okay and then you mentioned a whole bunch of things about a wine club, and tastings, how does all that take place when you don’t have a physical space?

Kale: That’s a great question. Up until a month ago we did not have a tasting room, so there was no place for people to discover us and taste the sample of our wines. But that just changed last month. We’ve decided to partner up with a new tasting room, a collective tasting room at the Oxbow District in Napa called the Wine Thief. Basically five small producers like myself we got together, and decided to start a collective tasting room. You know basically it’s an equity partnership between two of the vendors [ph] as well as one of the land owners. But there are five vendor partners, and I guess nine brands that are at the tasting room where people can go discover our wines without us being there. This is another big step for our business. Another investment that we are making now that were making more wines so.

Steve: So that’s– so foot traffic random people will come up to the tasting room and then experience your wines?

Kale: Yeah they can so you know the tasting room is open from eleven till seven. You know there’s the Oxbow area; it’s a lot of open shops recently to the Ferry buildings in San Francisco, big tourist destination now in the sea in Napa. You know they can walk around discover you know some amazing food, you know amazing olive oil and now you know amazing wines, like my own. The partners that we have over at the Wine thief and taste some of our wines to see if they are interested in our wines, because our wines are unique they are not normal.
Maybe the most normal variety coming out of Napa is cabernet sauvignon, and then the most common variety being made red wise in Sonoma county is pinot noir. We make neither of those types of wines, so people wouldn’t know they were like [inaudible 00:32:32] so this is– I think this is going to be a big step — Syrah Grenache and Morvendre can be absolutely amazing from Sonoma and Napa, just that other varieties have dominated over the past 20 years.

Steve: So I’m just curious how the economics work here. So if you partner up with a tasting company, how does everyone get paid, and what are the economics like for a bottle of wine?

Kale: We don’t have the same margins that we have by selling direct. We basically pay a monthly lease fee and a percentage of sales. They have a done a built out and the stuff, the tasting room, and they get a portion of the sale. And that’s how we are — that’s how the economics work there with the collective tasting room.

Steve: Are they allowed to price the wine whatever they want?

Kale: No, so that’s where it gets — where we have a little bit more control of where a collective tasting room I think is better than a lot of other situations. There’s five different [inaudible 00:33:50] that are partnered in the space, and it’s kind of understood that they are going to price it how we want to price it. And they are going to take care of our brand the way that we want to take care of them, and it’s great.

They have a lot of — they have several amazing stuff where we can train them on our wines, the nuances of what we do, and what makes us different. And everyone is — the owners of the collective are also [vetnors]. So they know what the other vetnor partners are looking for. And that means a lot of collaboration.

Steve: So how do you decide how to price a bottle of wine, I’ve always been curious?

Kale: Yeah, I mean we want to make sure that the best way to get our product is to buy directly from us, directly through our wine clubs. So we make sure that a bottle of our wine is more expensive at a restaurant, maybe less expensive at the vetnor’s collective. And then the least expensive directly through our wine club, and how that would be a benefit — excuse me, a benefit to be in our wine club. And it will vary from product to product, and different people will do it in different manners, but generally speaking that’s the tiered way, because exactly the percentage is kind of an ongoing conversation I guess that you could say.

Steve: Let me ask you that question in a different way, do you base the cost based on what you think the demand is going to be, or is it based on how much it costs you to produce it, like what goes into the pricing?

Kale: It starts with the cost, our cost of goods and…

Steve: Can I get an idea of how much it costs to produce a bottle of wine for you?

Kale: Yeah, yes, so our wine will cost let’s say our red wine on average would cost us $22 per bottle given the years, it fluctuates year to year given the season. And then out at the Wine Thief our wines are priced at $45 a bottle, and $65 a bottle. Now you will also — you’ll find the same bottles at restaurants in the Napa area for $69 a bottle and — gosh maybe 80, sorry $95 a bottle. And then if you go into a restaurant outside of California you will find our wines on list for over $100 a bottle. And that has to do mainly with — that the only way they were able to get our wines into other states is by partnering with the distributor in other states, and they take a chunk of the sale again.

Steve: Okay, so this is a lot like traditional retail, right? It sounds like you double the price for the store, and then it gets doubled again for I guess the consumer which would be considered like a restaurant, is that like it?

Kale: That’s pretty rough, but for a small producer like myself that’s probably really common.

Steve: Okay.

Kale: And then like I said it’s very tricky because your cost of goods is constantly fluctuating with the season. So you are really kind of taking an average if you will of previous vintages, or even your current vintage to try to figure out where your price needs to be. Now obviously market forces will also dictate pricing when your product has been out there longer, or you are working with distributors in other states, you get a lot of pushback, from the partners that you are working with, about where they think that the pricing should be.
Steve: Let me ask you this question in a different way, it’s funny because when you are tasting wines and stuff sometimes the price can affect the taste in an indirect way. So I was just wondering if ever you decide to price something higher just to increase the perceived value of your wine, does that make sense?

Kale: Yeah, it makes sense, but it’s not something that Kale Wines does. Our wines are already priced fairly with respect to other larger wines, they are priced fairly high. Our cost of good is significantly higher than a lot of larger wineries that have had their wineries either for a long time, or they own the vineyards or what not.

So our cost of goods is fairly high relatively speaking in the world of wine to our price. So there is obviously when you get larger there’s efficiencies of scale that we’re competing, but we are making small wines handmade that are not competing with grocery store wines at all hopefully, yeah.

Steve: So just curios how do you get people to join your wine club?

Kale: Just through relationships, I mean we just got back, today is Monday the July 13th, we just got back from a weekend in [inaudible 00:39:58] we put our wines at the village at Square Valley for the– at food and wine festival this weekend. And we had a little booth, and we poured our wines for people who purchased to take it, who were vacationing at Square Valley in the summer time. We made some friends there, and they tried the wines, and they wanted to get on our mailing list. So that’s one way that we’ve built our wine club. But like I said some people saw us just online, or through social networking or tasting that at a restaurant.

Steve: Okay, so just some logistical questions here, when you take online orders are you allowed to ship alcoholic beverages?

Kale: Yeah, so with our alternating proprietorship and the licenses that we’ve gotten from the TTB which is the national organization that regulates alcohol beverages. And we also have to get okayed, in every individual state that we ship alcoholic beverages to. So yeah, I mean there’s a lot of — we have to get licenses in every single state that we ship to.
And we are able to ship to every single state now. But we weren’t when we started out, and again it’s — that was a capital investment that we decided to make, when we started realizing that some of our really important members were from outside of California.

Steve: So I’m just really curios also are you familiar with Gary Vaynerchuk?

Kale: Yes.

Steve: So I was just curious what your strategy is for marketing your wines going forward, because you know he has wine library TV, right?

Kale: Right.

Steve: Going forward I mean word of mouth will only take you so far, so I was just curious what some of your other avenues are going to be. It sounds like you are already doing shows, you have your email list, you got word of mouth going, what’s the next step?
Kale: Well, this tasting, this collective tasting room is a new big step for us, we’ve never had anyone else other than myself and my wife going out and representing us I guess. Now we just signed up a distributor in Hawaii to distribute our wines in Hawaii. The wines are going to be distributed hopefully in Southern California very soon. And distributed a little bit on the east coast, little by little going forward, and we are going to continue to send our wines to the critics that have shown us a lot of support in the past as well.

Steve: So are the business terms similar where you have to pay a monthly fee no matter what, and then a cut of the sale of the wine?

Kale: It depends on the distributor and it also it depends on the state and the state laws, because a lot of the laws actually govern these types of things. It’s this kind of our cake, but it’s kind of the reality that small producers — wine producers deal with, and alcohol producers in general deal with is every single state has their own rules, about what you can and cannot do. But for the most part the distributors are buying our wines at wholesale pricing, and maintaining the price that we are looking to see the wine in the market where they are, and there’s ways for us to monitor that.

Steve: Yeah, I was just curious like in terms of the tasting it seems like that would be — I bet the conversion rate for tastings are really high, and so I was just wondering why not do more of that going forward.

Kale: Doing more of the shows and what not?

Steve: Not the shows, but just these places that already have tasting set up someplace?

Kale: Yeah, I mean and we do that, I mean we are doing more of that. And a lot of that is through our partners and through our distributors or wholesalers, putting on shows or participating in events where we can get our product in front of people. And it’s one of the important reasons that we decided to partner with distributors and brokers.

Steve: And in terms of just having your own website where you are selling the wines, it doesn’t kind of interfere with your brick and mortar sales at all, does it?

Kale: No, I mean it’s all complimentary, I think people find out about us on social networks as well as our website, and then it drives people to our brick and mortar and vice versa. You know people who can visit brick and mortar and get inspired and seek us out online, so it’s very complimentary.

Steve: Because you mentioned that it’s cheaper online, right?

Kale: Yeah it’s, the cheapest way to find our wine is through our own wine club, and that’s the value to being in our wine club.

Steve: I see.

Kale: Yeah.

Steve: Okay. That’s interesting, because I was just thinking like in a traditional retain environment like the website typically does not undercut the people that are buying whole sale from you, but it sounds like in the case of wines it doesn’t matter as much.

Kale: Well I mean, you know it’s, you know our largest margin is selling through our website; our lowest margin is going through distributors, because they’re taking a cut. When were selling online that is us directly to the customer, there is no middle men in between us and the customer, which means that the customer is getting the best price, and passing that savings along to the customer for making a direct relationship with us, rather than making an indirect relationship to us through other– through distributors if you will.

Steve: Yeah, I’ve got one last question which is you don’t have that much inventory, or you haven’t had that much inventory in the past. How do you kind of allocate everything since these are all physical products, you’ve got to keep some on hand for shows, for your own website, for distributors, how do you allocate it?

Kale: It’s really complicated, it’s a really big spreadsheet, and then there’s basically you know and we are historical, and this goes back you know years now where we have, you know what we thought, what we did, and how we want to do it the next time, and it’s moved into a very large spreadsheet where we’re making sure that we’re supplying in all of our channels. Where you we’re not over supplying certain channels and under supplying other channels, and it’s just been, it’s just grown organically like that.

We didn’t, we thought we would be selling, for instance we thought we’d be selling a little bit more through our distributors by now, whereas we’ve actually started– we’ve been selling a lot through our website which is good. You know our distributors they want a little bit more wine, so we’ve slowly started to rump up our production a little bit to try to satisfy all the pipelines.

Steve: Okay, yeah so it sounds like you’re just based on historic data?

Kale: That’s it. I mean you never really know, I mean you can project all you want and plan on all you want, but you know it’s different. I mean also you’re going to sell in wine in different climates. Selling in 2000 and well you know selling in 2010 is very different than selling in 2015. I mean it’s a different economic climate, back then people weren’t buying this as many luxury wines. It seems like the economy has turned around a little bit for the luxury wines.

Thing is we’ve seen this kind of growth and I think it’s not just– we can’t take credit for all of the growth that we’ve had. I think it’s, a lot has had to do with simply people having more money to spend, as well as people getting a little bit more adventurous with their purchases rather than just take in to the California Chardonnay or the Napa cub, or the [inaudible] [00:49:20]. People are trying domestic wines that aren’t as traditional as they have been over the past 20 years.

Steve: Sure.

Kale: I think people’s tastes have shifted a little bit as well.

Steve: Cool Kale. We’ve been chatting for quite a while now. Where can people find your wines, and what they’re all about and where can they get tastings in their area for your wines?

Kale: Yeah, so like I said the best way to buy our wines is at kalewines.com. You know when you sign up to get a unique user name and password for security purposes. But that is definitely the cheapest place to find our wines. If you’re in the Napa area, the best way to come and taste our wines is to come by The Wine Thief at Oxbow which is 1st in McKinstry, and is now officially open, our license went through on Friday, so you can now taste our wines there.

Steve: Awesome Kale, well I learned a lot about the wine industry, and it sounds exciting, like the fact that prices change from year to year, and all these different things that you have to juggle, we didn’t even get into the actual wine formulation itself, which I’m sure would go over my head.

Kale: Well, you know hey it’s a lot of fun, there’s a saying in the wine history, ‘It takes a million dollars to make a million dollars in the wine industry,’ because it costs so much money to get in, but we’ve figured how to do it as cheaply as possible, and kind of growing it organically without adhering to that.

We’re not trying– this is not a get rich quick scheme for us, this is a passion project and you know growing it slowly is all we’re really interested in, now that’s it’s my wife’s fulltime job, that’s great. It won’t be my fulltime job for a long time, but maybe when our kids are in– maybe it will help us pay for kid’s college, and our retirement.

Steve: Yeah awesome, all right Kale thanks for coming on this show man, I learned a lot.

Kale: All right, thanks a lot Steve, thanks for having me.

Steve: All right.

Hope you enjoyed that episode. I have always wondered what it takes to start your own winery, and I was pleasantly surprised that you can actually do everything virtually without having to own any of you own equipment. And as a result starting a winery actually seems doable if you’re willing to wait two years until making any revenue.

For more information about this episode go to Mywifequitherjob.com/episode86, and if you enjoyed this episode please go to iTunes and leave me a review. It’s by far the best way to support the show, and please tell your friends because the greatest compliment that you can give me is to write a referral to someone else either in person or to share it on the web.

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One thought on “086: How To Start Your Own Profitable Virtual Winery With Kale Anderson”

  1. Peter Smith says:

    Nice post! So interesting. Keep posting please!!

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