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Texas Hill Country Wineries Find Success Amid Growing Pains

May 1, 2015
Small Business
Texas Hill Country Wineries Growing in Popularity
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California and Oregon may be the first states you think of when it comes to U.S.-produced wine, but Texas is hoping to earn its place on that list. The largest wine-growing region in Texas, the Hill Country, is home to more than 70 wineries.

Keith Wallace, former winemaker, wine consultant and founder of the Wine School of Philadelphia, began noticing Texas Hill Country wines 10 to 15 years ago. “Even a decade ago, it was clear that parts of Texas were really doing something interesting,” Wallace recalls. “They were looking at grapes that weren’t really planted anywhere else and were being successful with grapes that nobody else was growing successfully.”

California still dominates the industry, producing 90% of the country’s wine, according to Golden State advocacy group Wine Institute. Texas has fought its way to being the nation’s fifth largest wine producer, though Wallace says about 90% stays in the state. Experts say wineries in the Texas Hill Country aren’t yet able to grow enough grapes to produce the volume needed for national distribution, and Texas has such a large demand for wine, almost all made is easily sold in state. And the local demand continues to increase: The Texas wine industry is now so large, it contributed $1.88 billion to the state economy in 2013, says Debbie Reynolds, executive director of the Texas Wine & Grape Growers Association. She projects it will exceed $2 billion by 2016.

Entrepreneurs are jumping into the booming Texas wine industry, and although it’s possible to make money, it’s a costly and complicated endeavor. “The wine business is pretty well everything — it’s an agricultural operation, it’s a production operation with winemaking, it’s hospitality, it’s retail,” says Julie Kuhlken, co-owner of Pedernales Cellars in Stonewall, Texas. “There are a lot of moving parts, and a lot of experimentation is needed to know what you should be growing and what’s going to work.”

Types of wine grown

Winegrowers in the Hill Country have found huge success with tempranillo, which Wallace says was rarely grown outside of its native Spain but is exceptional in Texas. Hill Country wineries are also succeeding with grenache, syrah and mourvedre — Rhone varietals grown in the Mediterranean area of France that thrive in Texas heat, he says.

Viognier has also been a hit, and local winemakers are experimenting with other French and Spanish varietals, Kuhlken says. Although cabernet is grown in Texas, it’s hard to make well every year due to the climate, she adds.

Benefits of opening a Hill Country winery

Experimentation and innovation

Kuhlken said Texas winemakers originally thought they’d have to plant the same grapes as California since that’s what consumers were used to, but they realized the same grapes wouldn’t be successful there.

This led to an environment of experimentation, she says. Kuhlken points out that this is unlike California, which is highly regulated and has stuck with certain grapes that have proved profitable even if the climate and resulting wine aren’t ideal.

Jeff Ogle is the general manager of Duchman Family Winery, a 10-year-old operation in Driftwood, Texas. He says since the state is still nailing down varietal selection, these experiments are an expensive gamble as new vines typically take years to produce viable grapes, and not everything works out. Ogle believes it’s gratifying, however, to learn more each year about how to successfully grow grapes in Texas and consistently improve with each harvest.

A tourist hub

One of the Hill Country’s main wine trails follows Highway 290. It starts just west of Austin and ends in Fredericksburg, which has long been popular for beautiful scenery and attractions like the LBJ Ranch. Reynolds says as Fredericksburg has grown as a travel destination, it was a natural progression for wineries to arrive. With their opening, an influx of tourists followed. Ogle says the proximity to Austin, the state capital, also provides exposure to a large nearby population. The area is now so highly trafficked, some wineries from other areas have opened satellite tasting rooms along 290.

The wine industry in the Hill Country can attribute much of its success to being oriented toward selling directly to consumers rather than going into distribution, Kuhlken observes. She says this is partially due to tasting rooms along wine trails and wine clubs.

Old World style

The California wine industry focuses on creating wines that are the same year to year, Kuhlken says. “It’s a success, but it’s also not traditional to winemaking to try to make them taste exactly the same from year to year,” she says. Kuhlken believes if Texas wines continue to become more successful, vintages will matter in a way they don’t in California. “Texas is Old World in this way; you could never make them taste the same year to year since the growing conditions are so different each year.”

Downsides of opening a Hill Country winery

Lack of infrastructure

As a newer wine region, the Texas Hill Country doesn’t have the infrastructure you’d find somewhere like in Napa, California, Kuhlken says. There are not yet vineyard management companies that can help someone plant and manage a small vineyard since there isn’t scale to justify it.

She says lack of warehousing space is another infrastructure challenge. Having air-conditioned storage is vital, and many wineries don’t find out until too late that they don’t have enough room for their cases. She opened a warehousing facility a year ago, and other Hill Country wineries rent space from her when they run out of room.

Unpredictable weather

“I would say our biggest issue in Texas is the weather, which isn’t consistent or predictable, so we struggle with predicting how much we’ll be bringing in each year and managing those inventories,” Ogle explains. He says two of the last four years were tough weather ones with very low yields, and this irregularity requires flexibility with inventory handling.

Kuhlken points out that the Texas Hill Country has additional concerns some wine regions don’t, such as light spring frosts, occasional hailstorms and grape-eating animals (deer fences are required).

Massive time and financial investment

When someone asks Ogle about opening a winery, he tries to dissuade them because of the high barriers to entry, including start-up expenses that can run into the millions. “It’s such a young industry that a lot of those expenditures in terms of equipment and acreage haven’t been fully capitalized yet, so the costs are still very high,” he says.

Reynolds says the investment in equipment alone is substantial, leading some neighboring wineries to combine efforts by sharing storage or producing the wine at someone else’s winery (she advises choosing neighbors strategically). Additionally, winemaking is a complicated craft usually requiring years of hands-on experience to succeed. Unless you are already seasoned, you must also spend money on staffers who know how to grow grapes, make wine and operate your business.

This isn’t a business you can enter overnight, Reynolds says — it takes major planning, including obtaining federal approval and numerous state permits. She recommends finding an attorney knowledgeable in liquor law before making the leap. If you plan to make your own wine and sell your own brand, know that it will likely take years to grow, age and bottle wine before you have anything to sell, she says. Some new wineries open a tasting room and sell other local wines until they have their own.

Resources for starting a winery

The Texas Wine & Grape Growers Association advocates for members of the industry and offers educational opportunities for those interested in the business. The Texas Department of Agriculture also has an online guide for starting a winery in the state. The Texas Winegrape Network is another treasure trove of information on grape growing and winemaking in the Lone Star State.

Although Texas Hill Country winemaking is an expensive and challenging industry to break in to, its spirit of innovation and growth holds promise for a bright future.

Emily Starbuck Crone is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @emstarbuck and on Google+.

Photo via iStock.

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