Keeping it small

There’s a popular joke in the wine industry which goes: “Do you know how to make a million dollars out of a small winery? Start out with five million!”

The joke illustrates why owning a small winery is perceived more as an expensive hobby or an act of passion than a money making venture. At the end of the day, however, a winery of any size is a business, albeit one that might not be easy to manage or profit from, especially in a country like Lebanon.

Small wineries by definition

The past 10 years has seen the number of wineries in Lebanon grow from around seven to almost 50. Many of these wineries, according to wine shop Les Caves De Taillevent’s General Manager Paul Choueiry, are considered small or boutique.

Although there isn’t one absolute definition for small or boutique wineries, the wine specialists Executive spoke to believe a small winery is defined by a low production (around 20,000 bottles or less per year) often with only one or two labels (or wines). They also tend to be family run.

Karim El Ghazzi, general manager of Zawya, a wine shop in Mar Mikhael selling only Lebanese wines, believes small or “independent wineries”, as he calls them, are also characterized by the winemaker being involved in the whole process from harvest to distribution. “There is something beautiful about the winemaker coming to distribute their wine to us with their finger stained red from having personally pressed the wine earlier that morning,” muses Ghazzi.

Good things come in small packages

Producing only a small quantity of wine usually translates to being able to better control the production process and wine quality. “Boutique wineries are interesting because producing 10,000 liters is different than producing 10 million liters. Micro-wineries work on a small scale so they can control every single kilo, every single bottle, the whole process,” explains Choueiry, adding, however, that without government regulated appellations on wine, the only way one can evaluate the vintage is through tasting it, comparing it to “Russian roulette”.

Micro-wineries have the benefit of working at an artisanal level in contrast to the large wineries, explains El Ghazzi. “When the winery grows with a production of over 50,000 they find themselves at a position of a corporation or company and then might have to take decisions at that level, such as sourcing the grapes from a cheaper source. The winery then becomes detached from the agricultural side of its production,” elaborates El Ghazzi, adding that it’s not wrong for a winery to function like that, but that it would not fit into the criteria Zawya has set for its selection of independent wineries.

While still considered a small crowd, Lebanon’s wine drinkers are showing an increasing interest in these boutique wineries, influenced by the global trend for the artisanal and independent wine producers. “There is a worldwide trend towards this small artisanal way of production, even in beer or food; there’s a different spirit and style of making or producing,” says Choueiry.

Najib Moutran, owner of the Wine Teller, features 35 boutique and medium-sized Lebanese winery brands in his shop and says he has seen demand for them increase in the past five years. “There is a great interest among the Lebanese for micro-wineries, though at the beginning they were a little afraid to try something new. But now these wineries have proven themselves in quality and consistency so people are trying them more,” explains Moutran.

Money woes

Owning a small winery, however, is not a smooth sailing course.

To begin with, there is the issue of expenses. Starting up a winery in Lebanon requires an investment of between $500,000 and a million dollars, according to the winery owners Executive spoke to.

[pullquote]While still considered a small crowd, Lebanon’s wine drinkers are showing an increasing interest in these boutique wineries[/pullquote]

Aside from owning the land, securing the grapes and contracting winemakers or specialists, which requires a sizable amount by itself,  this budget is spent on winemaking equipment, from the tanks to the bottling machine to the barrels themselves, all of which have to be imported, according to Moutran.

The cost of winemaking machinery does not change depending on the quantity of wine made, meaning that a small winery has to divide that cost among the limited amounts of bottles it produces annually, explains Choueiry.

Micro-winery owners face another problem when importing bottles, corks and barrels in that they only need small amounts of them, which makes the costs much higher in comparison to that of larger wineries which order these products en masse. “Costs for small wineries are [relatively] much higher than the big ones because we acquire small quantities. Everything is imported here,” laments Sebastian El Khoury, winemaker and owner at Domaine de Baal.

Managing finances

All the small winery owners Executive spoke to say they have discussed coming together to cooperate on reducing costs by investing in a mobile bottling truck (a common service for small wineries in countries such as France) and splitting the cost or even ordering materials together in bulk and dividing the shipping expenses.

However, according to Iris Domain’s Sarmad Salibi, this talk has not been followed up by action. “I’ve been looking at ways to collaborate together with some small wineries to cut down on expenses related to bottling and corking and collaborate on marketing issues. The intent is there, but when it comes to taking action, things are slow simply because everyone is busy with their own work and they each have their own financial capabilities,” says Salibi.

Although Kafalat offers start up loans to small wineries, which several of the wineries Executive spoke to have benefited from, other payment facilities or government support for this agroindustry sector is not available. Also, with Kafalat, loan beneficiaries are given up to six years to pay back the amount, a time period which, according to El Khoury, is too tight for wineries. He compares this with wine producing countries abroad where wineries are given up to 20 years to repay their loans.

Spreading the wine

Distribution is another area where small wineries face difficulties, again financially related. “As a small winery, you don’t have the same budget as the big wineries. We cannot afford the same marketing campaign, and distribution and marketing pose the main financial challenges,” explains El Khoury, adding that for wine, not only is the Lebanese market saturated, but the international one is also highly competitive.

One of the main problems with distribution of micro-wineries is that, because of their high cost of production, their prices are also high when compared to the bigger Lebanese wineries. “The high production cost is a big challenge in that it puts you in a price bracket which is sometimes a disadvantage. Some Lebanese consumers think that Lebanese wines are not synonymous with quality. So when they see a bottle at our price, they think it is too expensive and opt for foreign wine at a slightly more expensive price tag thinking it is of better quality, which is not necessarily the case,” explains Jennifer Massoud, communications and productions manager at Atibaia.

Moutran explains that alcohol distribution in Lebanon is typically done through big companies, which is a problem for small wineries. “The way distribution is being done in Lebanon is that you have this link between big distributors and brands of wine; if you don’t have this big distribution company, you don’t have penetration power in the market especially with the Syrian border closed and with a minimal export market for small wineries,” says Moutran.

Although some of the small wineries Executive spoke to have distributors, they say it is not enough to be competitive with the bigger wineries in the country. “While we have a distributor, we have an issue with how wine sales happen in Lebanon. The majority of wine sales happen in supermarkets and supermarkets want a product with a high turnover in order to maximize the dollar profit per square meter; so they want to have tastings, promotions…a boutique winery will not provide them with those things so they don’t list it or give you a small space with no visibility,” explains Massoud, adding that in the on trade sector (namely restaurants) the issue is mainly with restaurant owners pushing imported wine over the local wines because they can make higher margins.

Some of the wineries interviewed do have an export market abroad, but all wineries say they prefer selling in the local market as they make higher profits. “To us, we benefit more when we sell here because we can sell them at a higher price; outside we have to lower our prices because we have customs and transportation expenses,” explains El Khoury.

Some support, please

Again, the government offers no support for small Lebanese wineries. Boutique wineries that have paid the fees to be part of the Union Vinicole du Liban (UVL) (fees are proportional to the size of the winery) benefit from attending the international wine exhibitions with them under the Lebanese wines pavilions, explain El Khoury and Massoud.

Fees for these exhibitions are often subsidized by the Chamber of Commerce or the Ministry of Agriculture (the subsidies exclude airfare and accommodation) and so could be the only chance for small wineries to attend such events.

Locally, small wineries can market their wines through consumer festivals such as Vinifest or others which take place before Christmas and have a focus on wine, suggests Choueiry.

A different playing field

Small winery owners describe their venture as something they started out of passion, giving the impression that their wineries might not be all about the bottom line, and that they are content to stay at the size they are at.

Others assess the market as they go along, evaluating whether or not they will take the leap to become a medium sized winery. “This is why I started with only 5,000 bottles,” says El Khoury. “I started small so as not to have any left and increased the product number as the demand increased.” He now produces 15,000 bottles annually.

Regardless of their personal benefit, small and medium-sized wineries have brought dynamism into the Lebanese wine industry. “Before boutique wineries, all wine production in Lebanon was in Bekaa, but the nice thing was that with the new wineries mushrooming across the country, wine now has different microclimates and soils which lead to different profiles and tastes of Lebanese wine,” says Choueiry.

Now that is something we can all raise a glass to.

Atibaia

Production: 16,000 bottles per year

Region: Batroun

Jean Massoud’s family already owned a house in the mountains of Batroun but “fell in love” with a 17th century house in the vicinity and decided to buy it.

Daughter and communications manager Jennifer Massoud recounts that, because the family was passionate about wine, they decided to transform the house into a winery named Atibaia. They sent soil samples to France to see what grape varieties would work in the Batroun climate as there were few wineries in the areas back then.

“It was 2005 so there were still very few wineries if any in Batroun. It was quite a challenge for us, but at the same time we wanted to do a wine that we enjoy drinking and are passionate about,” recalls Massoud, stressing that their family’s interest in the winery was not commercial.

Indeed, Jean Massoud, who is in the distribution business, saw Atibaia as more of a chance for him to work in agriculture, a subject he is passionate about and had studied at university, and as a retirement project of sorts.

Today, Atibaia has three vintages under one red wine label, produced by winemaker Diana Salameh, and plans to release a white wine by next year. Sixty percent of Atibaia’s production is exported while 40 percent is distributed locally through their distribution company.

Atibaia can be found in the major wine retailers, select restaurants and a few upscale supermarkets. Massoud explains their presence in supermarkets with the following: “We are in high end supermarkets because it is a one stop shop for many clients who don’t go to wine retailers or cavists and just buy their wine from there. We are also in supermarkets in areas where you cannot find cavists.”

Domaine de Baal

Production: 15,000 bottles per year

Region: Zahleh, Bekaa Valley

Sebastian El Khoury says his family has always been fans of wine, having lived in Bordeaux, France for many years.

 In Lebanon, starting from 1994, his father had vineyards and used to sell grapes to wineries such as Château Ksara which furthered El Khoury’s fascination with wine.

As he recounts, he had studied business in university and thought of entering the wine export/import business, but decided to focus on winemaking instead. He went to back to Bordeaux for seven years where he worked in a winery out of the belief that hands-on experience would be the most useful.

In 2005, El Khoury returned and prepared his first vintage of 5,000 bottles. “Today, we produce 15,000, but we started out with only 5,000 and grew slowly. I plan to reach a maximum of 25,000 bottles because for me small is better: risk wise it’s more manageable that way as I have to think of distribution,” says El Khoury explaining that many wineries make the mistake of producing as many bottles as they can afford-sometimes up to a 100,000 from the first vintage without securing a market for them first.

Domaine de Baal is close to an organic wine although El Khoury prefers the term natural wine, meaning there are barely any additives to the wine (low in sulfur, no yeast or additives) and has both red and white vintages.

Forty percent of the wine is distributed locally by Fawaz Holding through their wine shop La Cave de Joël Robuchon and the remaining is exported.

Domaine Iris

Production: 6,000 bottles per year

Region: Bhamdoun

Being around vineyards has always relaxed Sarmad Salibi. Growing up, he would hang out with his father while he tended to his vineyards and while living in South California, USA, he would always head to Napa Valley and stroll around the vineyards whenever he wanted a relaxing taste of home.

It is no wonder then that Salibi loved wine. Upon his return to Bhamdoun, he would often visit a friend who was producing wine and enjoy the smells and sights of wine making. That friend gifted him several hundred grape vines and this is what began pushing Salibi into starting Domain Iris.

The final shove, says Salibi, was that he had land and a house in Bhamdoun that were abandoned during the Lebanese civil war, but that he wanted to revive, lest they be bought by investors.

So, in 2003, planting for Domain Iris started, and soon after Salibi was able to enjoy the first vintages of his hard work. Today Salibi produces 6,000 bottles which he distributes locally at the major wine shops, a few premium restaurants and what he calls the five major hotels in Beirut.

Salibi handles market and distribution himself and says that times have been hard, in line with the economic situation in Lebanon, since, at the end of the day, he is selling a luxury item and not a basic necessity.

Salibi admits that the winery is taking up most of his time “because I love it” but says he has another line of business which helps make ends meet. “Small winery owners can be called passionate fools. If the project is self-sufficient and financed then it is enough for me; it is something for the soul,” concludes Salibi.