Updated: Mar 17, 2021
In order to truly understand where the Japanese wine industry is at the moment, we need to look at some stats that will be shared with you in the article.
Where do Japanese Wineries get their grapes from?
48.7% Contracted Grape Growers (契約栽培) 10,381t
34.6% Direct Purchase (購入) 7,375t
15.1% Self-Operated Vineyard (自営農園) 3,214t
1.7% Contract Wine-Making (受託醸造) 356t
(Source: National Tax Agency, 2018)
First thing you will notice is that nearly half of the wine produced in Japan are sourced from contracted grape owners.
Wait what? By 'contracted grape growers', does that mean the wineries do not grow the grapes themselves?
Yes, and it is actually not that uncommon.
Sometimes winemakers do not grow all the grapes they need. This may be by choice for some, but for others, it may simply be because they do not have the required capital or manpower to grow grapes themselves.
For instance, smaller wine-makers that only own a few acres of grapes will be limited in terms of both grape varieties and quantities of grapes that they can grow. What do they do? They sign contracts with grape growers to mitigate this limitation.
Wineries that purchase grapes from contracted grape growers tend to enjoy the benefits of having consistency in its wine as they buy grapes from the same suppler year after year, and also better quality control given the relationships they have built up with their suppliers.
As seen in the stats above, sourcing from contracted grape growers is the current dominant method, accounting for 49% of wine produced in Japan.
Next up, we have 'direct purchase', which accounts for roughly 35% of wine production in Japan.
What's the difference between 'direct purchase' and 'contracted grape growers' you may ask?
Well, the biggest difference is that the quality of wine made from 'direct purchase' of grapes usually is not as stable as sourcing grapes from 'contracted grape growers', given the variation in grape sources every time a new bottle of wine is produced.
Let's look at some sample cases.
Winery A planned to produce 200,000 bottles in 2020, but given the poor harvest of that year, it was only able to produce 150,000 bottles with grapes grown from its own vineyard. What can they do? They can buy grapes from independent grape growers, to make up for the grapes needed to produce the extra 50,000 bottles they planned to produce.
Another sample case.
Winery B is a newly-established winery, and it still does not have the required capital to buy and run its own vineyard, nor does it have enough credibility to sign large contracts with grape growers. What can they do? They can source their grapes from multiple independent grape growers, blend them, and make them into their own desired wine.
Although buying grapes through direct purchase have its own pros and cons, it is not one to be neglected, given it is the 2nd most common way to source grapes in Japan in terms of overall wine production.
Before we move on to 'self-operated vineyard' which is quite self-explanatory, let's look at 'contract wine-making' which accounts for just 1.7% of wine produced in Japan.
What does 'contract wine-making' mean?
Well, sometimes the smaller producers, especially those that just started, may not even have their own wineries, so what they do is they pay external custom crush facilities, use their equipments and storage space, to make their wine.
Using a custom crush facility comes with benefits including the following:
alleviates the capital-intensive costs of setting up a winery
usually priced at a fixed cost per ton or case (easier for budgeting purposes)
comes with trained/ skilled staff that will help with the wine-making process
you as a winemaker or winery owner gets to direct your winemaking goals
Here is an actual example of a custom crash facility in Japan.
The other way goes as well. Imagine you are a winery owner that have spent hundreds of millions of Japanese Yen on purchasing equipments and facilities to set up your own winery. To help clear the huge loan you have taken out to set up your winery, you may look to make some extra money by helping others make their wine and lending out your facilities and equipments as a custom crash facility.
So although 'contract wine-making' only accounts for less than 2% of wine produced in Japan, it is one that we should not overlook, as it plays an important role especially for the up-and-coming newly-established wineries.
Lastly, we have 'Self-Operated Vineyard' that accounts for only 15% of wine produced in Japan.
This percentage is quite low, and may not be desirable under many circumstances as risks come with the other sourcing methods of grapes for wine production.
Let's assume you are a winemaker that goes with the 'direct purchase' method, you source your grapes from a grape grower, and poured your heart into the wine-making process, and was able to produce a phenomenal wine.
Your brand value went up, price of your wine doubled, and there you are, a happy winery owner thinking 'life is just wonderful'.
You go to work the next morning, thinking 'great, now I am going to produce another bottle of wine that has the exact same quality as the one that went bananas', you visit the same grape grower and ask to buy their grapes, but what you realize is that other wineries, after knowing the success you've had, have already bid up the price of the grapes from this grape grower, and you can no longer afford the grapes that made your wine famous.
This is just just one example of risks associated with not producing wine from grapes grown in your own vineyard.
Well if that's the case, why does 'self-operated vineyard' only account for 15% of wine produced in Japan?
The biggest reason for that is because of the size of most wineries in Japan.
97.4% of Wineries in Japan are small-medium sized companies
According to National Tax Agency of Japan, 97.4% of wineries in Japan are small-medium sized companies, which is defined by companies with less than 300 million yen in capital and with less than 300 employees. (Source: National Tax Agency)
Having spoken to and interacted with many up-and-coming winery owners in Japan, I was not surprised when I first learned that 'most' wineries in Japan are small-medium sized companies, as it is not uncommon to see these wineries having less than 10 staff, many of which are temporary workers or contractors, while some wineries are even operated solo, i.e. by the winery owner themselves, but '97.4%' definitely surpassed my expectations.
With most wineries in Japan having little capital, it is no wonder why nearly 84% of wine produced in Japan are sourced either from 'contracted grape growers' or from 'direct purchase', rather than from their own vineyards. This in turn translates to the relatively higher price tag of Japanese Wine when compared to other big players in the market, like wine from France, the U.S., or Spain for instance. Without economics of scale, it likely will continue to be difficult for Japanese wine-makers to really compete internationally in terms of price for their wine.
If price competitiveness is a challenge under current circumstances for many winemakers, do they diversify their products, such as not only making wine, but also other alcohol or beverages, like Sake (Japanese Rice Wine) for instance? Let's look into it further.
These small-medium sized companies are going all in
One interesting ratio from the survey conducted by National Tax Agency of Japan is the wine-to-total-sales ratio, which essentially measures how much from the total sales of the winery is the sales from wine accountable for.
What they found out is that wineries with 100% wine-to-total-sales ratio are all wineries that produce less than 300 kl of wine per year, which essentially means that the smaller-scale wineries are going 'all-in'.
To put things into perspectives, and for us to better understand how small these wineries that have 100% wine-to-total-sales ratio are, let's assume 1 kl translates into 1300 bottles of wines. Among these wineries that have 100% wine-to-total-sales ratio:
61 wineries produce less than 100 kl per year, which roughly translates into 130,000 bottles of wine per year
2 wineries produce 100 kl to 300 kl of wine per year, which roughly translates into 130,000 ~ 390,000 bottles per year
(Source: National Tax Agency)
Now that we understand how wineries in Japan source their grapes, the average size of wineries in Japan, and how dedicated they are to wine-making in terms of overall income source, let's look at how these wineries are doing, financially.
Are they making a profit? How much profit are they making? What percentage of the wineries are making a loss?
32% of Wineries in Japan are making a Loss
Now, operating a winery is quite capital-intensive, from buying grapes to purchasing equipments needed to set up a winery, it is said to take at least 11 years on average for the business to turn positive, so it certainly requires a lot of patience.
To give you a glimpse of how wineries in Japan are doing financially, 32% of wineries made a loss in 2018, while 15% of them made less than 500k yen ($5k USD) in Operating Profit. (Source: National Tax Agency)
Despite the challenges mentioned in this article, we are continuing to see more and more wineries open up all around Japan. The small-scale characteristics of wineries in Japan is not all negative, as what that also means, is that we the consumers, get to enjoy great variety of style and personality of wine that each winery has to offer.
Let's see how this develops in the coming years!