October 1, 2001

17 Min Read
Ripening on the Vine

Ripening on the Vine

Wine Storage may still be a niche market, but competition isgrowing

By Amy Campbell

In 1987, Owen Deutsch was sitting in his office when he overheard aself-storage customer ask about renting space to store his wine. "Weweren't doing wine storage," recalls Deutsch, who was nonetheless intriguedby the concept. After a few months of research, he decided to dedicate space forwine storage in the basement of his self-storage building in the Chicago area.Seven years later, he added wine storage to a second facility.

Manyself-storage operators have discovered the expanding world of wine storage.While not for everyone, this niche can be rewarding for storage operators onseveral levels. First, the per-square-foot return can easily exceed that oftraditional climate-controlled storage. Also, unlike car and boat storage, winestorage is still considered a rarity in the self-storage market. Lastly, becausewine has such an upscale image, offering this highly specialized service canelevate your facility's reputation.

"We have gotten people into the facility for wine storage who would havenever otherwise come into the facility," says George McCord, co-owner ofPlantation Self Storage and its wine storage, aptly named Plantation Cellars."About half of the people who have wine storage with us also have a storageunit."

Before you start measuring your cellar for wine lockers or paintingextravagant murals celebrating all things wine, you must first determine ifthere is a need for wine storage in your area.

Know the Market

When Jim Ledwith and his partners began scouting for a location to build acombination wine/self-storage facility, Marin County was a natural choice."It's wine country, and Marin is the richest county in the state ofCalifornia," says Ledwith, co-owner of Marin Wine Vaults in San Rafael,Calif. "I just took the money, the location, the proximity to all the majorfreeways and figured it would probably work. I also looked at a few smallcompetitors who'd been around for a while and they were all full."

Deutsch took the concept a step further, meeting with local wine experts andretailers to determine if he was in the right market for wine storage. "Itook a class on wine to become more knowledgeable about it. I needed to have anidea of what the demand might be, what people would be looking for," hesays.

If your facility isn't located in an ideal wine market, the chances ofsucceeding are slim. "You have to have the right mix--the location, theclientele. It's all got to make sense before you even consider it," saysHenry Halle, co-owner of Old Naples Self Storage in Naples, Fla. Halle, alongwith partners Mark Rasmus and Barry Gomez, opened two facilities with winestorage in the past year. "There was a real void here," Halle says."We felt like it was another service we could do for our customers. We hadtwo wonderful, brand-new facilities with state-of-the-art security. We wanted togive customers the nicest amenity package we possibly could."

Although the two Naples facilities filled quickly, Marin Wine Vaults hasstruggled to find tenants. A year and a half after opening, the wine storage isonly 50 percent occupied. "When someone does this, no matter where itis--New York City, L.A., San Francisco or Marin County, Calif.--they've got toplan on a five- to six-year fill-up rate vs. self-storage, which is probably inthe two- to three-year evolution," Ledwith says.

Because of the slow lease-up, operators must be able to exist financiallywithout the steady cash flow they've come to expect from traditionalself-storage. For Deutsch, it took nearly seven years for his first location tohit full occupancy. Now the Strongbox Wine Cellar boasts 483 tenants. The secondlocation, which opened in 1994, is about 60 percent occupied. "It growssteadily, but it grows very slowly. Now with some competition, it's growing alittle bit slower," Deutsch says.

However, McCord says self-storage operators should remember wine storage isnot their bread and butter. "The core of our business is renting storageunits. This is an ancillary use that from a market standpoint offers a certainkind of upscale nature to your facility," he says. "Also, it brings inpeople who might not otherwise have come, expanding the market for potentialrenters of storage units."

Construction Costs

Even if there is a market for wine storage in your area, construction costsmay be prohibitive. Costs will vary depending on the size of area dedicated towine storage, whether you're building from the ground up or converting existingspace, and the materials you use; but wine storage is generally quite expensive.For example, the developers of Plantation Cellars and Marin Wine Vaults spent anaverage of $110 per square foot. "We knew we'd have to spend a lot of moneyand we did," Ledwith says.

But the return is also there. Rental rates typically run about $1.50 percase, per month. An eight-case locker will net a $144 income annually. "Ifyou fill it up, you can make a good deal of money. If you're 90 percentoccupied, you're getting about $50 per square foot," McCord notes."But I looked at it more as an amenity. If I never made a dime from it, thenotoriety and advertising I get because of its uniqueness is worth the cost tobuild."

Spoiled Grapes


A decorative door is used to set off entry to the wine room at Plantation Self Storage in Bluffton, S.C.

Wine storage seems simple enough--climate-controlled units, lots of space anda few lockers. Like other specialty services, however, it requires anextraordinary amount of attention to details. "We did a lot of research tofind the quality refrigeration equipment, insulation techniques and variouskinds of construction techniques necessary to create a facility that wouldactually maintain a constant 55 degrees and 70 percent humidity," McCordsays. If the correct temperature and humidity are not maintained, the wine willspoil. McCord suggests operators dedicate two refrigeration units--one as abackup to the wine-storage room. Installing a backup generator in case of powerfailure will further protect against any damage.

In addition to a cooling/humidifying system, the room should be wrapped inplastic. This provides a vapor barrier on the inside of the room with aninsulation rating of R22 in the walls and R30 in the ceiling, according toMcCord. The drywall applied over the insulation should be green board, whichbetter resists moisture. The green board should be covered with a hardcoatfinish by troweling drywall mud over the entire surface of the walls. The wallscan then be painted for a final finish.

Most agree a variety of locker sizes ensures a better occupancy rate.Although cases may vary in size, a typical California cardboard carton willgenerally fit in a space 12-by-12-by-14 inches. McCord advises using this casesize as a basic building block for the wine-storage lockers.


Offer customers a lounge area in which to enjoy their stores. This can double as a venue for wine tastings.

Locker sizes can also be altered as the need arises. Vaults can vary fromwalk-in units that can hold up to 312 cases to those that accommodate only a fewcases. "A lot of people who are new wine collectors start out with a small,eight-case unit," Deutsch says. "At least one-third to 40 percent ofrentals are from people who are expanding. I have a tenant who has 5,000 casesof wine. We have a lot of people who have 150 cases of wine."

It may be prudent, however, to initially construct only a portion of lockers,and then see what the demand actually is. Deutsch did this during constructionof his second site. The wine storage is now about 80 percent built-out. "Webuild them as we see the demand for the units. It'd be foolish to build thenthree-quarters of the way through find out people want larger units and we'vegot a whole bunch of small units available," he says.

The lockers themselves can be constructed from several kinds of materialsincluding simple plywood boxes, cages of wooden slats, elaborate oak lockerswith louvered doors or any combination. Some permeable surface, such as thatprovided by slats or louvers, is preferred to assure proper air circulationwithin the lockers. The lockers can be spaced on 3-foot aisles within the room.A rolling staircase should be provided to allow convenient access to theupper-level lockers.

Smart Security


Murals are a beautiful way to lend an air of authenticity and excitement to a wine-storage area.

Next to climate control, security is probably the most crucial factor in awine- storage facility's design. One of the easiest ways to ensure the securityof your customers' wine is secure is simply by limiting who has access. Onlythose who are wine- storage renters should have admittance to the wine-storagearea. This can be done in several ways. For example, at the Plantation Cellarsin Bluffton, S.C., wine-storage renters have two electronic-identificationcodes--one for the front gate, another for the wine-storage area. The winevaults are also near the front office, allowing employees to keep an eye onaccess into the area.

Many operators install the wine storage on a different floor or area of thefacility, and usually set it apart by another locked door. Wine-storage accessshould be limited to hours when an employee is on the property. Surveillancecameras and motion detectors should also be in place. Typically, tenants usetheir own locks and must sign in and out at the front desk.

Ledwith has taken another precaution. When building Marin Wine Vaults, hemade sure all 600 vaults were individually alarmed. "Without alarms on eachvault, theft is so easy," he says. Ledwith illustrates his point with asimple scenario: A renter chooses a large wine vault and signs under an assumedname. While pretending to check his own stock--which could be dirt-filledbottles to keep up the appearance--the renter observes other customers' actions.When he is alone, he waits for the camera to pan to another area, easily clipsthe individual lock with a pair of bolt cutters and begins rummaging throughanother customer's vault. He then transports bottles--maybe even cases--to hisown vault, and covers his tracks by replacing a new lock on the vault.

"The commodities stored in wine storage are worth much more than that oftypical storage," Ledwith says. "No one robs self-storage units unlessthey know what's in them. In wine storage, every unit is a score. You're goingto get a couple of hundred dollars to maybe $300,000 or a million dollars worthof wine. It's much better than TVs, dishwashers and the other stuff that's inself-storage units. And no one's the wiser."

Customers who store wine at Marin have a personal code. The code must beinput into a computer at the main office before the renter can enter the storagearea. If the personal code checks out, the storage unit is disarmed, allowingthe customer access. "With wine storage, it is critical to have somethinglike that," Ledwith says. Marin also uses cameras and tamper-proof screwsbetween vaults.

Murals and Magic


Wine storage lockers can involve simple construction or more decorative wooden louvre doors.

With all the essentials in place, you can turn your attention to the lighterside of wine storage--decorating. Elaborate murals depicting Europeancountrysides, soft lighting, spacious booths and trendy posters will not onlyserve as distinctive marketing tools but also will create a magical atmosphere.

Plantation Cellars is set apart from the rest of the facility by ahand-carved mahogany door designed with a wine motif. The wall surrounding thedoor is painted to look like the exterior of a wine-storage building in France.Inside the room, a mural depicting a wine cellar lined with barrels gives theillusion of depth and dresses up a back wall between lockers.

Deutsch constructed a wine-tasting room where renters can drink wine andsocialize. "It adds to the mood and the feeling," says Deutsch, whosecustomers walk through the room on the way to the cellar. "We have adecanter where they can open their wine. We have some wine glasses. We have anice booth where they can sit down and drink their wine." Elegant muralsand wine posters further enhance the mood. Renters can also leave messages forone another on a bulletin board. Stocking wine magazines also add to theatmosphere. "It's all part of the ambiance and it's not a huge cost,"Deutsch says.

Marketing Blitz

Whether you're dedicating 100 units to wine storage or building from theground up, the experts agree a key ingredient to success is marketing. "Themarketing is phenomenal," Ledwith says. "You don't just an ad in theYellow Pages cross your fingers and hope."

Ledwith uses a variety of marketing tools including billboards, radio andnewspaper advertising. He also promotes the facility by meeting with people inwine clubs and visiting wine stores. "Most operators don't want to dothat," he says. "You've got to prepare for a major marketing campaign.It's a lot of money and lot of time."

In addition to the traditional marketing strategies, McCord found another wayto get wine connoisseurs into his facility: Host a wine tasting. He discoveredlocal wine distributors are more than willing to market and provide the wine forsuch events "They already do this in their own wine store, so you simplyoffer your facility, make arrangements for people to pour wine and cater theevent with finger foods," McCord says. Last summer, McCord also hosted achamber of commerce mixer at his Lexington, S. C., facility. Some 200 peoplefrom the local business community who had never visited the facility attendedthe event.

The key to good marketing is to try new avenues, McCord says. "You'relimited only by your imagination. We all have time constraints. But if you justacknowledge it's not your primary business, it's a fun ancillary activity toinclude within your storage business."

In the right setting, and with the right marketing campaign, manyself-storage operators will find wine storage a delectable complement to theirexisting business. "You're blazing new territory," Deutsch says."You take a risk. I've taken some calculated risks over the years and theyhaven't all worked out, but this worked out pretty well."

Delivery Dilemmas

Before accepting a wine shipment on behalf of one of your customers, make sure it is legal to do so. A number of states have regulations regarding the direct shipment of wine across state lines. Eleven states already have shipping restrictions and roughly 20 more are considering some type of legislation that would limit the direct shipment of wine to consumers. One organization, Free the Grapes!, is fighting for small wineries and the wine connoisseur. The nonprofit organization hopes to abolish such legislation against direct wine shipment. To determine your state's direct wine-shipment policies, contact your state alcohol regulatory authority or visit www.freethegrapes.org.

Plantation Cellars
Wine Storage Construction Cost

Project Data

Area of Wine Storage Room

640

Number of Lockers

88

Case Capacity

2,032

Total Cost Per Square Foot

$110

Construction Cost Breakdown

Framing

N/A

Insulation/Vapor Barrier

$2,200

Drywall - Green Board

$400

Drywall - Hardcoat Finish

$1,400

Painting

$1,200

Refrigeration/Humidification

$15,400

Standby Generator/Transfer Switch

$5,400

Temperature/Humidity Data Recorder

$600

Electrical - Wiring & Set Up Equipment

$2,500

Electrical - Light Fixtures

$1,250

Entry Door

$4,300

Wine Lockers

$36,000

Total Cost

$70,650

Plantation Cellars
Wine Storage
Summary of Wine Storage Lockers

Framed
Module
Size

Number
of
Modules

Total
No. of
Lockers

Case
Capacity of
Lockers

Total
Case
Capacity

24 Cases

26

28

12 Cases

336

 

 

36

8 Cases

288

36 Cases

1

2

18 Cases

36

48 Cases

7

2

48 Cases

96

 

 

10

24 Cases

240

72 Cases

1

1

72 Cases

72

84 Cases

4

4

84 Cases

336

112 Cases

4

4

112 Cases

448

180 Cases

1

1

180 Cases

180

 

 

88

 

2,032
Cases

Plantation Cellars
Wine Storage Rental Rates
Rental Rate = $1.50 per case, per month

Locker Capacity

Rent Per Month

Rent Per Year

8 Cases

$12

$144

12 Cases

$18

$216

18 Cases

$27

$324

24 Cases

$36

$432

48 Cases

$72

$864

72 Cases

$108

$1,296

84 Cases

$126

$1,512

112 Cases

$168

$2,016

180 Cases

$270

$3,240

Plantation Cellars
Wine Storage Income
Rent per case per month = $1.50

Locker Capacity

Number of Lockers

Total Cases

Rent per Month

Rent per Year

8 Cases

36

288

$432

$5,182

12 Cases

28

336

$504

$6,048

18 Cases

2

36

$54

$648

24 Cases

10

240

$360

$4,320

48 Cases

2

96

$144

$1,728

72 Cases

1

72

$108

$1,296

84 Cases

4

336

$504

$6,048

112 Cases

4

448

$672

$8,064

180 Cases

1

180

$270

$3,240

Total

88

2,032

$3,048

$36,576

Total Capacity

Cases

2,032

Bottles

24,384

Potential Income

Rental rate per case per month:

$1.50

2,032 Cases @ $1.50 =

$3,048 per month

$3,048 per month x 12 =

$36,576 per year

Total Potential Annual Income

$36,576

Less 10 percent vacancy

$3,658

Net Annual Income

$32, 918

Income Per Square Foot

Total income @ 90 percent occupancy

$32,918

Total square feet in wine storage room

640

Income Per Square Foot

$51.44

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