By Amy Campbell
In 1987, Owen Deutsch was sitting in his office when he overheard a self-storage customer ask about renting space to store his wine. "We weren't doing wine storage," recalls Deutsch, who was nonetheless intrigued by the concept. After a few months of research, he decided to dedicate space for wine storage in the basement of his self-storage building in the Chicago area. Seven years later, he added wine storage to a second facility.
Many self-storage operators have discovered the expanding world of wine storage. While not for everyone, this niche can be rewarding for storage operators on several levels. First, the per-square-foot return can easily exceed that of traditional climate-controlled storage. Also, unlike car and boat storage, wine storage is still considered a rarity in the self-storage market. Lastly, because wine has such an upscale image, offering this highly specialized service can elevate your facility's reputation.
"We have gotten people into the facility for wine storage who would have never otherwise come into the facility," says George McCord, co-owner of Plantation Self Storage and its wine storage, aptly named Plantation Cellars. "About half of the people who have wine storage with us also have a storage unit."
Before you start measuring your cellar for wine lockers or painting extravagant murals celebrating all things wine, you must first determine if there 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 a combination wine/self-storage facility, Marin County was a natural choice. "It's wine country, and Marin is the richest county in the state of California," says Ledwith, co-owner of Marin Wine Vaults in San Rafael, Calif. "I just took the money, the location, the proximity to all the major freeways and figured it would probably work. I also looked at a few small competitors who'd been around for a while and they were all full."
Deutsch took the concept a step further, meeting with local wine experts and retailers to determine if he was in the right market for wine storage. "I took a class on wine to become more knowledgeable about it. I needed to have an idea of what the demand might be, what people would be looking for," he says.
If your facility isn't located in an ideal wine market, the chances of succeeding are slim. "You have to have the right mix--the location, the clientele. It's all got to make sense before you even consider it," says Henry Halle, co-owner of Old Naples Self Storage in Naples, Fla. Halle, along with partners Mark Rasmus and Barry Gomez, opened two facilities with wine storage 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 had two wonderful, brand-new facilities with state-of-the-art security. We wanted to give customers the nicest amenity package we possibly could."
Although the two Naples facilities filled quickly, Marin Wine Vaults has struggled to find tenants. A year and a half after opening, the wine storage is only 50 percent occupied. "When someone does this, no matter where it is--New York City, L.A., San Francisco or Marin County, Calif.--they've got to plan on a five- to six-year fill-up rate vs. self-storage, which is probably in the two- to three-year evolution," Ledwith says.
Because of the slow lease-up, operators must be able to exist financially without the steady cash flow they've come to expect from traditional self-storage. For Deutsch, it took nearly seven years for his first location to hit full occupancy. Now the Strongbox Wine Cellar boasts 483 tenants. The second location, which opened in 1994, is about 60 percent occupied. "It grows steadily, but it grows very slowly. Now with some competition, it's growing a little bit slower," Deutsch says.
However, McCord says self-storage operators should remember wine storage is not their bread and butter. "The core of our business is renting storage units. This is an ancillary use that from a market standpoint offers a certain kind of upscale nature to your facility," he says. "Also, it brings in people who might not otherwise have come, expanding the market for potential renters of storage units."
Even if there is a market for wine storage in your area, construction costs may be prohibitive. Costs will vary depending on the size of area dedicated to wine storage, whether you're building from the ground up or converting existing space, and the materials you use; but wine storage is generally quite expensive. For example, the developers of Plantation Cellars and Marin Wine Vaults spent an average of $110 per square foot. "We knew we'd have to spend a lot of money and we did," Ledwith says.
But the return is also there. Rental rates typically run about $1.50 per case, per month. An eight-case locker will net a $144 income annually. "If you fill it up, you can make a good deal of money. If you're 90 percent occupied, 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, the notoriety and advertising I get because of its uniqueness is worth the cost to build."
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 and a few lockers. Like other specialty services, however, it requires an extraordinary amount of attention to details. "We did a lot of research to find the quality refrigeration equipment, insulation techniques and various kinds of construction techniques necessary to create a facility that would actually maintain a constant 55 degrees and 70 percent humidity," McCord says. If the correct temperature and humidity are not maintained, the wine will spoil. McCord suggests operators dedicate two refrigeration units--one as a backup to the wine-storage room. Installing a backup generator in case of power failure will further protect against any damage.
In addition to a cooling/humidifying system, the room should be wrapped in plastic. This provides a vapor barrier on the inside of the room with an insulation rating of R22 in the walls and R30 in the ceiling, according to McCord. The drywall applied over the insulation should be green board, which better resists moisture. The green board should be covered with a hardcoat finish by troweling drywall mud over the entire surface of the walls. The walls can 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 will generally fit in a space 12-by-12-by-14 inches. McCord advises using this case size 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 from walk-in units that can hold up to 312 cases to those that accommodate only a few cases. "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 of rentals are from people who are expanding. I have a tenant who has 5,000 cases of 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 construction of his second site. The wine storage is now about 80 percent built-out. "We build them as we see the demand for the units. It'd be foolish to build then three-quarters of the way through find out people want larger units and we've got a whole bunch of small units available," he says.
The lockers themselves can be constructed from several kinds of materials including simple plywood boxes, cages of wooden slats, elaborate oak lockers with louvered doors or any combination. Some permeable surface, such as that provided by slats or louvers, is preferred to assure proper air circulation within 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 the upper-level lockers.
Next to climate control, security is probably the most crucial factor in a wine- storage facility's design. One of the easiest ways to ensure the security of your customers' wine is secure is simply by limiting who has access. Only those who are wine- storage renters should have admittance to the wine-storage area. This can be done in several ways. For example, at the Plantation Cellars in Bluffton, S.C., wine-storage renters have two electronic-identification codes--one for the front gate, another for the wine-storage area. The wine vaults are also near the front office, allowing employees to keep an eye on access into the area.
Many operators install the wine storage on a different floor or area of the facility, and usually set it apart by another locked door. Wine-storage access should be limited to hours when an employee is on the property. Surveillance cameras and motion detectors should also be in place. Typically, tenants use their own locks and must sign in and out at the front desk.
Ledwith has taken another precaution. When building Marin Wine Vaults, he made sure all 600 vaults were individually alarmed. "Without alarms on each vault, theft is so easy," he says. Ledwith illustrates his point with a simple scenario: A renter chooses a large wine vault and signs under an assumed name. While pretending to check his own stock--which could be dirt-filled bottles 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 clips the individual lock with a pair of bolt cutters and begins rummaging through another customer's vault. He then transports bottles--maybe even cases--to his own 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 of typical storage," Ledwith says. "No one robs self-storage units unless they know what's in them. In wine storage, every unit is a score. You're going to get a couple of hundred dollars to maybe $300,000 or a million dollars worth of wine. It's much better than TVs, dishwashers and the other stuff that's in self-storage units. And no one's the wiser."
Customers who store wine at Marin have a personal code. The code must be input into a computer at the main office before the renter can enter the storage area. If the personal code checks out, the storage unit is disarmed, allowing the customer access. "With wine storage, it is critical to have something like that," Ledwith says. Marin also uses cameras and tamper-proof screws between 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 lighter side of wine storage--decorating. Elaborate murals depicting European countrysides, soft lighting, spacious booths and trendy posters will not only serve as distinctive marketing tools but also will create a magical atmosphere.
Plantation Cellars is set apart from the rest of the facility by a hand-carved mahogany door designed with a wine motif. The wall surrounding the door 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 the illusion of depth and dresses up a back wall between lockers.
Deutsch constructed a wine-tasting room where renters can drink wine and socialize. "It adds to the mood and the feeling," says Deutsch, whose customers walk through the room on the way to the cellar. "We have a decanter where they can open their wine. We have some wine glasses. We have a nice booth where they can sit down and drink their wine." Elegant murals and wine posters further enhance the mood. Renters can also leave messages for one another on a bulletin board. Stocking wine magazines also add to the atmosphere. "It's all part of the ambiance and it's not a huge cost," Deutsch says.
Whether you're dedicating 100 units to wine storage or building from the ground up, the experts agree a key ingredient to success is marketing. "The marketing is phenomenal," Ledwith says. "You don't just an ad in the Yellow Pages cross your fingers and hope."
Ledwith uses a variety of marketing tools including billboards, radio and newspaper advertising. He also promotes the facility by meeting with people in wine clubs and visiting wine stores. "Most operators don't want to do that," 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 way to get wine connoisseurs into his facility: Host a wine tasting. He discovered local wine distributors are more than willing to market and provide the wine for such events "They already do this in their own wine store, so you simply offer your facility, make arrangements for people to pour wine and cater the event with finger foods," McCord says. Last summer, McCord also hosted a chamber of commerce mixer at his Lexington, S. C., facility. Some 200 people from the local business community who had never visited the facility attended the event.
The key to good marketing is to try new avenues, McCord says. "You're limited only by your imagination. We all have time constraints. But if you just acknowledge it's not your primary business, it's a fun ancillary activity to include within your storage business."
In the right setting, and with the right marketing campaign, many self-storage operators will find wine storage a delectable complement to their existing business. "You're blazing new territory," Deutsch says. "You take a risk. I've taken some calculated risks over the years and they haven't all worked out, but this worked out pretty well."
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.
|Area of Wine Storage Room||640|
|Number of Lockers||88|
|Total Cost Per Square Foot||$110|
Construction Cost Breakdown
|Drywall - Green Board||$400|
|Drywall - Hardcoat Finish||$1,400|
|Standby Generator/Transfer Switch||$5,400|
|Temperature/Humidity Data Recorder||$600|
|Electrical - Wiring & Set Up Equipment||$2,500|
|Electrical - Light Fixtures||$1,250|
|24 Cases||26||28||12 Cases||336|
|36 Cases||1||2||18 Cases||36|
|48 Cases||7||2||48 Cases||96|
|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|
|Locker Capacity||Rent Per Month||Rent Per Year|
|Locker Capacity||Number of Lockers||Total Cases||Rent per Month||Rent per Year|
|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
|Less 10 percent vacancy||$3,658|
Net Annual Income
Income Per Square Foot
|Total income @ 90 percent occupancy||$32,918|
|Total square feet in wine storage room||640|
Income Per Square Foot