Des Moines Register

Des Moines Register 10-28-07

Southern Hills Winery pours it on to succeed

Iowa's only cooperative winery bounces back from problems.

By JERRY PERKINS REGISTER FARM EDITOR

Osceola, Ia. - Southern Hills Winery is on its way back from financial problems that threatened to put a cork in Iowa's first and only cooperative winery, directors of the winery say.

David Kephart, an Iowa native and California businessman who recently took over as president of Southern Hills' board, said there's a new energy at the winery's headquarters.

"People have picked up the pieces and are pitching in," Kephart said last week after a board meeting at the winery. "We've got something to prove here. We want to take a little bit of money and a whole lot of effort and turn this thing around."

Originally known as Two Rivers Grape & Wine Cooperative when it was formed in November 2002, Southern Hills is trying to overcome a series of reversals.

First, the contractor who was building the winery's headquarters went out of business, which cost it an estimated $400,000. There were management problems and a shortage of capital. Its first winemaker quit.

This year's grape crop in Iowa also has turned out to be a disappointment for the co-op's grape grower-owners.

Many of their grapevines were zapped by an April freeze that covered much of Iowa around Easter Sunday. Then their vineyards were soaked by heavy August rains that burst the grapes hanging on the vine.

The shortage of grapes has forced the winery to import grape juice from the Finger Lakes region of upstate New York, said Southern Hills' new winemaker, Lucas McIntire.

A shake-up of the board of directors earlier this year brought in new faces trying to turn the co-op around. Southern Hills Winery may still face risks, Kephart and some of the co-op's directors said last week, but the winery will make 11,000 gallons of wine this year, up from 9,000 gallons the previous year.

Mike White, an Iowa State University Extension viticulture specialist, said he thinks it may take three or four years for Southern Hills to work its way out of debt, but he is betting that the winery will make it.

"I'm finally seeing some light at the end of the tunnel," said White, who has invested $15,000 in Southern Hills. "Their bank is behind them and the board members are working their tails off. The wine has been good. They have some good equipment. They have a fantastic location. They have so many pluses down there, I think they're going to make it."

Although Iowa's wine industry is only eight years old, White said, the rapidly growing industry is, generally, in good financial shape.

Not all of the state's wineries are making money, he said, but most Iowa wineries have very little debt.

As of October 2007, he said, 67 state-licensed wineries were in Iowa. Of those, 57 are open for business and the rest are getting ready to open.

The No. 1 complaint of most Iowa wineries: They can't get enough grapes or juice to make wine.

"They are selling it as fast as they can make it," White said. "They can't keep their shelves stocked."

Winemaker McIntire, 28, said Southern Hills will have nine varieties of wine for sale next year, with the first one available in February.

"I'm real excited about picking everything up a notch," he said.

Sitting in a cluttered office at the winery, Kephart sipped a glass of Southern Hills' white wine as he uncorked the new directors' game plan.

In June, he said, the winery fell $80,000 short of its goal to raise $180,000 to reinvest in the winery.

Although it wasn't as much as it wanted to raise, Kephart said, the $100,000 has been used to buy advertising, including billboards on Interstate Highway 35, which runs just west of the winery building.

The group is also running television and print ads, he said. Southern Hills plans to open a store in Valley West Mall in November, where it will sell its wines and other Iowa wines, Kephart said.

Bill Smith of Des Moines, an investor and director, said the increased advertising expenditures have been financed through revenue now starting to come in from the sale of Southern Hills' wines.

Gary Beeler, a grape grower who was the first chairman of the cooperative, said co-op members soon learned that there was more money to be made from making wine than growing grapes.

Smith said he invested in Southern Hills because he wants to see a return, but also because he likes wine. He said the winery is starting to turn around.

"I think we did a pretty good job last year, and next year should be better," he said. "It's fun to be part of that."

Farm Editor Jerry Perkins can be reached at (515) 284-8456 or [email protected]