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A new wave of family winery sales?

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Interesting new report out from an analytical group, Scion Advisors, entitled Wine Industry Report Card: The First Wave of the Big Transition. The “Big Transition” is one in which “’A’ players transition from family to corporate and private equity ownership.” The report cites such recent examples as Stag’s Leap, Firestone and Duckhorn, although of course they could have stretched further back to include Rosenblum, Ravenswood, Mondavi and others.

According to the analysis, twenty-plus of these “A” brands are the juiciest targets for takeover (although the report doesn’t identify them), and when the corporations and equity partnerships run out of “A” brands, they’ll turn to “B” brands for the pickings. Scion advises these “B” brands to “prepare for sale [and] restructure and demonstrate solid bottom line results” in order to make themselves more attractive to takeover artists. If they do not prepare, the study warns direly, “…a majority of [“B”] winery owners looking to sell will end up as real estate sales, with little to nothing paid for the brand.” (And one presumes Scion Advisors would like to be the paid consultants for these “B” wineries.) The reports predicts that “Nearly 1,000 family-owned wineries on the West Coast expect to go through a change of ownership within the next decade.”

This is a sobering report, but not necessarily one to despair over. The industry has been through periods of consolidation before (the early 1990s was one) when gloom-and-doomers predicted everything would be owned by a few mega-corporations. But the genius of American (and Californian) entrepreneurialism has been that for every winery that gets sold to a corporation or equity partnership, 2 or 3 new ones flower up. (Anderson Valley is an amazing example of this. Almost all the wineries there are little ones that have come into existence in the last 10 years.) As bad as things look now, economically-speaking, there’s little reason to believe this trend will not continue, as young idealists and second-career types enter the business. Still, I believe Scion Advisors when they predict a wave of sales over the coming years, and it’s probably a good thing for the small family wineries (who sometimes don’t understand business as well as they might) to prepare for whatever’s coming.

I’m off to the Whitefish Mountain Wine & Food Summit, in Montana, to hold a couple seminars. See you next week. Be well.

  1. Lane Tanner projected a period of involution a year or two back. She said that a lot of smaller producers would either fold or be sold off.
    The current economical down turn (and possible drop in wine sales) may be a catalyst for this.
    We’ll see.

  2. Lane’s a smart cookie.

  3. Vic Motto says:

    Don’t believe it. The numbers just don’t work in this survey, and there are no objective facts to support this poorly-drawn conclusion. Those of us directly involved in wine industry M&A see no evidence to support this. If it were true there would be a tsunami of attempted activity – which isn’t happening and would fail in any event. They’re aren’t enough buyers (or sellers) to make even a small dent in these outlandish assumptions. This is naked hyperbole used for self-promotion, and the media has certainly taken the bait.

    It would be interesting to see a real story on industry M&A, because it is changing rapidly. The strongest big companies have swallowed the weakest big companies and are now themselves weaker as a result. Industry M&A is now shifting up market (where the money is) and new capital is being attracted in the process. These are transforming trends to be sure, but evolutionary, not revolutionary – despite predictions to the contrary by observers not directly involved.

  4. As the costs of doing business goes up, many small wineries will not pass the added costs on to the customer because they are afraid they will lose market share. Their margins will shrink and so will their abilities to remain in business. They become take-over targets of the corporate wineries looking to expand their portfolios. In economic hardships, people drink less expensive products. The big corporate wineries can obtain a retail price advantage by spreading their costs of goods out over a vast number of units. Let’s face it, most small family-owned wineries are screwed unless they have a significantly large consumer-direct sales program.

  5. Really interesting…hopefully the falling price of real estate will forestall this movement. I hate the thought of wine gentrification. Love your blog.

  6. Hi Vic, coming from you, one has to believe it! This is why I said we’ve heard these dire predictions before — and here we still are, better and stronger than ever!

  7. Hi Steve [this is me, Heimoff, replying to the comment made by another Steve], You’re right about the advantages of DTC programs. I just hope the various courts and States allow this to happen quickly.

  8. Hi Rebecca, I don’t think there’s a connection between the price of real estate (which mainly affects homeowners) and the problems of family wineries. It’s a little more complicated than that. But thanks for your kind comment.

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