Whither Bill Foley? A wine critic weighs in on his California properties
Bill Foley came onto my radar years ago, when his winery empire still was small and centered in Santa Barbara County (through Lincourt and Foley Estates, both of them very good wineries). I followed his career as he bought Sebastiani, Chalk Hill, Kuleto, Firestone and others, including overseas properties I don’t review. On my recommendation, Bill was Wine Enthusiast’s Man of the Year in 2010, at our Wine Star Awards.
I admired, and still do, this businessman’s tenacity and unerring eye for picking up bargains. The Recession has been Bill’s Happy Hunting Ground. Bloomberg News, which wrote about Bill last week, marveled at Bill’s ability as a turnaround artist, Mitt Romney-style, “gambling he can become a commercial force in a wine industry that is struggling with stagnant sales” by buying “Debt-laden producers…at deep discounts.” The main example in the wine industry has been Bill’s purchase of Chalk Hill “for an undisclosed price well below its peak valuation,” which was estimated by Bloomberg, perhaps generously, to have been $100 million.
You can’t help but admire an astute businessman, but what I’ve wondered about is what Bill Foley really wants. There are only three purposes, in theory, to buy a winery: (1) to keep things exactly as they are, (2) to raise quality or (3) to milk it for all it’s worth before selling it to somebody else.
The question is, which of these three options represents Bill Foley’s innermost desire?
Let’s take a closer look at his California properties in hopes of discerning the answer. The dates in brackets are the reported years Foley bought the property.
Firestone [2007]: I always thought Firestone promised more than it delivered. It was a pioneer in the Santa Ynez Valley but never soared to the top, the way, say, Foxen, Zaca Mesa or Fess Parker did. At least prices never were high. They still aren’t. With large vineyard holdings and (I assume) a good distribution network, Firestone would seem to be a good brand for Foley to pump wines out in large numbers, if he can keep those prices modest (below $20) and maintain scores in, say, the 85-89 range. I cannot see Firestone rising to the level of desirabilty.
Sebastiani [2008]: This venerable company, founded in 1889, had its ups and downs for many years before falling into the Foley portfolio. In recent decades, its wines haven’t been particularly good or bad, just average; there was no compelling narrative, no driving reason for the consumer to seek out a Sebastiani wine, except for availability and value. A wine like the 2009 Pinot Noir is a good buy for $18 and 90 points; the 2008 Cherryblock [$95, 91 points] presents consumers with a more difficult choice. The jury remains out on where Foley takes Sebastiani. I, personally, would like to see Sebastiani get serious about being great. If there’s a brand better situated to move upscale and take advantage of residual good will, it’s Sebastiani.
Kuleto [2009]: I had mixed feelings about Kuleto from its inception. (I first began reviewing its wines with the 2001 vintage.) I thought it was merely a vanity project from a celebrated restaurateur. Many of the initial wines were overpriced, although a trio of 2006 Cabs, all $80, got high scores. But a Zinfandel and Chardonnay I tasted last year were average, and expensive for what you got. I’m not sure I have a good feeling about Kuleto, but Bill can elevate this brand, if he really wants to.
Chalk Hill [2010]: I was a big fan of Chalk Hill for years before Foley bought it. Everything the winery did seemed right: Chardonnay, sweet Semillon, Sauvignon Blanc, the red Bordeaux blend, Syrah, Merlot. I would have called it the perfect Chalk Hill [the appellation] winery, except that would have been a back-handed compliment, since it was practically the only Chalk Hill winery. In re-examining my scores since the Foley purchase, it’s very difficult to discern any trends; the wines seem to be as good as ever, although Foley’s fingerprints won’t really be felt until future releases. Chalk Hill is a gem; Fred Furth probably hated to have to give it up. I hope Bill Foley will keep the gleam on this property.
Steve, it would appear in the dawning hour that you are a frigate firing a shot over the stern of a foreboding Foley foul. Maybe just my cynicism.
And Merus?
Doug, Merus is produced in very small quantities. I rarely get the opportunity to review it, so I didn’t include it in my post.
Steve:
You say: “There are only three purposes, in theory, [for an astute businessman to] buy a winery: (1) to keep things exactly as they are, (2) to raise quality or (3) to milk it for all it’s worth before selling it to somebody else.”
Wouldn’t an astute businessman purchase a winery because he sees opportunities to make money from the transaction? Perhaps he’s identified inefficiencies in its operation. Perhaps he thinks the wine is worth more than is being charged. Perhaps he thinks the quality can be raised to a point where he can charge more money for the wines, and thus make more money, etc.
#1 doesn’t make any sense. There wouldn’t be anything “astute” at such a purchase. #3 doesn’t make any sense, either. If that businessman “milks” a winery for all it’s worth, he’ll likely find it very difficult to make a profit when he decides to sell it to someone else.
Don’t know if you heard, but Foley also bought EOS Winery last year here in Paso Robles. From what I’ve heard (haven’t been there in awhile myself), the quality has indeed risen since the change of ownership.
Steve wrote: “There are only three purposes, in theory [?!?], to buy a winery: (1) to keep things exactly as they are, (2) to raise quality or (3) to milk it for all it’s worth before selling it to somebody else”.
M&A initiatives can pursue several different strategies but mostly focus on: valuable brands with liquidity and/or operational problems; cash-rich companies; generating economies of scale (fixed cost reduction) and scope; vertical integration; maximizing synergies; and increasing revenues and market share.
I’m not able to find the citation, but I recall Foley responding to an interviewer last year that his primary goal in acquisitions was to present a portfolio large enough that distributors could not afford to ignore it.
The details of these purchases are not disclosed, but those I have some insider knowledge of suggest to me that he has been very smart about buying assets for less than their potential value – however that might be measured.
I don’t see this strategy producing significant economies of scale at the cost of goods level. The back office (SG&E) costs can be driven down.
Frankly, I think the three possible motivations Steve suggests are all off base. Think Jess Jackson: things rarely stayed exactly as they are once absorbed by the KJ empire, quality improved in some brands and arguably fell in others, and he certainly did not seem to be focused on selling to a larger entity.
Consider that Mr. Foley has been very successful in other business ventures. Perhaps his goal here is simply to put together another self-sustaining business that can turn a profit. Perhaps he finds the world of wine enjoyable and fascinating, and loves the challenges. Perhaps he wants to leave a legacy.
One only has to do a minimal amount of research (takes 30 seconds on Google) to look at Foley’s MO in his acquisitions in the Title Insurance business and extrapolate the same to wine. Not rocket science.
John Kelly, I don’t agree that quality fell in some of Jess Jackson’s brands. Name one. I think it went up. Some years ago, he publicly announced he was using only prime coastal county fruit–nothing from the Central Valley. That made him increase prices a little, but quality also increased. As for Mr. Foley, as I wrote, we’ll have to wait and see. I personally hope he loves his brands as much as Jess loved his, and will push them to new heights.
Mr Heimoff,
So what exactly was the purpose of this article? It neither offered a comprehensive breakdown of what has been happening, nor any thoughtful insight as to direction for the future. Superficial observations for the sake of making observations do not a viable article make.
Good thoughts Steve. In addition to your 3 good reasons, there are now more winery buyers with pure (or impure) financial motives. Foley has more or less said that his motives were to put his money in agricultural real estate assets due to the low point in the real estate cycle. That low point made his title business less profitable, so in fact this was just a shrewd old financial investment strategy: Buy Low and Sell High.
Steve – I said “arguably” – and I’m not likely to bag on any of my colleagues’ wines in a public forum. I can think of a couple brands where the focus, and the quantities produced, changed. It is up to the individual to decide if these wines improved. Is there any reason you would be surprised that our opinions might differ? 😉
Dear Jordan, the purpose was simply to offer my opinion. Thank you.
Interestingly, Chalk Hill’s excellent winemaker has a strong history with the winery. In 1995, Lisa Bishop Forbes had the opportunity to join the Chalk Hill Estate winemaking team as assistant winemaker, working first with David Ramey and then with Bill Knuttel. Lisa left Chalk Hill in 2004 to become associate winemaker at Dry Creek Vineyard to work again with Bill Knuttel, Dry Creek’s Executive Winemaker. In 2008, she was promoted to winemaker. Two years later, the opportunity arose to become the director of winemaking for Chalk Hill Estate. As much as she enjoyed Dry Creek, Lisa could not resist the opportunity to return to her old stomping grounds as its winemaker.All to say I think we can count on continuing quality here.
Lucia, thank you very much for adding your perspective. Many of us are counting on Bill Foley to support and elevate his brands.
Having worked within the KJ “empire” in the last 6 years I was able to watch some great changes in brands and brand strategy in my time there.
I saw brands such as Atalon, seemingly disappear on some level (including a failed revamp of a tasting room at Robert Pecota’s former winery) only to be revived very recently, alternatively I saw how much growth took place in sales of Murphy-Goode after they took a marketing blitz approach with “Liar’s Dice” and the winemaker itself representing a size-able portion of KJ’s sales behind KJ and La Crema.
With regards to Foley’s approach I remain cautiously optimistic that he raises the qualities of the wineries that have been purchased, mostly because I don’t know enough about the man or his companies. Watching KJ take over such brands as Freemark Abbey, Murphy-Goode, Arrowood and Byron in the time I spent there I would definitely agree that the quality of the wines remained at least for Freemark Abbey and Arrowood.