Sunday Morning Musings
It’s pretty early on a gloriously sunny, warm Sunday morning to be thinking about the wine industry, but here I am.
So now we learn that Constellation Brands, which bought Geyser Peak, Buena Vista and Gary Farrell just last November, is selling them. I don’t know about you, but this merry-go-round makes my head spin. Not that I’m surprised. Nothing in corporate winedom surprises me anymore. (Well, almost nothing. I still have a little PTSD from when Constellation bought Robert Mondavi.) I mean, every few weeks, it seems, some gigantic wine company buys another winery or group of wineries, or sells a winery or group of wineries. It’s like a game of musical chairs, with players such as Diageo, Constellation, Allied Domecq, The Wine Group, etc. scampering to be the first to sit down when the music stops. It was only a few years ago that Beam’s top execs assured me solemnly, from the bottom of their hearts, how committed they were to Buena Vista and William Hill. Then Beam (through their parent company, Fortune Brands) sold William Hill to Gallo and Buena Vista to Constellation.
What is the average wine drinker to make of this fevered activity? I suppose the message is that these wineries have become commodities, like oil, corn or soy beans. As soon as management believes it can make a profit, it flips them. Is this good or bad for consumers? In the end, it’s probably bad, because as pressure for profits goes up, quality must correspondingly decrease.
Gary Farrell used to be a very important winery when Mr. Farrell himself was running the show. Under Beam, it seemed to be holding its own. I gave good ratings to the winery’s ‘05 Pinots and Chardonnays (Beam owned Gary Farrell at that time). But now I have to wonder what the winery’s new owners (whoever they are) will do with the brand. Ditto Buena Vista. Ditto Geyser Peak. I will say this about big wine companies: Some treat their acquisitions better than others. If I was a little winery that had to be gobbled up, I couldn’t imagine a better parent company than Kendall-Jackson or, rather, the Artisans & Estates stable of Jess Jackson.
It’s been commonplace for wine industry insiders to worry that there won’t be any small family wineries left anymore, with the majors gobbling everything up. But I’m not worried about that. People have stressed out on wine industry consolidation for decades, and you know what? There are more small family wineries in California than ever. They sprout up like mushrooms after a Spring storm. And every once in a while, after years and years of effort, they sell to a big company, the way Kent Rosenblum recently did to Diageo, for $105 million — and he and his wife, Kathy, deserve every penny of it.
Anyhow — like I said, just musings. Now, it’s back to the Sunday papers and more coffee.
It’s dejavu watching a corporate winery that views growth by acquiring brands versus growth by building brands. Usually it is the simplistic idea that they can cut the financial, marketing, and sales force of the acquisition and drop the load on their own people and enjoy more revenue and better profitablity. Somehow because they have access to capital they think they are better businessmen. Eventually, they discover that there is no way a single saleman can sell four or five brands of the same wine in the same price point to the same customer. So then they split the sales force into different teams each with different brands. They may even split between different distributors, but eventually they find they are still competing with themselves. So then they start dumping brands and start talking about focus to their stockholders.
This is rarely good for the wines, and though the quality may not slip, corporations cease making the strategic investments to carry the brand into the future as would a founder. Usually they have a corporate winemaking staff to oversee the budgets and policies of the local winemaker. And to protect their corporate rear ends, they manage by committee. When they are shed they are not the same brands as the were before the acquisition.
Small family wineries have nothing to worry about. Most understand the process of building brands better than the big guys. It’s no contest between the “real person” and the slick corporate v.p. of marketing at a distributor sales meeting. The good news is the big corporate bozos with the capital that provide the brand builder with the big payday.