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Tuesday twaddle: winery consolidation and “red” China



Are California wineries consolidating at an historic pace? Nobody can predict the future, but we can remember the past. And what I remember from the early Nineties were dire predictions that wineries were consolidating fast, with big wine companies snatching up little ones, until some people were worrying there’d be only a handful of wineries left in a few years.

The cause, it was said, was phylloxera, and the billions of dollars it would cost to replant thousands of acres of vines. The little wineries, it was further said, would go broke, and have to sell off.

I was just a cubby wine writer at the time, but even so, I didn’t believe it. I just couldn’t envision a scenario where hundreds of wineries would go out of business overnight. And, as it turned out, they didn’t. California sailed through the phylloxera crisis pretty smoothly–in fact, the conventional wisdom is that it was good for the industry. Vintners were able to replant the right varieties onto the right rootstocks, in the right terroirs, and many even reconfigured their vineyards, in accordance with the latest scientific thinking. The outcome, of course, was that California wine emerged from the 1990s healthier than ever.

We again began to hear the consolidation theory (or its twin sister, the bankruptcy theory) as the Great Recession took hold, in 2009-2010. Those prognostications I took more seriously. Not only was it the worst financial crisis in the country’s history since the 1930s, but imports, from dozens of countries, as well as competition from the other States, were putting more pressure than ever on little family wineries in California.

Well, here we are, supposedly emerging from the Great Recession, and, aside from a couple acquisitions over the last few years (by Charles Banks, Jean-Charles Boisset, Gallo and the Jackson family, among a few others), most of the wineries that existed in 2007 are still here, joined by a bunch that weren’t. The economy seems poised to continue a slow recovery, which would seem to be good news for wineries. Our best glimpse into the future might be the recent Silicon Valley Bank report, summarized here, that takes a glass-half-full approach: it hedges its bets, suggesting that things will get better, but there are snags in the road ahead.

What are those snags? As the Silicon Valley Bank report states, Baby Boomers, who fueled the modern wine boom to begin with, are likely to be drinking less, as they retire, live on more modest incomes and [shudder] die. And our successors, Millennials, “can’t pick up the slack immediately, due to lower income, and access and the proclivity to purchase more foreign wine.”

But there’s another snag I foresee that doesn’t seem to have been mentioned in the SVB report: the proprietors of many of California’s older wineries also are retiring, dying or otherwise cutting back, raising succession issues. I can name a hundred wineries in Napa-Sonoma alone that were founded in the 1960s and 1970s, meaning their owners are getting old. What is the future of those wineries?

The kids don’t necessarily want to stay in the business. They may have seen their parents struggle through the hard times, and feel like they’d rather have a safer, more predictable life as a doctor or lawyer or something (or just live off their trust funds). Not everyone is cut out for the agricultural life and being at the mercy of Mother Nature–especially when she throws a drought of historic proportions at them.

What happens when these older wineries no longer are viable? In part, this is what some acquirers base their business model on. From the consumer’s point of view, it matters not who owns a winery, so much as what happens to quality when it changes hands. There are some big acquirers out there whom I trust: the ones I mentioned above (Banks, Boisset, Gallo and the Jacksons) have proven that when they buy a property (whether or not it was previously distressed), they not only maintain quality but actively improve it. There are other major buyers out there about whom I cannot say the same thing and whom I will not name.

What does all this bode for the future–say, 15 years from now? I suspect the California winery landscape will look pretty much as it does now. The big wine companies will be bigger (unless they do something really stupid, which is unlikely), but California has been fortunate to have an incursion of young, new winemakers into places like Paso Robles, Monterey County, Lodi and the Sierra Foothills, meaning that the plant is constantly being watered from the roots and will continue to grow.

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Just so you know…

Got a press release this morning from VINEXPO stating that “China becomes world’s leading red wine consumer…Having downed more than 155 million 9-litre cases or 1.865 billion bottles of red wine in 2013, up 136% compared to 2008, China, including Hong Kong, is now the largest red wine market worldwide, followed by France, now in second place with nearly 150 million cases and Italy with 141 million.” Wow, did not know that.

  1. Humorous that an advocate of a 90% or higher inheritance tax would even care if the next generation wanted to make a go in the family business. If you had your way then none of these estates would pass to the next generation.

  2. Somehow, France’s high inheritance tax on the wealthy hasn’t stopped their family wineries from being turned over to the next generation.

  3. Bill Haydon says:

    Of course when one reads of Little Lord Trefethen and his merry band of deep thinkers and Porsche racers, one can’t help but wonder if a shakeup of the social order might not be the best thing in Napa’s interest.

  4. pawineguy says:

    Actually, French inheritance taxes have crippled the ability of families to pass along estates, driving them into the hands of the large insurance companies and Chinese investors, especially recently. About 30 seconds of research and you would have understood.

    Bill, yes, petty jealousy is definitely the best reason to tax the successful. Brilliant.

  5. Bill Haydon says:

    Actually, there are few people on the planet that I’m less jealous of than Frodo Trefethen. And FWIW, he’s been successful at absolutely nothing other than picking the right parents.

    Look at Little Lord Harlan. A real huge success story! He used his father’s connections to fund an internet startup––that was a spectacular flaming failure. He then tucked his tail between his legs and ran back to Napa to work for the winery.

    You’re letting your fawning toadyism towards wealth confuse you as to what the definition of “being successful” is. Hint: it’s not failing on your own then running back to Daddy for a job.

  6. I believe the economic situation following the worldwide economic collapse is responsible for whatever difficulties French wineries find themselves in. The chateaux have long sold themselves to high-bidding Americans and Brits. Now, the Chinese have the money.

  7. pawineguy says:


    I don’t know either of those individuals personally and could care less what they do… what I do know is that because I don’t like someone I don’t take from them what their parents earned and want to pass down to them. The rich have as much right to their money as the rest of us.


    Again, a quick Google search would point to the problems with French inheritance laws, specifically in the wine industry. It’s common sense that is you tax an estate at 50% +, or 90% plus as you propose, then there will be many more sellers than those who will leverage the property and risk losing it all.

  8. Bill Haydon says:

    And pawineguy, my point is that, given what a vapid, self-absorbed bunch of mediocrities the next generation in Napa seem to be, perhaps it would be best for the Valley and the California wine industry for some new blood to come in and take control of these estates.

    I hardly think that Little Lord Trefethen sitting around his giant table discussing the ocean with other members of his self-anointed “elite” is a recipe for continued success for the family business. Quite the contrary, I see this next generation facing a much more difficult market for their wines than their parents did and running more than a few of these businesses into the ground.

  9. pawineguy says:


    And that’s fine, but it’s not a license for the government to seize 90% of their property as Steve advocates.

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