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Sold!

Author: Jane Hodges Young
July, 2015 Issue

The market for vineyards, wineries, tasting rooms and online wine businesses remains robust.

 
Despite predictions that winery mergers and acquisitions would likely decline in the North Bay in 2015, the first four months of the year saw a flurry of activity, which indicates the market for vineyards, wineries, tasting rooms and online wine businesses remains robust.
 
“There was a big article in one of the local publications three or four months ago that said things were slowing down,” says John Bergman, founder of Bergman Euro-National, a real estate firm based in Forestville that specializes in sales of vineyards, estates and wineries. “I wrote the publisher and told him the article was wrong. At the time, I knew there were several large volume wineries that were confidentially available—and several buyers looking at the same time.”
 
Some names are big, others are small, but there seems to be lots of churn in the industry to-date this year. Sales of U.S. fine wine ($20 per bottle and higher) are expected to grow more than 14 to 18 percent in 2015, which means large, established wineries are seeking to buy brands and properties that already have a toehold in the high-end market.
 

J Vineyards & Winery shocker

Such was the case when E & J Gallo Winery purchased Healdsburg’s J Vineyards & Winery—an iconic luxury brand best known for its sparkling wines—in a move that shocked wine industry watchers, especially former J employees, who expressed their dismay in record numbers on Facebook and other social media.
 
“I worked at J back in 2001 when I first started teaching,” says Brad Davis, an instructor in the business department at Santa Rosa Junior College and program coordinator for SRJC’s wine service hospitality certificate program. “Judy [Jordan, founder of J] always told us she was in it for the long haul. It was about her legacy—not building it up to sell.”
 
Davis, and others, were left with their mouths agape when they read the news, and laughed when they found J’s flagship sparkling wine—normally $24 or more per bottle at retail—suddenly on sale for $19.99 at a Sonoma County market just a few days later. “It was ironic that it dipped like that right after the sale,” he says.
 
In a statement issued by Gallo, Roger Nabedian, senior vice president and general manager of Gallo’s Premium Wine Division, said J’s “contemporary elegance has a unique position in the marketplace” and noted that Gallo looks forward to “carrying on the winery’s reputation of making elegant, luxurious wines.” NorthBay biz contacted Gallo twice, seeking input for this story, but the company declined comment.
 
The J purchase includes the winery on Old Redwood Highway (next to Rodney Strong Vineyards) plus 300 acres of vineyards in both the Sonoma Coast and Russian River Valley appellations. J’s current production is between 80,000 and 90,000 cases per year—a drop in the bucket when compared to Gallo’s annual production of roughly 80million cases worldwide. It’s estimated that Gallo produces 10 percent of all the wine in the world.
 
At press time came news that Gallo had purchased Cypress Ranch and a portion of Palisades Vineyard, both in Napa Valley. According to news reports, of the combined 642 acres, approximately 258 are planted to premium red winegrapes, including Cabernet Sauvignon, Merlot, Zinfandel and Malbec.
 

Von Strasser Winery

On Diamond Mountain, Rudy Von Strasser agreed in April to sell part of Von Strasser Winery’s assets to an as-yet-unnamed buyer as of this writing. Attempts to contact Von Strasser via email and phone proved futile—a pattern that seems to be a part of the confidential, almost secret, winery purchase process (see “The Art of the Deal,” below).
 
The sale includes Von Strasser’s historic 35-acre estate property located at 1510 Diamond Mountain Road in Calistoga. Included is the winery itself, located in a historic barn built in the late 1800s, plus vineyards planted to Cabernet Sauvignon, Petit Verdot, Malbec and Grüner Veltliner. Von Strasser retained his brand, label, trademarks and winery business. According to an article written in April this yearby Paul Fransonin Wines & Vines, Von Strasser will continue to produce its flagship label and the Rudy label—and will lease back the winery, cave and tasting room through 2016.
 

Cuvaison consolidation

In 2004, Cuvaison Estate Wines, which has produced wines since 1969 out of a combined winery/tasting room in Calistoga, completed construction of a magnificent winery on its 400-acre property in Carneros. It added a tasting room that was completed in 2009. Since then, Cuvaison has been honored as Wine & Spirits 2012 Winery of the Year, won an architectural award from North Bay Business Journal and was awarded a “Best of Tourism” designation by Great Wine Capitals of the World.
 
In April, the company announced it had sold the Calistoga winery and tasting room to St. Helena-based Criswell Radovan, a real estate development firm, which plans to rename the property Fairwinds Estate Winery. Financial details weren’t disclosed. Criswell Radovan’s other projects include Calistoga Ranch, renovations at Aetna Springs Resort in Pope Valley and Four Seasons in Dublin. It also owns the Cal Neva hotel and casino in North Lake Tahoe.
 
“For the last six years, we’ve had two tasting rooms,” says Jay Schuppert, Cuvaison’s president. He notes that all of Cuvaison’s wine production for both its Cuvaison and Brandlin labels was moved to Carneros years ago, and the Calistoga facility was used for custom crush for other clients—and a sales/tasting room for the Cuvaison brands and general offices.
 
“The problem is none of our wines were produced there and we didn’t have a single vine in the ground. It just made sense to consolidate and direct customers to the beauty of our estate in the heart of Carneros. We decided to streamline our operations and get back to our core business, which is Carneros and Mount Veeder,” Schuppert explains.
 
Cuvaison turned over custom crush operations to Criswell Radovan in April but will continue to operate the tasting room until the end of July. Shuppert says its custom crush clients in Calistoga should see no change in the operation.
 
“We were fortunate that we found a buyer who wanted to continue the operation as it was,” Schuppert says. That means all the custom crush staff will remain, “and no one was displaced from their previous jobs with the sale.”
 
Cuvaison, which is owned by the Schmidheiny Family of Switzerland, currently employs 32 people.
 

Nakedwines.com

Advertising itself as a “customer-funded winery that wants to make expensive wine accessible to normal people,” nakedwines.com funds independent winemakers, who set up their own businesses and then give preferential pricing to nakedwines.com. Its customers are “angels” who provide monthly funding to support the winemakers. In return, their investments are used to purchase wine. Nakedwines.com leases the old Blackstone Winery in Kenwood for production purposes and also has a tasting room in Downtown Napa.
 
Nakedwines.com is known for its strong social media, so it was a perfect acquisition for British wine retailer Majestic Wine, which announced it had purchased nakedwines.com for £70 million ($108.5 million USD) in April. According to Cavendish Corporate Finance, which orchestrated the sale, Majestic acquired nakedwines.com to create “an international, multi-channel specialist wine retailing group, even though both will continue to operate as independent brands.”
 
“The logic for the deal was that together, we have all the pieces of the puzzle required to build a category killer wine retailer,” explains nakedwines.com founder Rowan Gormley, who also became chief executive of Majestic Wine as part of the deal. “Majestic has the store network and highly trained staff. Nakedwines.com has the online and relationship skills. We both have strong wine sourcing and creation skills,” Gormley says.
 
According to Gormley, the plans going forward for nakedwines.com are to “Stay naked! We’ll keep doing exactly what we’ve been doing, which is crowdfunding independent winemakers to make great wines exclusively for us. Only now we can do it bigger and better.”
 

Ante up for Asti

Another major property in the wine industry is still up for sale as of this writing. Historic Asti Winery in Alexander Valley, just south of Cloverdale, was put on the block by its owner, Treasury Wine Estates (TWE), in late March.
 
Situated on more than 500 acres, the property comes with a production facility and planted acreage (275 acres) but no brands. One major selling point is that 100 of the acres are planted to Cabernet Sauvignon in an appellation known for some of the finest Cabernet in California—and the world. Another is that its production permit is the sixth-largest in Sonoma County—up to 2.5 million cases, plus more than 7.5 million gallons of stainless steel tank capacity. It’s also very attractive for buyers interested in event venues—hard to come by in Wine Country these days. Asti is allowed to host six events per year for up to 1,000 people each, plus another 30 for 500 people or less.
 
In a statement, TWE said it was making the move to consolidate operations. Less expensive wines in the portfolio will be produced at another facility in Paso Robles, while higher-end brands (Souverain, for example) will be made at Beringer in Napa Valley, which is also owned by Treasury.
 
What’s unusual about the Asti situation is the fact that Treasury Wine Estates made its intentions public.
 
“That’s very rare,” agrees Bergman.
 
International Wine Associates in Healdsburg is representing Treasury but could not be reached for comment.
 

More to come?

Bergman believes the sales this spring are a harbinger of more to come. Particularly attractive are properties in Napa, where the average price per planted acre, depending on appellation and grape variety, range from a low of $65,000 in the Chiles Valley District, to a high of $350,000 in the Oakville and Rutherford AVAs. Prices are somewhat lower in Sonoma County, where planted acreage ranges from a low of $60,000 (Sonoma County designation) to $140,000 for Pinot Noir in the Fort Ross-Seaview, Green Valley, Russian River Valley and Sonoma Coast appellations. “Pinot is the real hot button in Sonoma these days,” Bergman says.
 
And while these prices may raise some eyebrows, Bergman says we haven’t seen anything yet.
 
“I predict that by 2050—100 years after vineyard values were about $1,000 per acre—Napa will see $1 million per acre of vineyard somewhere mid-valley,” he says.
 
Before you laugh, remember this: In 1993, Bergman wrote an article stating Napa would see a vineyard sale of more than $100,000 per acre by 2000.
 
“I was almost run out of town on a rail,” Bergman says. “Then, in 1998, I wrote another article called: ‘I Told You So!’”
 
 
[Editor’s note: At press time, it was announced that Sonoma Valley’s Benziger Family Winery and its sister property, Imagery Estate Winery, were sold to Livermore-based The Wine Group, the world’s third-largest wine company. The trend continues.]
 
 

The Art of the Deal

When well-known wineries and vineyards suddenly display a “sold” sign, it’s not unusual that many North Bay wine industry watchers are left scratching their heads with no idea the property was even up for sale. That’s due to the intrinsic nature of confidentiality when it comes to the wine biz.
 
“We have to deal on a confidential basis,” explains John Bergman, founder of Bergman Euro-National in Forestville. “We have to prove that the potential buyer has the ability to perform in advance. We then present this, along with a signed non-disclosure agreement [NDA], to the seller, who then approves whether or not it wants the buyer to know about the winery being for sale and share any confidential information with the potential buyer. If approved, we make the introduction. It’s a slow process—and it’s not done the way other real estate transactions are done.”
 
Why?
 
Public notice that a winery is for sale can be the kiss of death for its business.
 
“If they go public, their distributors can get worried and think something is wrong and may stop selling their wine. If loyal wine club members find out a winery is for sale, they think everything will be changing. They worry the winemaker may go away—and who knows if the wine will be any good—so they stop buying until they know what’s going on. One fairly large winery in Healdsburg went public about its sale about five years ago,” Bergman explains, “and lost 60 percent of its revenue in just six months.”
 
Bergman says wineries are available—although their availability is a bit low right now—“but you won’t know about them until they’re sold, unless you happen to have the ear of the owner.”
 
One of Bergman’s larger recent sales was the Michael Mondavi Winery, which was purchased by Vietnam-born American businessman Kieu Hoang and his RASS Corp. last year. Hoang Wine Napa Valley has been producing wine for export since 2012. Financial information wasn’t revealed, something else one sees a lot in the wine business.
 
“They’re confidential agreements and the transaction is recorded blind,” Bergman says. “They think it’s nobody’s business what they pay.”
 
Asians are big players in the buyers’ market these days, according to Bergman. “The Chinese are here in droves. They want to buy the big names, but most don’t want to pay the big dollars,” he says. Most of the Asian buyers are interested in exporting. Chinese buyers, says Bergman, have an additional hurdle to cross, in that “Chinese national banks don’t like to see their money leaving China. We advise mainland Chinese buyers to establish a pipeline to transfer the money to the United States before attempting to make any financial transfers. We’ve found it easier to deal through Hong Kong."
 
Bergman adds that he knows of a few “fairly good-sized, well known” wineries that are open to offers right now, but cautions that “potential buyers must sign an NDA and supply evidence of their ability to perform financially, which will be submitted to the winery owner for approval, before any confidential information is delivered.
 
“Trying to find a buyer and a seller and put them together without letting the world know about it is a problem in this business,” he laments.
 
 

Does Anyone Really Care?

When E. & J. Gallo Winery snapped up J Vineyards & Winery last March, one of the first people to whack himself upside his head in dismay was Brad Davis, business instructor at Santa Rosa Junior College and the program coordinator for SRJC’s Wine Service Hospitality Certificate.
 
A former J employee who still works in winery tasting rooms “to keep myself up-to-date,” he says, Davis fondly remembers his days at J and is worried about its future in the hands of one of the world’s largest wineries (albeit Gallo is also family-owned).
 
“I feel our wineries are becoming less local and more conglomerate, and I don’t look upon that as a favorable thing,” Davis says. And his customers in the tasting rooms where he plies his trade are saying the same thing.
 
“When I first started working in tasting rooms, it was all about food and wine pairing,” Davis said. In fact, J was one of the pioneers of the wine and food pairing movement. “Now we get a lot of people coming in because they want to go where they make the wine. And one of the big questions I get all the time is, ‘Is this winery family-owned or is it a conglomerate?’”
 
Davis says the trend is worrisome and flies “smack in the face” of the farm-to-table, Go Local movement that’s taken hold in Sonoma County.
 
“I see brands disappear into others—it’s kinda like selling out,” he says. “In the past, it was all about family, being local, ‘us not them.’ It wasn’t ‘build it and sell.’” He points to Geyser Peak, Seghesio, Kosta Browne, Gary Farrell, Greg La Folette—high profile, local brands that have new investors and/or owners in the last few years.
 
“Maybe it’s just because I live here,” he says. “People living in Ohio, buying wine, aren’t going to know J is owned by Gallo Winery—and they probably don’t even care.”
 
For Davis, though, the good old days are gone, and he sees the industry changing in ways he never imagined.
 
“Now the wine business is about value-added,” he explains. “Gary Farrell Winery is by reservation only on weekends. Coppola isn’t about the wines but rather the cabana and pool. I just don’t think the pattern is good for true wine aficionados.”

 

 

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