A projected turnover of West Coast wineries could big bring change to an industry that’s an outsized agricultural player in California, Oregon and Washington.
More than 10 percent of winery owners surveyed said they’re strongly considering selling out in the next five years, according to a report from industry expert Rob McMillan, founder of the Premium Wine Division for Silicon Valley Bank in St. Helena, Calif. In addition, 31 percent said they’re open to a sale under the right circumstances.
McMillan said ownership change may be unsettling, but isn’t necessarily a bad thing.
“Far from being a weakness, transitions and sales in any industry are a sign of current and future strength,” he wrote in his report titled, “Ownership Transitions in the Wine Industry 2014.”
“An exit ramp in a business segment is critical for its overall health,” McMillan wrote. “Consider the impact of an industry where there are no sales transactions. Exits would only mean abandoned businesses.”
Ownership changes are necessary in order for winery brands to prosper after the founders are gone, McMillan said.
Most of the wineries that change hands will be small operations, he said. With 4,989 wineries on the West Coast, the survey results imply that 524 wineries are strongly considering selling their operation in the next five years, he concluded.
McMillan projects the sales will include 98 wineries in Washington and 79 in Oregon. In California, 78 Napa County wineries will sell, and 59 will sell in Sonoma County, according to the report.
McMillan has written about the wine industry for many years. Silicon Valley Bank bills itself as a leading commercial bank for companies involved in the premium wine, technology and life science industries.
The prospect of so many sales represents an industry’s changing of the guard, McMillan said. In the past, wine entrepreneurs could “simply start new wineries instead of buying existing ones,” he wrote. “They just needed land and a good wine maker. With enthusiastic new owners selling every drop of wine, growth rates routinely topped the twenty percent plus range.”
The recession changed that, as distributors tightened the number of brands they carried. Very quickly, winery owners found themselves focusing more on marketing and sales than on quality. “Making good wine was only the permission to play,” McMillan wrote. Fatigue caused by the new pace and focus of the business is a factor in older winery owners saying they are ready to sell, he said.
McMillan’s report rings true with Peter Bouman, a Willamette Valley winery and vineyard broker.
“That basically corresponds with what I see,” Bouman said. “We’re 45 years into the Oregon wine industry and that demographic is ready to turn over. Half of my sellers are retiring.”
Bouman said he knows of half a dozen Oregon wineries for sale.
“Who will be the replacement buyer?” he asked. “You hope it would be the young, passionate winemakers coming into the industry, but most of those people can’t afford a winery.”
Instead, he’s seeing a “steady stream of inquiries” from established California companies. Half a dozen prospective buyers from the Burgundy region of France are looking for property in the region, he said.
Land is cheaper here than in France or California, he said, and fewer “bureaucratic hoops” hinder development. Water problems in California also make Oregon and Washington more attractive, and the region still has room to grow.
“There’s a lot of really good dirt left,” Bouman said. “That could go on for a really long time.”