Posted: Thursday, February 03, 2011 1:00 PM
Companies examine stable of products as profit margins shift
By JO MCINTYRE
For the Capital Press
The shape of the West Coast wine industry is changing as publicly traded and privately held companies alike are selling some of their California, Washington, Australian and other overseas wine operations.
Other wineries believe the activity may be good for their operations.
"What this means for Northwest wineries, in my opinion, is that smaller growing brands will likely be more valuable in the coming years than mature tapped-out brands," said Steve Thomson, executive vice president of King Estate Winery near Eugene, Ore. "This will be a good opportunity for regions like Washington and Oregon. It will probably lure more small independent money into the startup side over time."
Thomson also sees the plans as a sign the economy and market for wine appear to be heading upward. This gives the bigger companies a chance to reconfigure their brand assets.
The companies selling wine and operating wineries found that the wine business is a lot more work and offers less return on investment than hoped, Thomson said.
Examples of these deals are recent announcements by Constellation, Brown-Forman and the Mariani Family.
The Mariani Family has agreed to buy the West Richland, Wash.-based Pacific Rim brand. Pacific Rim was created in 1992, then spun off in late 2006 as an independent entity under the direction of Nicolas Quillé, winemaker and general manager.
With the Pacific Rim acquisition, the Mariani Family adds the title of American wine producer to the credentials of America's oldest privately held fine wine importer, Banfi Vintners.
Meanwhile, publicly held Constellation Brands, based in Victor, N.Y., agreed to sell 80 percent of its Australian and U.K. wine business to CHAMP Private Equity, an investment fund based in Australia. Constellation valued the transaction at about $290 million.
Constellation sold that portion of its business because the wine industry has been heavily taxed in those countries since 2007, according to a company spokesman. Other reasons to sell included consolidation of retailers, and a wine glut in Australia.
Another publicly traded company, Brown-Forman Corp., maker of Jack Daniel's whiskey, has put all eight of its wine brands up for strategic review, according to media relations manager Phil Lynch.
Included are its Fetzer winery, bottling facility and vineyards, as well as the Fetzer brand and other Hopland, Calif.-based brands.
The strategic review does not include the super-premium Sonoma-Cutrer brand or the company's long-term agency relationship with Korbel California Champagnes, the company said.
Private-equity firms and other global wine and spirits firms are expected to consider the business, which is likely to fetch several hundred million dollars.
"My impression, if they are all trying to sell at the same time, is that somebody will get a good deal," said Alison Sokol Blosser of Sokol Blosser Winery. "It doesn't seem like the right time to sell."
She thinks there are likely to be some ripple effects on the industry, with different distributors and on-premise operations seeing changes, but "no direct impact on the high-end wine that Oregon produces."
Oregon wine sales were up 6 percent in November compared to the same month in 2009, she said. "We at Sokol Blosser are extremely optimistic about the future."
Rick Warren, executive assistant with the Willamette Valley Wineries Association, agrees. The association has 179 winery members, he said, and just a few have dropped out. For every winery that drops out, about three ask about membership.