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Local premium wine at a glance:

• In Sonoma County, Santa Rosa-based Jackson Family Wines has more than 4,000 vineyard acres, while Modesto-based E & J Gallo Winery has around 3,700 acres, according to assessor’s records and recent sales. They are the two largest industry landowners in the county.

• Napa County cabernet sauvignon is the most valuable grape in the country. Its price in 2016 was $6,829 per acre, ranging from a low of $500 per ton to an almost 8-acre lot that sold for $59,375 per ton.

• Gallo has been aggressive in building its portfolio in the county. It just recently purchased the 600-acre Stagecoach Vineyard, following its 2015 acquisition of the Cypress Ranch and a portion of the Palisades Vineyard. It has three premium Napa brands -- Louis M. Martini, William Hill Estate and Orin Swift.

• Another premium provider, Jackson Family Wines has roughly 760 planted acres in Napa County. Its Napa wineries include Lokoya, which recently opened up its new tasting room in Spring Mountain, and Freemark Abbey, which is home to the popular Two Birds/One Stone restaurant.


E&J Gallo Winery’s purchase of Stagecoach Vineyards in the Napa Valley sent a shock wave through the North Coast wine industry. The sale pulled 600 prime cabernet sauvignon acres off the market and triggered a new vineyard buying spree that some say will over time have implications for the very structure of the wine industry.

Consolidation and corporate structuring have been going on for years in America’s most lucrative grape growing region, with large players and wealthy investors looking to buy parcels or expand portfolios along Highway 29. After all, the thinking goes, if an icon like Robert Mondavi could be forced to sell his winery, as he did Constellation Brands Inc. in 2004 when he was cash-strapped, it could happen to almost anyone, especially if family succession plans go awry.

But there is something about this deal, which according to one industry expert is likely worth well more than $300 million, that has many in the local industry reevaluating their business plans.

The sale has had a tremendous and immediate effect. Stagecoach founder Jan Krupp has been selling grapes for years to almost 100 wineries from his land, which rises around 1,600 feet above sea level on the eastern ridge of the Napa Valley. About half of the farm is cabernet sauvignon grapes, the most expensive in this region.

The buyers range from big wineries such as Gallo and Jackson Family Wines to boutique shops like Pott Wines, owned by the young, heralded winemaker Aaron Pott. Gallo has said it will honor all existing contracts of Krupp’s — some as long-running as 10 years — and will retain his workers.

“I think this one transaction has got everyone sleepless on the next move,” said Joe Ciatti, a principal at Zepponi & Co., a beverage alcohol-focused mergers and acquisitions firm that served as adviser to Krupp in the deal. “It was a big event … It affected so many people at one time.”

Even if wineries didn’t source from Stagecoach, they will feel the effect as the search for more affordable areas to grow cabernet gets more competitive and expands beyond Napa County’s borders. Adding to the pressure is a permitting process that makes converting land to new vineyards much tougher than it once was.

“There is no more land to grow in Napa,” said Rob McMillan, founder of Silicon Valley Bank’s wine division.

That means more deals will be made in such areas as the Alexander Valley in Sonoma County or the Red Hills mountain region of Lake County, an area that produces a fruit-forward wine and has been touted by legendary grower Andy Beckstoffer.

“You want to have your vineyard sourcing (committed),” said Corey Beck, president and director of winemaking for Francis Ford Coppola Winery in Geyserville. The winery this month purchased a 100-acre parcel in the Pine Mountain/Cloverdale Peak region, which includes a 13-acre vineyard that produces cabernet sauvignon and malbec grapes.

“Even though you got these wonderful contracts with these growers … it’s the right move for the long-term,” Beck said, adding that Coppola remains on the lookout for other Sonoma County property to buy as it grows.

In one sense, the economic choice vintners now face is pretty simple: Either grab prime cabernet sauvignon vineyards that are increasingly unaffordable now to ensure their long-term supply, look for other more affordable land, or shift to making wine from less pricey varietals. Ciatti said he has seen an uptick in calls about properties on the market that were not moving prior to the Stagecoach sale.

Local premium wine at a glance:

• In Sonoma County, Santa Rosa-based Jackson Family Wines has more than 4,000 vineyard acres, while Modesto-based E & J Gallo Winery has around 3,700 acres, according to assessor’s records and recent sales. They are the two largest industry landowners in the county.

• Napa County cabernet sauvignon is the most valuable grape in the country. Its price in 2016 was $6,829 per acre, ranging from a low of $500 per ton to an almost 8-acre lot that sold for $59,375 per ton.

• Gallo has been aggressive in building its portfolio in the county. It just recently purchased the 600-acre Stagecoach Vineyard, following its 2015 acquisition of the Cypress Ranch and a portion of the Palisades Vineyard. It has three premium Napa brands -- Louis M. Martini, William Hill Estate and Orin Swift.

• Another premium provider, Jackson Family Wines has roughly 760 planted acres in Napa County. Its Napa wineries include Lokoya, which recently opened up its new tasting room in Spring Mountain, and Freemark Abbey, which is home to the popular Two Birds/One Stone restaurant.

“It’s a trend,” said McMillan. “There is a firm desire to protect premium wine sourcing … You’ve got to get suppliers or you don’t have sales.”

Research last week by analyst Stephen Rannekleiv of Rabobank echoed the warning call:

“As available supply of fruit in the top California appellations continues to move into the hands of large brand owners, we believe it could ultimately shape the structure of the industry. Wineries that are overly dependent on third-party growers for supply will become increasingly vulnerable,” Rannekleiv wrote.

The Stagecoach acquisition also highlights bigger questions: How high can the price of a bottle of Napa Valley cabernet sauvignon sell for and what are the ramifications for the industry? Does a local industry driven by high-end cabernet end up being a playground for the super-rich, pricing itself beyond the reach of most consumers? And what happens to the smaller wineries?

“I have neighbors who are getting $200 to $800 a bottle for cabernet. How long can that last?” said Dave Miner, owner of Miner Family Winery in Oakville, whose grapes are sourced from Stagecoach.

For Krupp, the sale has resulted in many lunches and calls with his winery clients to try to assuage their concerns as much as possible. Krupp, a former internist, developed the property in 1995; it had no road access and had previously been used as a hunting ground for a wealthy family. A top-notch geologist advised Krupp to give up the project after finding no water 300 feet below ground. He disregarded the advice and hired a water witch, who used two copper rods to locate underground streams at deeper levels. After that task, he had to remove more than 1 billion pounds of volcanic rock to plant the vines; some of that rock is still on the property in piles.

The vineyard’s reputation grew over the years as a spectacular place for growing grapes, especially as the property sits high enough above the marine fog layer that it receives more sunlight than many other mountain areas. Liz Thach, a professor at the Wine Business Institute at Sonoma State University, listed Stagecoach as one of the top 10 most famous vineyards in Sonoma and Napa counties in her 2014 book, “Call of the Vine.”

Krupp is one of the last of a breed in the valley. He took an ecumenical approach by opening his vineyard up to a wide range of winemakers, taking pride in the fact that 30 winemakers name the vineyard on their labels and 25 have a more specific plot designation on the bottle. He also would host annual gatherings so winemakers could share the wines they produced from his vineyard’s grapes. That type of vineyard owner is increasingly rare, winemakers say.

“I think some people are going to have to get creative elsewhere,” Krupp said.

That’s definitively the case for Dave Miner. He sourced 90 acres of cabernet from Stagecoach and, though he’s had conversations with Gallo that suggest his contract might be extended, he’s uncertain about the future.

“In the near term, I’m reasonably comfortable that I’m covered for a little while,” he said. “It certainly makes me ponder where I go next.”

Miner has a 30,000-case winery and tries to keep his bottle prices below $100. But he frets as the price of cabernet shoots upward. The average price last year for Napa County cabernet grapes was $6,823 per ton for the 37,878 acres that were farmed, according to the U.S. Department of Agriculture. They ranged from a few at $500 per ton to almost 8 acres that sold at $59,375 per ton.

“The cabernet world has become some kind of a beauty contest,” Miner said. “It’s a difficult world to make wines that are really expressive … and reasonably affordable.”

Miner spoke from the Rhone Valley in France and wondered aloud if he may have to switch his production to those French varietals. He sees rising land prices almost assuredly triggering higher cabernet prices, which in turn will put more pressure on retail pricing.

“It’s still possible for small family producers to be successful here,” he said of France and French winemakers. “That’s kind of disappearing now in California.”

Pott is also pessimistic. He used 10 vines from Krupp’s vineyard to make Her Majesty’s Secret Service, a cabernet sauvignon brand from grapes that he was allowed to choose for himself.

Pott has his own vineyards and so is somewhat cushioned. But he also worries about the future, given that prime Napa vineyard land can fetch prices only payable by those with large pocketbooks. Napa vintner Joe Wagner recently observed that prime Napa acreage can sell for $400,000 per acre to almost $600,000 per acre.

Like Miner, Pott said he believes that Krupp’s philosophy will be the end of an era in the valley.

“There’s a difference between Beckstoffer and Jan Krupp,” Pott said of the two well-known vineyard owners. “Beckstoffer is a businessman and Jan is a really passionate wine lover.”

Some were more sanguine. The bottle price for Napa fine wines is still less than for those from Bordeaux, an important point given that the industry is global, said John Conover, a partner in the PlumpJack Group in San Francisco.

“I think even with the prices today, Napa Valley is still a tremendous value,” Conover said. “If you look at it as a worldwide marketplace, I think it’s a great place to invest.”

PlumpJack sourced syrah grapes from Stagecoach, but its wineries shouldn’t be impacted much; last year it bought the Ladera Vineyards winemaking facility and its 82-acre vineyard atop Howell Mountain in Napa County, another prime cabernet sauvignon spot.

For Gallo, the sale adds to its growing reputation as a premium and luxury wine provider, even though it’s the largest wine company in the country and primarily known for mass-market brands such as Barefoot. It already had a strong stake in Sonoma County, owning more than 3,700 vineyard acres, according to assessor’s records and recent sales, including such purchases as Healdsburg’s J Vineyards and Winery and MacMurray Ranch. Its nearest competitor, Santa Rosa-based Jackson Family Wines, owns about 4,000 planted vineyard acres in Sonoma County and another 760 in Napa County.

Roger Nabedian, senior vice president and general manager of Gallo’s premium wine division, said in an email that the Stagecoach purchase was a “once in a lifetime opportunity.”

“In order to meet growing consumer demand worldwide, we continuously review the strategic options of our business. We look for brands that complement, rather than compete with, our existing range of wines. To support our luxury brands, we purchased Stagecoach Vineyard,” Nabedian added.

Stagecoach adds to past Gallo purchases in Napa County that include such premium brands as Louis M. Martini, William Hill Estate and Orin Swift, as well as a large custom-crush plant in St. Helena called The Ranch Winery. It also includes the 642 vineyards acres in Napa Valley it bought in 2015 with the purchase of Cypress Ranch and a portion of the Palisades Vineyard. In contrast, Jackson has focused most of its recent acquisition activity in the burgeoning Oregon wine region.

“I wouldn’t be surprised to see other larger wine companies buy large vineyards,” McMillan said of the North Coast.

Ultimately, winemakers and analysts said, customers will be the final arbiters when they start to balk at prices for a bottle of Napa cabernet. The old rule of thumb in the industry was that for every $1,000 a winery paid for a ton of grapes, it would add about $10 to the price of a bottle of wine. That would put an average bottle of Napa cabernet at around $68, based on last year’s report.

“Price has its limitations,” McMillan said.

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com.