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.
North Coast Fire Insurance Claims
Homes (partial and total): 11,469
Total Loss: $2.79 billion
Homes (partial and total): 447
Total Loss: $118 million
Homes (partial and total): 250
Total Loss: $51 million
Homes (partial and total): 1,613
Total Loss: $273 million
Source: State Insurance Department
Previous Costliest US Wildland Fires (insured loss)
Fire: Oakland Hills fire, California
Cost: $1.7 billion
Fire: Witch fire, California
Cost: $1.3 billion
Fire: Cedar fire, California
Cost: $1 billion
Fire: Old fire, California
Cost: $975 million
Fire: Great Smoky Mountains fire, Tennessee
Cost: $938 million
Fire: Valley fire, California
Cost: $921 million
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