How one big deal triggered a major scramble in the North Coast wine industry
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.
“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.