Sebastopol vintner at the helm to ensure survival of small wineries amid consolidation

The megadeals within the North Coast wine industry have picked up in 2022.

The list is notable: Shafer Vineyards in the Napa Valley was bought by a large South Korean conglomerate. Joseph Phelps Vineyards, another iconic Napa winery with holdings in Sonoma County, was purchased by LVMH Moet Hennessy to add to its collection of premium wineries. Foley Family Wines just last month finalized a sale to obtain Silverado Vineyards, which gave the Santa Rosa wine company premium land in Napa Valley.

The moves also have triggered a deeper conversation: How can local midsize and small wineries survive in this rapid era of consolidation?

That’s especially on the mind of Anisya Fritz, who, with her husband Lynn are owners of Lynmar Estate in Sebastopol. That’s a premium winery known for its award-winning Burgundian varietals along with exquisite hospitality, which includes lunch pairings by chef David Frakes with many ingredients grown on the property.

Fritz notes the transactions come at a time of many challenges: climate change; increased costs for labor and supplies; and a discerning younger consumer with a wide array of drink choices. Those issues present obstacles for even a well-regarded winery like Lynmar Estate. The Fritz family has held the land for more than 40 years and have a track record of high scores from critics. The winery now has more than 80 acres of estate vineyards and a yearly production of around 11,000 cases, she said.

“I think there’s going to be a shakeout. I think it’s going to be throughout the industry. It’s going to be big, medium and small that are affected,” said Fritz.

The issue goes beyond the personal for Fritz and overlays with her professional experience as an academic. She came to the United States from India at 17, obtained a Ph.D. in business strategy and became a business professor at 25. Fritz has taught for a decade at Sonoma State University on courses about wine entrepreneurship for the next generation looking to make their mark just like such pioneers as Jess Jackson and David Stare.

“She is a rare individual whose life experience combines academic insights in the arena of strategy with the real-world experience of running a small winery,” said Ray Johnson, executive director of the Wine Business Institute at Sonoma State.

Despite such threats, the 57-year-old Fritz also remains bullish on small wineries in the U.S. industry. The optimism comes even as the deck increasingly feels stacked against them in contrast to the big wine companies, which have the financial resources and the economies of scale from which they can make premium wine for much less money.

“The fact is that small wineries are the ones that are really bringing new customers because that's where people have the personal experience,” Fritz said. “I think feeling connected somehow to the producer has always been important and continues to be important.”

That is occurring locally with such younger winemakers as Chenoa Ashton-Lewis of Ashanta Wines and Martha Stoumen of her namesake label, both who are making wines from organically grown grapes that are processed as minimally as possible ― often under the term known as “natural wine.”

Scribe Winery in Sonoma has gained a devoted following in part to celebrity sightings of entertainers, such as Amy Schumer, which has attracted interest on social media.

“Small wineries are where you are seeing the innovation. Natural wine. Organic wine. Celebrity-endorsed wine,” she added.

Small wineries, however, must improve their financial operations to survive, Fritz said, such as shaving costs and finding additional efficiencies in their operations. That’s especially the case as the 10 largest wine companies in the United States account for 78% of domestic wine shipments, according to Jon Moramarco, managing partner of wine consulting firm bw166. That leaves more than 11,000 wineries in the U.S. to fight over the remaining 22%, mostly selling direct to consumer. Sonoma County has around 450 wineries with a very small number of large ones.

“There's not a lot of people who truly understand the financial pressures of owning a winery,” Fritz said.

Cash flow is a constant concern because small wineries have to pay for upfront costs such as barrels and bottles and then have to wait as much as 18 months before they start to receive a return back on sales, she said.

“My observation has been that a large number of small wineries, in particular, are run by people who are passionate about making wine or growing grapes and really don't want to be bothered with the marketing,” she said.

These smaller wineries will have to team up more on the business side, Fritz said. The process would be similar to what they now do with wine making in which vintners don’t have to own any land or machinery to produce their wine. Instead, they can contract out everything such as custom-crush plants for production to facilities that will store and ship your caseloads.

“I'm bullish on the fact that small wineries will find a way to band together, share resources, navigate to collaborate. They're going to have to do that. I don't think they have an alternative,” she said.

Fritz said she can envision a group of small wineries coming together to help strike a better deal with glass bottle suppliers because prices have increased by as much as 50% with inflation.

“They're going to have to be innovative in terms of how they deal with these price increases,” she said.

A former student, Jeanette Tan, is another example of this new environment of contractors who can provide specialized services. Tan handles bookkeeping for small wineries but also helps them track their expenses more closely and budget their costs so they can better price their wine and learn where to save.

She has worked as a part-time chief financial officer for Kokomo Winery in Healdsburg and Lynmar Estate and other local wineries use her expertise to help save them money, especially because most owners don’t come from a finance background. Tan said she was able to help many of her clients navigate the 2020 grape harvest when most did not receive their expected allotment of grapes because of wildfire smoke damage.

Adam Lee, who founded Siduri Wines in 1994 and built it up to be a beloved pinot noir favorite before selling it to Jackson Family Wines of Santa Rosa, agrees collaboration will be key. “I just think it is much harder starting out now,” said Lee, who now has his own small label called Clarice Wine Co. and serves as consulting winemaker to other smaller wineries.

That’s been the case with tasting rooms, where there has been a growth on shared spaces such as Region in Sebastopol and Bacchus Landing in Healdsburg.

“You are seeing that a lot in the public-facing aspect of things. I don’t know how you could afford that on your own,” Lee said.

The industry caters to the large wineries because they provide the bulk of the advertising and marketing efforts; funding for trade groups and events; and lobbying expenditures, Fritz said. But she added that it is in the interest of such large companies as E. & J. Gallo Winery and Constellation Brands Inc. to help bolster smaller competitors because they will attract more wine drinkers and provide needed innovation in an industry that has traditionally been risk averse.

“We're not really stealing away the Gallo customer. The Gallo customer is not our customer,” she said.

“I think part of it is getting the (large companies) to recognize that sometimes we are the ones bringing the customer to the table … that’s what keeps our industry engaging and fun.”