E&J Gallo is once again expanding its holdings in Sonoma County, striking a deal to buy the historic Asti winery — one of the largest production facilities in the county — and the Souverain brand from Treasury Wine Estates.
The deal represents two very different strategies from two of the biggest wine companies in the world. For Modesto-based Gallo, it represents another bet on the lucrative premium North Coast wine market, following on the heels of its purchase of J Vineyards and Winery in Healdsburg in March.
For Australian-based Treasury Wine Estates, however, the sale is part of a retrenchment in the North American market after a deal to be bought out by private equity firms collapsed last year. The company is struggling with how to market the historic Beringer brand, which is more moderately priced, together with premium brands such as Chateau St. Jean in Kenwood and St. Clement in Napa County.
“Treasury is looking for shorter-term wins, and Asti would have been hard for them to justify in (the) short to medium term. It will be a valuable asset for Gallo over the long term,” wine industry consultant Jon Moramarco noted in an email.
Under the agreement, Gallo will buy the 535-acre Alexander Valley property that is home to the Asti winery, including 275 acres planted with grapes, as well as the Souverain brand. Treasury will enter into a long-term lease agreement with Gallo to obtain grapes from the portion of the vineyard that has traditionally provided it with fruit for its luxury-tier wines.
International Wine Associates represented Treasury in the sale while Gallo represented itself. Financial terms were not disclosed, but with planted vineyard prices ranging from $80,000 to $95,000 per acre in the Alexander Valley, the vineyard value could easily reach $25 million.
The Asti winery is capable of crushing 35,000 tons of grapes, according to Gallo. According to Sonoma County records, its production facility is the sixth-largest in the county and has a permit to produce up to 2.5 million cases. Gallo already has the capacity to make up to 4.9 million cases annually in its Healdsburg facility, the largest in the county.
“It’s historically been one of the largest wineries in Sonoma County. It’s being underutilized by Treasury now,” said Joe Ciatti, a partner at Zepponi & Co., a mergers-and-acquisition advisory firm based in Santa Rosa. “You’re not going to get a facility that big created in Sonoma County again. It’s a safety valve for (Gallo).”
According to Shaken News Daily, the Souverain brand had sales of about 80,000 cases last year, a sharp decrease from its 220,000 cases in 2004.
“Add to that the unique and almost limitless nature of the historic permit, and I can see how this would allow Gallo to transition some existing brands into this facility, of course, but equally important, look to Alexander Valley cabernet to fill some much higher-price (wine),” Rob McMillan, executive vice president for Silicon Valley Bank’s wine division, said in an email.
There is also a major historical component to the deal. Located in the northern part of the Alexander Valley, the Asti Winery was established in 1881 by Italian immigrant Andrea Sbarboro. Known then as Italian Swiss Colony, Asti Winery became the biggest winery in California by producing a variety of wines from numerous local vineyards.