Big players dominate Sonoma County vineyard holdings

Statewide, the biggest growers are getting bigger, but there hasn't been a corresponding increase in the footprint of smaller growers, said Glenn Proctor, partner and broker at the Ciatti Co., a San Rafael wine and grape brokerage firm.

"Smaller entities were probably more focused on survival than growth," Proctor said.

Even so, Proctor believes small growers still dominate in Sonoma County, compared with other parts of the state.

Whether they can afford to expand is another matter.

"They're getting priced out of the market, because they can't afford to pay the land costs necessary, because they can't compete with the wineries," said Robert Nicholson, principal at International Wine Associates, a Healdsburg wine industry mergers and acquisitions firm. "We are going to increasingly see more ultra-premium vineyards — high-priced, high-quality vineyards — in the hands of wineries, because they are the ones that are going to be able to afford the increasing cost of vineyards."

Securing grape supply

One of the main reasons wineries seek to own vineyards is to control the quality of the fruit that goes into the bottle.

Consumers are drinking more California wine, but some believe the vineyards that support that wine aren't growing fast enough to keep up with demand. Vineyard acreage in Sonoma County has grown more than fivefold since 1960, but has remained relatively flat over the past decade. It now stands at about 59,219 acres, according to the annual Sonoma County crop report.

"You can understand people like Gallo and Jackson wanting to own their vineyards so they can control their supply of grapes," said Tony Correia, owner of the Correia Co., a vineyard and winery valuation and consulting company based in Sonoma. "That's becoming a very big issue, especially as we go into what should be a shortage in the next few years. There is a real theory that a large winery should control their destiny, and the best way to do that is control vineyards."

At Sonoma-Cutrer, the sixth-largest owner of planted acres in Sonoma County, vineyards owned by the winery impart unique characteristics on the pinot noirs and chardonnays it sells, said Mick Schroeter, director of winemaking.

"The great thing about having our own estate vineyards is we have the ultimate control over the fruit that we produce, but also it's where those fruits are grown," Schroeter said. "There would be a lot of people that would love to buy them, but they're great for us."

Shaping growing regions

As the largest companies have grown, they've had the resources to experiment by planting in new areas, and the willingness to make risky investments.

The Sangiacomo family, which owns about 1,175 planted acres in the county, primarily in Sonoma Valley and Carneros, was among the first to plant in the northern Petaluma Gap area, and in the cooler Sonoma Coast region. That involves a lot of homework such as soil tests and small experimental plantings, Steve Sangiacomo said.

"People thought it was too cool to grow wine grapes out there, but we saw an opportunity to expand into a high-end category," Sangiacomo said.

Some industry veterans credit Kendall-Jackson founder Jess Jackson with helping to develop the Sonoma Coast region.

"Jess pioneered a lot of that. He really did," said Jon Fredrikson, a veteran wine industry analyst and consultant. "Even now, it's a lot riskier planting there, because you don't have the assurance that you're going to have the weather to get crops right."

The company is planting 500 new acres of vines in the Sonoma Coast American Viticultural Area this year, said Reimers at Jackson Family Wines. An AVA designation, which is granted by federal regulators, allows wineries to brand wines that originate from distinctive geographic regions and are often used by consumers to shop among a dizzying selection of wines on the market.

Gallo lobbied to have the boundaries of the Russian River Valley AVA expanded. Now its Two Rock Vineyard near Cotati, which spans 500 acres of land, is part of the region, which is famed for its pinot noir and chardonnay.

Representatives from Gallo declined repeated requests for an interview.

Beringer — owned by Treasury Wine Estates, which owns about 881 acres of planted vineyards largely in the Knights Valley AVA — helped establish that AVA, said Joel Fisher, director of corporate communications for Treasury.

Rodney Strong, the ninth- largest vineyard owner in Sonoma County with just under 800planted acres, was instrumental in the development of the Chalk Hill AVA. Rodney Strong also was one of the first to do massive plantings of pinot noir in the Russian River Valley, chardonnay in Chalk Hill and cabernet in Alexander Valley, said Rick Sayre, winemaker for Rodney Strong.

Machine harvesting

The largest companies also have helped steer the county's vineyards from hand picking to machine harvesting. Significant investment is required to make it work, not just on equipment, but also on the vineyards. Vines must be planted with enough space between the rows to allow for the high-tech harvesters, and machine harvesting on hillsides can be impractical or impossible.

But as the labor force shrinks, with tighter border restrictions and strengthened immigration enforcement, mechanical harvesting is becoming an attractive alternative.

About 35 to 40 percent of the county's vineyards are harvested by machine, said Nick Frey, former president of the Sonoma County Winegrowers.

"When you have the pressure on labor that's likely to increase … and when you look at how do you manage a crop in a short season, mechanization is going to have a place," Frey said. "They stem and sort in the field and it looks like a truckload of marbles when it comes into the winery. It's pretty phenomenal what some of the machines can do today."

Constellation Brands, which is the seventh-largest vineyard holder in Sonoma County with about 930 acres planted, farms about 80 percent of its vineyards by machine, said Steve Smit, vice president of vineyards and grape management.

"If there's a labor shortage now, we're not as affected by it," Smit said.

About 70 percent of Silverado's Sonoma County properties are harvested by machine, said Pete Opatz, vice president and chief viticulturalist for Silverado. Statewide, about 80 percent of the company's vineyards are harvested by machine. For Treasury Wine Estates, about 60 to 65 percent of its Sonoma County vineyards are harvested by machine, Fisher said.

By contrast, only 15 percent of the vineyards owned by Sangiacomo Family Vineyards are mechanically harvested, but that likely will increase, Steve Sangiacomo said.

"The labor market is tight," Sangiacomo said. "It's something that we're very conscious of, and we're looking at every way we can to mechanize."

The top wineries on the list have an impact on the price of grapes. If growers owned more of the grape acreage going into the wineries' bottles, they would have more negotiating power on prices. But when the wineries amass more vineyards, they're less at the mercy of growers, said Dave Murray, a real estate broker in Alexander Valley.

"The top five basically set the price for how much the wineries are going to pay for the fruit, because even though they might only own 20 percent, they're organized," Murray said.

Having Silverado, a vineyard investment company, among the top players helps stabilize the market, because it has more negotiating power with wineries, said Joe Ciatti, principal at Zepponi & Co., a wine industry merger and acquisition firm based in Santa Rosa.

"An independent grower, they can't stand up to a winery, but a bigger player like Silverado can," Ciatti said.

Jackson Family Wines alone controls a third of the Sonoma County pinot noir market, Reimers said. That gives the winery influence on the price and availability of a grape that nearly doubled in value in 2012. The company began planting more pinot noir in 2007, Reimers said.

"The reason we started planting was because we just couldn't find the right quality fruit at the right price for our $25 bottle of wine," Reimers said. "It's a really tough varietal to grow, and the supply can be up and down."

That lessens the company's reliance on outside growers.

"Our goal is to make sure we can keep our best fruit, but if there's people supplying grapes that are a lesser quality, we'll let those growers go," Reimers said.

The expansion by the largest players in the North Coast wine industry has increased competition for grapes and production space. Stag's Leap Wine Cellars, a Napa winery that sells its estate wines for $85 to $225 a bottle, has lost some of its grape supply and crush space as Gallo and Jackson Family Wines have expanded, said Steve Spadarotto, vice president and general manager.

"If I were running Kendall-Jackson, I would do the same thing," Spadarotto said. "They're brilliant, I applaud them, but it kind of hurts. It's making the entire industry more competitive, and I think it's becoming more of a system of 'haves' and 'have-nots.'"

News Researcher Janet Balicki contributed to this story. You can reach Staff Writer Cathy Bussewitz at 521-5276 or cathy.bussewitz@pressdemocrat.com.