Change and consolidation

Consolidation and change in the wine industry continues at a relentless pace as has been the case for some time. Across all segments of the industry with the possible exception of retail, combinations of distributors, wineries, vineyards and brokerages continues at a furious pace. This doesn’t surprise many in the wine business; we have seen it for years. It is somewhat predictable as the big wine companies strive to get bigger and smaller growers, producers and dealers are being offered money that is a bit hard to pass up.

The interesting trend unfolding now though is how much of the merger activity at the winery and vineyard level is being focused on the high end of the market. Premium and super premium brands, those that retail above the $30 per bottle mark seem to be driving much of the consolidation. In recent years the opposite was true as we consistently saw wine companies focus on the major market grocery store brands, those inexpensive brands with production levels in hundreds of thousands of cases.

Perhaps most surprising about this trend toward snapping up wineries and vineyards from the upper reaches of the market is what is going on with prices “up there.” Producing vineyard land in the most sought after sections of Napa and even the Sonoma Valleys now tops $1,000,000/acre. No that is not a typo and yes the commas are in the right places and you bet it is a bit to get your mind around. With these kinds of figures dancing around it is no wonder the Stagecoach Vineyard in the Atlas Peak area of Napa was sold to Gallo. While the price was not disclosed one can only imagine the “tag” on this transaction given the high quality fruit harvested from these 600 acres. This particular fruit source we know well as Skylark Wine Company and John Lancaster for years purchased Syrah grapes from there to put into one of our favorite bottlings.

Gallo has been on a bit of a mission at this high end of the market purchasing high end and well respected Pinot Noir and Chardonnay producer Talbott Winery located in the Carmel, Half Moon Bay area of California. They also in the last year purchased Orin Swift Cellars from founder, owner and winemaker Dave Phinney for an undisclosed amount. While that transaction did not include The Prisoner perhaps Phinney’s best known brand one can only imagine the dollars involved.

The Prisoner instead was purchased by Constellation Brands for $285 million. While this transaction does include some other “labels” like Thorn and Cuttings among others all of the wines in the group retail above $40, a clear bet on the upper reaches of the wine market.

Add in the purchase by Chateau Ste. Michelle Wine Estates of Patz and Hall Winery one of our favorite producers of Chardonnay and Pinot Noir from Sonoma and you start to get a sense of where the major players in the wine business think the wine world is headed. Much of this is being fueled by a statistic that may have been overlooked or perhaps discounted by much of the wine consuming public. Last year for the first time the average price per 750 ml bottle sold in the US surpassed the $10 mark. While initially this may seem like not much of an event reflect on how many bottles flow from grocery stores and other big box outlets that are below that level. Most of us would never contemplate drinking mass produced wine of that low quality, it does represent a huge swath of the market.

The wine industry here in the states and more importantly wine consumers’ tastes here are “growing up!” Tastes are evolving among US wine consumers and demanding more sophisticated wines and those that offer complexity and quality beyond what occupies the typical grocery store shelves. We applaud this trend; there is just so much better wine available as each incremental dollar is spent with the guidance of true wine professionals.

This is the essence and driving force behind many of these transactions. The major players in the wine business are betting heavily that trend will continue. Are they always right, well no none of us are? The decisions being made though span so many different companies in so many different segments of our industry it is tough to make the contra argument.

If there is a topic you would like to read about or if you have questions on wine, you can email [email protected], or make suggestions by contacting the Healthy Community section at the Coeur d’Alene Press.

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George Balling is co-owner (with his wife Mary Lancaster) of the dinner party, a wine and table top décor shop located by Costco in Coeur d’Alene. George worked as a judge in many wine competitions, and his articles are published around the country. You can learn more about the dinner party at www.thedinnerpartyshop.com. Be sure and check out our weekly blog at www.thedinnerpartyshop.com/home/blog-2. You can get all of these articles as well as other great wine tips by friending us on Facebook at www.facebook.com/#!/dinnerpartyshop