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North Bay Business Journal

Monday, April 17, 2006, 3:00 am

Weibel winery lease likely a trend-setter

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    HOPLAND — A Woodbridge-based custom-label marketer’s acquisition of a medium-sized Hopland winery in a novel sale-lease transaction announced this month underscores for some industry experts an evolution toward more flexible use of capital.

    Weibel Family Wine Group is used to portable brands. It bottles 325,000 cases of wine — most of that as sparkling wine — under about 400 custom labels from its Woodbridge bottling line, just as the company has done for six decades.

    However, CEO and President Fred Weibel Jr. was looking to have his own Mendocino County label, so he acquired the Stone Creek popular premium-tier in 2004 and 500 acres of vineyards in the county’s Potter Valley appellation.

    Then he looked for a winery for the brand. Currently, Stone Creek is a California appellation brand. Fruit for it comes from contracted tonnage as well as a 500-acre vineyard in the county’s Potter Valley appellation. Wine for Stone Creek and the custom labels is made at Redwood Valley Cellars, Lodi Vintners and Golden State Vintners then bottled at the family’s facility in Woodbridge.

    San Rafael-based startup real estate investment trust Vintage Wine Trust approached Mr. Weibel about leasing a large Hopland winery as a home for the Stone Creek brand rather than buying a winery.

    Putting capital to work elsewhere

    “We looked at the winery and the timeline we’re under for the Mendocino County brands and decided we we’re able to use our capital elsewhere versus tying it up with debt,” Mr. Weibel said.

    Washington-based Ste. Michelle Wines Estates, which makes the Conn Creek and Villa Mt. Eden brands in Napa Valley, wanted to sell the 350,000-case-per-year former McDowell Valley Vineyards winery in Hopland it had purchased in 2000 from the Associated Vintage Group bankruptcy.

    Ste. Michelle planned to migrate the Villa brand to Hopland, but the varietal styles of the brands didn’t fit the facility, so the company took on a few hundred tons’ worth of custom-processing work, according to Jeff McBride, general manager for California operations.

    The Hopland winery will allow Weibel to push the Stone Creek brand — currently retailing for $8 to $9 a bottle — up in quality as it shifts to Potter Valley appellation grape sourcing and adds variety-specific brands.

    This June, Weibel will release a Potter Valley pinot noir wine called Knightsdale, starting with 5,000 cases aged in French oak barrels and 5,000 cases aged in American oak and retailing for $16 to $18 a bottle.

    In January, Weibel will release a Mendocino County zinfandel wine under a different brand.

    Lease vs. buy a paradigm shift

    Weibel’s move to lease rather than buy a winery, freeing up money for sales and marketing efforts, is part of a radical paradigm shift in U.S. production of wines retailing for $7 to $14 a bottle, according to winery marketing and management consultant Robert Nicholson in Healdsburg.

    “We’re seeing huge development of producers and marketers, and a lessee situation makes more funds available for sales,” he said. “For wineries with $15-plus brands, the story can be different, with the bricks and mortar or water and soil where a wine originates being important to the story and quality behind a brand.”

    Fetzer Vineyards’ recent decision to sell its Hopland hospitality center to channel the millions of dollars required to operate that facility is one example of the shift for sub-$15 brands. Another is Foster’s Wine Estate’s sale of Chateau Souverain’s winery in Geyserville to produce the brand at its collective winemaking facility in Asti.

    For such brands, and even the vineyards that supply them, a sale-leaseback arrangement is increasingly of interest, according to Tamara Fischer, CFO of Vintage Wine Trust.

    However, it has been a challenging pitch for producers of ultrapremium grapes and wine, according to Rob McMillan, founder of Silicon Valley Bank’s Premium Wine Division in St. Helena. Silverado Premium Properties in Napa found the sale-leaseback model a difficult sell.

    A decade and a half ago, the money to be made in North Coast vineyards and wineries was in the real estate itself, he noted. Now, the returns from wine sales above $15 a bottle are such that the income stream is attracting professional investors.

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