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North Bay Business Journal

Monday, February 3, 2014, 7:00 am

Rack & Riddle moves as Duckhorn expands

Part of North Coast crunch of wine production capacity

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    HOPLAND — As St. Helena-based Duckhorn Wine Co. plans to shift full production of a rapidly growing brand to Mendocino County winery, Rack & Riddle Custom Wine Services is preparing to complete its relocation and expansion from that facility to Sonoma County’s Alexander Valley.

    Rack & Riddle Wine Services employs about 50 in Hopland and is expanding in a move to Alexander Valley this spring.

    An affiliate of Duckhorn in August purchased the Hopland property from Kansas City-based Entertainment Properties Trust. Rack & Riddle has been leasing the facility since Rebecca Faust and Bruce Lundquist started the company in 2007. Duckhorn wanted its own production facility for the Decoy brand, and Rack & Riddle was running out of production and storage space as revenues have increased around 20 percent a year, according to company executives.

    “Decoy has been a great success for us in the past three years,” said Zach Rasmuson, Duckhorn’s chief operating officer. “It eclipsed our imagination.”

    The category of red wine blends had the most revenue growth for any wine category in U.S. food stores last year, according to Jon Fredrikson of Woodside-based industry analysis firm Gomberg, Fredrikson & Associates, citing Nielsen data. Though those red blends are dominated by brands in the $10- to $15-a-bottle category, the Decoy brand ranked No. 7 though retailing for more than $20 a bottle.

    Duckhorn likes to maintain control over its production, but the growth of the Decoy brand forced the company to enter a “disproportionately large number of custom-crush arrangements” last year, Mr. Rasmuson said. The goal for the brand is production of 200,000 cases a year, he said.

    One such custom-winemaking deal was with Rack & Riddle. Duckhorn had worked with Rack & Riddle on other brand programs in 2010, and Mr. Rasmuson had become familiar with the facility during his previous decade-long stint as winemaker for Duckhorn’s Goldeneye winery in Mendocino County’s Anderson Valley appellation. So, Duckhorn went for the opportunity to buy the Hopland winery at 14100 Mountain House Rd. as Entertainment Properties Trust was divesting of its VinREIT holdings.

    Another custom-winemaking deal for a growing Duckhorn brand is for Canvasback, which eventually will be sourced from a newly acquired vineyard property in the Red Mountain appellation of southeastern Washington. The company is looking for a winemaker to assume oversight of production of the brand at Artifex Wine Company in Walla Walla.

    Rack & Riddle signed a long-term lease for the winery at 4001 Highway 128 between Geyserville and Healdsburg in Alexander Valley. It was the home of Murphy-Goode from completion in 1987 until Jackson Family Wines acquired the brand in 2006.

    The Murphy family operated it as a custom-winemaking business called 4001 Cellars for the past four years and had a couple dozen clients, according to managing partner Jim Murphy. Those clients will have the option of signing on with Rack & Riddle for crush, winemaking and/or bottling services, he said.

    “We’ll still be farming,” Mr. Murphy said. “My day changes from overseeing winemaking part of the time back to viticulture.” The family farms 170 acres of vines in Alexander Valley in two locations, including 27.5 acres around the winery.

    The new lease gives Rack & Riddle 115,000 square feet of winery and storage space, including 67,000-square-foot former Clos Du Bois barrel warehouse at 451 Moore Ln. in Healdsburg secured under a 10-year lease in October.

    “A lot of our clients call that area home or have the central part of their operations there, and we think that moving into their back yard gives us room for serious discussions that we couldn’t get our foot in the door for previously,” Mr. Lundquist said.

    That’s more than the 100,000-square-foot Hopland winery, but the existing crush and storage capacity is significantly smaller, he said. Rack & Riddle is working with 1.7 million gallons of tank capacity and regularly crushes 5,000 to 6,000 tons of grapes annually. The 4001 Cellars winery currently has 682,000 gallons of wine storage, but the crush pad currently handles 3,000 tons per season.

    Rack & Riddle has been running the Geyserville winery since the beginning of this year and plans to be fully moved in by May or June. Tanks are on order from multiple suppliers to be back to at least the Hopland winery’s storage capacity by this coming harvest, according to Mr. Lundquist. The company brought on the 14 employees 4001 Cellars of and is waiting to hear how many of the more than 50 Hopland employees, many of whom live in Mendocino County, want to work an hour’s drive south.

    The permitted capacity of 4001 Cellars is 200,000 cases a year. Future plans include seeking a significant expansion to permitted production capacity.

    Mike Draxton

    Another tenant that moved from the 4001 Cellars winery as Rack & Riddle took over was M. Draxton, Inc., which had offices and a tasting room for its own small-production labels and custom-winemaking clients. About six years ago, M. Draxton launched as a bonded broker for custom-winemaking services largely for growers facing challenges selling their grapes as wineries radically scaled back inventory amid the economic recession. The company had leased two-thirds of the capacity of the Geyserville winery and had contracts with three other North Coast custom wineries.

    Now, about one-third of the 6,000 tons of grapes M. Draxton has processed for clients are growers, and the rest are vintners seeking excess capacity and negotiants, which are brand builders without their own wineries or vineyards, according to proprietor Mike Draxton. The company uses five to six custom wineries in the North Coast, depending on the season. One of those is 4001 Cellars, and M. Draxton may sign on with Rack & Riddle, he said.

    M. Draxton doesn’t plan to have its own winery, but it is securing some of its own storage space. Late last year, the company leased a 10,000-square-foot warehouse in Healdsburg.

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