Key trends in wine mergers and acquisitions last year likely will continue this year, according to some of the key brokers of North Coast deals.
Top drivers of this trend will continue to be increased premiumization, geographic expansion to keep up with pricing, and consolidation at the distributor and retail level leading to consolidation of wine producers, according to Kevin O’Brien, an adviser with Santa Rosa-based wine industry mergers-and-acquisitions firm Zepponi & Company.
“What we’ve seen in 2015–2016 is pretty much unprecedented — over $1 billion in transactions in the United States,” O’Brien said.
“Premiumization” is the shift of wine purchases toward higher-priced wines — mostly above $10 a bottle. As a result, makers of mass-market wines retailing for less than that have been busy acquiring higher-end brands, production capacity and vineyards.
E&J Gallo’s acquisition of the 600 acres of grapes in Stagecoach Vineyard property in Napa Valley’s Atlas Peak, completed last week, is a key example of premiumization of grape sourcing, according to O’Brien. Others recently along the West Coast, include WX’s purchase of Bread & Butter and Jamieson Ranch Vineyards, Trinchero’s of a Fetzer winery in Paso Robles, Gallo’s of Orin Swift, Ste. Michelle Wine Estates’ of Patz & Hall and Jackson Family Wines’ of Penner Ash.
“What we’ve been seeing happening in Napa — there’s not a whole lot of acreage left to be planted, but there still is a lot of demand, especially for premium-priced wine from that area,” O’Brien said.
Wine producers trying to support a $15–$25 cabernet sauvignon or red blend — hot-selling segments for the past few years — have been trying to move grape sourcing outside of Napa Valley, as grape and bulk-wine prices climb, O’Brien said. Some have been securing sources in Sonoma County, where wines in that price range have been more, but Sonoma grapes also are growing more expensive.
“Where else do you go?” O’Brien asked. “So the Central Coast might be an area of interest in 2017, as some of the larger suppliers look to support those $15–$25 price points.”
For example, Delicato Family Vineyards earlier this month said it was acquiring the 4 million-case-a-year Blossom Hill Winery near Salinas from Australia-based Treasury Wine Estates. The Napa-based company said it is part of an ongoing move toward higher-priced wines and strategy revealed in mid-2016 to grow to 15 million cases annually.
Another example of that was the announcement last month of a strategic investment in Sonoma’s V2 Wine Group, which has a portfolio of luxury-tier brands.
VINEYARD SELLER’S MARKET
As vintners buy vineyards to lock in consistent supply of quality grapes, other vintners that buy grapes from those vineyards are starting to look for new sources, concerned the new owners will not renew purchase contracts to outside producers, said O’Brien and Sean Maher, St. Helena-based managing partner of Aspect Consumer Partners’ wine M&A business. This has created a seller’s market for vineyards, particularly in Napa and Sonoma counties.
“The Stagecoach transaction has moved some folks into saying, ‘OK, where does that leave us? Where does that leave Napa Valley down the road?’” O’Brien said.
But acquisition of vineyards by wineries has been happening for quite a while, though it has picked up intensity in recent years, Maher said.
“Total tons of Napa grapes for a winery’s own use has trended upwards in the past 20 years,” he said.