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Napa-based Delicato Family Vineyards has grown to become the fifth-largest exporter of California wine.

But in an ever-more-competitive market with consumers seeking ever-higher-quality wine, the 92-year-old company has realized it has to get bigger and more strategic.

Delicato makes 13 million cases a year, 9 million of which are of its own brands. Its ranking among branded wineries in the U.S. has jumped from No. 25 in 2007 to No. 9 this year. But according to CEO Chris Indelicato, its further growth is being built on four “pillars”:

— People.

— Brands and consumer focus.

— Capital spending.

— Balanced growth via acquisition.

Indelicato was the keynote speaker at the Business Journal’s North Bay CFO Awards in Santa Rosa on Aug. 31.

Delicato has increased outlays for training to help individuals and departments work together. The company will be trimming its brand portfolio to ones it thinks can be among the top 100–200 in the market.

“Because of consolidation, [brands] will get less attention, and we are going to have to compete at that level in a billion-dollar environment,” he told the audience of about 170. “It’s not a million-dollar environment anymore. It’s a billion-dollar environment.”

Besides private labels made for clients, Delicato has a portfolio of 16 brands. Those include Black Stallion and Bota Box. Delicato bought Black Stallion Winery in 2010, marking a significant push into casegoods brands. Named after the animal-skin flask popularized by outdoors enthusiasts in the 1960s and 1970s, Bota Box has become one of the largest U.S. bag-in-box wine brands.

Sales of the half-, 1.5- and 3-liter boxes is anticipated to reach 5 million this year, up 30 percent from last year.

Company revenue this year is anticipated to be $450 million, and sales have been growing at more than 25 percent annually on a compounding basis. But returns on investment must be front and center in the company’s sights as growth continues, Indelicato said.

“We’re going to have to compete with larger companies, in a low-margin business,” he said.

The challenge for the company is sales growth is the equivalent of about 1 million 9-liter cases a year, Indelicato said. For the first half of this year, Delicato already had sold 687,000 cases.

“That, in and of itself, is an acquisition that takes a lot of internal focus, energy and dollars,” Indelicato said.

The company also is on the hunt to acquire a wine brand with products that retail for more than $20 a bottle, he said. It would either be a platform, agency company or bricks-and-mortar operation, but the best option would be one with a strong direct-to-consumer sales focus, he said.

“U.S. consumers are drinking less wine [per capita], but they’re drinking more expensive wine,” Indelicato said.

Constellation Brands’ acquisitions focus on brands with inventory, while Gallo has tended to increase production via physical assets such as vineyard and wineries. The top 10 wine companies have accounted for 90 percent of wine sales growth in the past few years. And the number of retailers and distributors continues to shrink particularly with the recent combination of national heavyweights Southern Wine & Spirits and Glazier’s into Southern Glazier’s Wine & Spirits.

“It’s a two-pronged approach to growth,” Indelicato said. “We have to keep the core business healthy and efficient.”

Toward that efficiency, Delicato is spending on facilities that would help consolidate warehousing and packaging operations into one building for efficiency. E&J Gallo, Trinchero Family Wines, Diageo Chateau & Estates, mostly now part of Treasury Wine Estates, and Constellation Brands have taken similar steps in the North Coast in the past five years.

“It doesn’t surprise me now that we’re focusing on that as we get to that 9 or 10 million-case mark,” Indelicato said. “In order to get to the 15 million-case mark, we’re going to have to be a little different company. To compete, we’re going to have to have our margins a little bit tighter.”

One potential margin-squeezer on the horizon is a significant increase in farming costs, he said.

“$15-an-hour farmworker pay will increase our costs by 25 percent,” he said.

Jeff Quackenbush (jquackenbush@busjrnl.com, 707-521-4256) covers wine, agriculture, commercial real estate and construction.