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Amid pandemic, Santa Rosa vintner Pat Roney rounding up millions for buyouts

Pat Roney always sees opportunities during challenging economic times.

The 64-year-old wine industry veteran took over Napa Valley’s Girard Winery in 2000, as the country grappled with the dotcom bubble. He showed his operational prowess there by boosting that boutique winery from a minuscule 100 wine cases of annual production to 40,000 in five years.

In his second act, Roney teamed with the late vintner Leslie Rudd to form Vintage Wine Estates in 2007. It later made a crucial deal to acquire Windsor Vineyards from The Foster's Group, which gave the young company a large telemarketing sales network to expand into direct-to-consumer wine sales. The Great Recession, however, emerged a year later and slowed his expansion strategy.

Now, almost a year into the coronavirus pandemic, Roney is making his biggest and boldest bet yet as chief executive officer of Vintage Wine Estates. He’s taking the Santa Rosa wine company public in May, so it can sell shares and initially fetch more than $1 billion from investors to spend on potential acquisitions. That buying spree will include buying the majority of Kunde Family Winery in Kenwood, an operation in which Vintage Wine already is a minority owner, and where Roney was president in the early 1990s.

The low-key Roney — who once served as CEO of specialty grocery chain Dean & DeLuca — is not as well known in the American wine industry as mighty titans of the past, such as Robert Mondavi and Jess Jackson, or entrepreneurs who recently have found success producing a cult pinot noir or cabernet sauvignon.

Yet his methodical approach, including doing more than 20 deals over the last 10 years, has generated 20% annual revenue growth through recent years, even if the buys were not as splashy as some of his rivals. In baseball parlance, Vintage Wine Estates is the wine version of Oakland A’s Moneyball era.

In the process, Roney has garnered significant respect throughout the sector. Tim Wallace, former CEO at Benizger Winery in Glen Ellen and a now lecturer at Sonoma State University’s Wine Business Institute, echoed many in the wine industry saying he knows Roney “to be a great guy.” And that credibility and likeability becomes useful now that Vintage Wine Estates embarks on the first significant initial public offering of stock in the wine sector in 20 years. Roney will attempt to persuade Wall Street he can deliver on even more growth to investors with his company valued at $690 million prior to trading.

“I think he is going to be very successful,” said Robert Nicholson, president of International Wine Associates, a boutique mergers-and-acquisition advisory firm in Healdsburg.

Nicholson noted that Roney acquiring Windsor Vineyards first put Vintage Wine Estates on a growth trajectory and he hasn’t looked back.

“Windsor Vineyards was a big, big platform for Pat to be able to build,” Nicholson said.

Indeed, the Windsor purchase was key since it allowed Roney to ramp up his profitable direct consumer wine business, which later included the 2017 acquisition of Cameron Hughes, a top e-commerce brand. Wineries make more profit through this sales route because they don’t have to pay distributors.

Vintage Wine Estates recently opened a distribution center in Cincinnati, Ohio, so the company can guarantee two-day delivery to more than 90% of the country. The company sells wines primarily in the $10 to $20 a bottle range.

“When you start getting two-day delivery into New York and everywhere (else) your order recycle increases. So it's a strong focus of growth for us,” Roney said.

The goal always was to take Vintage Wine Estates public, but the path to tapping investors’ capital took a little longer than Roney expected.

“If anything maybe we could have accelerated even larger acquisitions during the initial recession in 2008 and 2009. We would probably be on the path a little bit faster,” Roney said. “We were fiscally conservative and wanted to make sure we could prove out all our models. On balance, we are very happy with our path of progress.”

Direct consumer sales now account for 29% of the roughly $200 million in overall revenue that Vintage Wine Estates generated in its 2020 fiscal year. That includes sales on its digital platforms, wine clubs and even on the QVC television network.

Besides its direct-to-wine drinkers business, Vintage also derives 38% of its revenue from its wholesale business of wines sold in traditional retail stores and restaurants. That business is getting harder, with the top three wine wholesalers controlling 61% of the market and typically won’t consider clients unless they can provide a large array of product. That shuts out smaller wine producers who are then forced to rely on direct sales to consumers.

In its third revenue bucket, Vintage generates the other 33% of its annual sales from producing private label wines to major retailers like Costco, Target and Safeway, as well as some custom crush work for other wineries.

And therein lies the Santa Rosa company’s achievements in the more than $45 billion U.S. wine retail sector as a result of its diversification of three different revenue streams, said Jon Moramarco, managing partner of wine industry consulting group bw166 and who has worked with Roney on projects.

“The interesting thing with their business is when you look at it, no matter what’s going on in the market, they have a way where they can do a good job,” Moramarco said.

While Roney’s stewardship of Vintage Wine Estates has been commended, he faces perhaps his biggest challenge of shepherding more than 50 brands that include B.R. Cohn Winery in Glen Ellen and Clos Pegase Winery and Vineyards in Calistoga, overseeing 2,800 vineyard acres and producing about 2 million cases of wines a year.

Roney knows the move is to get bigger or risk being squeezed out.

Even though Vintage Wine Estates ranked as the 15th-largest wine company in the country last year, it faces strong headwinds like many other middle-market wineries.

Analysts predict a wave of consolidation in the wine sector that has about 11,000 wineries overall nationwide. Many of the deals are being driven by financial pressures of the ongoing pandemic. A survey by Silicon Valley Bank released earlier this year found almost half of the winery owners questioned would consider selling for a fair price.

The other big driver? Getting your wine bottles on the store shelf is much harder. Distributor consolidation has meant that wine wholesalers are focusing on bigger brands. That’s also the case with retailers as the top 10 wineries have 55% of the grocery shelf space for wine, according to Statista.

The wine market is dominated by the largest wine companies such as E.& J. Gallo Winery of Modesto, The Wine Group of Ripon and Constellation Brands Inc. of Victor, New York. Those three companies represent 53% of overall annual wine production, while the other 47% is highly fragmented, according to Wine Business Monthly. There is a race among wineries to capture more of that share not controlled by the three wine behemoths.

“I think you're either going to have to be very, very focused on your own standalone winery in a much more limited scope or you're going have to get big. It's going be tough to compete in the middle because of the distributor consolidation and the retailer consolidation,” Roney said. “I think it's going to be important to get bigger or stay highly focused on a much smaller scale.”

And he is not alone in the vast middle winery segment with that mindset. The Duckhorn Portfolio Inc., which owns Sebastopol’s Kosta Browne and Mendocino County’s Goldeneye wineries, announced last month it also intends to become a public company later this year. It is the 21st-largest wine company in the country.

In addition, Foley Family Wines of Santa Rosa, the nation’s 16th-largest wine company, last month sold its distribution arm to Southern Glazer's Wine & Spirits, the largest U.S. wine and spirits wholesaler. Owner Bill Foley said the sale would free him up to focus on more winery acquisitions, noting this period could be similar to the Great Recession when he was aggressive buying smaller wineries that were too leveraged.

“That’s the best time to buy,” Foley said in an interview last month, alluding to cash-strapped wineries becoming buyout targets.

Given the upturn already this year in mergers and acquisitions, Roney said he will stick to what he’s been doing since taking over Girard Winery over 20 years ago: finding wineries that have value that he can grow, and they don’t have to be blockbuster deals.

“I think that the main way we look at everything will be very consistent with how we have in the past, looking for good value opportunities that fit with where we are,” he said.

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.

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