Far Niente Wine Estates CEO: Record 2018 grape harvest a blessing amid strong sales growth

The "Follow This Story" feature will notify you when any articles related to this story are posted.

When you follow a story, the next time a related article is published — it could be days, weeks or months — you'll receive an email informing you of the update.

If you no longer want to follow a story, click the "Unfollow" link on that story. There's also an "Unfollow" link in every email notification we send you.

This tool is available only to subscribers; please make sure you're logged in if you want to follow a story.

Please note: This feature is available only to subscribers; make sure you're logged in if you want to follow a story.

Subscribe

Wine business insights

These key players on the California North and Central coast and in Oregon talk about what’s coming for the industry and layout of the marketplace now.

David Duncan, proprietor, chairman and CEO, Silver Oaks Cellars

Corey Beck, CEO and winemaking chief, Francis Ford Coppola Winery

Bob Torkelson, president and CEO, Trinchero Family Estates

Alex Ryan, president and CEO, Duckhorn Wine Company

Dan Baker, executive vice president, Korbel

Michelle Benvenuto, executive director, Winegrowers of Napa County

Ron Denner, Denner Vineyards

Cam Baker, proprietor, Larkmead Vineyards

Tom Bonomi, president and CEO, Price Family Vineyards & Winery

Steven W. Spadarotto, Far Niente Wine Estates

Sarah House, director and senior economist, Wells Fargo

They are set to speak at North Bay Business Journal’s Wine Industry Conference in Santa Rosa on April 18.

Napa Valley-based Far Niente Wine Estates produces its namesake flagship Oakville cabernet sauvignon and chardonnay wine brand, as well as late-harvest Dolce, Nickel & Nickel with 20 single-vineyard labels, Russian River Valley pinot noir brand En Route, and Rutherford cab-based Bella Union.

The business has its own farming company, Vinescape. All together, about 150,000 cases are produced annually from the five wineries.

In 2016, San Francisco-based private-equity firm GI Partners invested in Far Niente, just before selling Duckhorn Wine Company.

After years at the helm of Francis Ford Coppola Winery, Steven W. Spadarotto came to Far Niente Wine Estates as CEO last year. Ahead of his panel discussion at the Business Journal's Wine Industry Conference on Thursday, he talks with us about the challenges in raising wine bottle prices amid rising grape and vineyard prices, the blessing of the record 2018 harvest and how brand strength helps smooth out economic turbulence.

What are trends you see developing in luxury wine?

There seems to be a lot of doom and gloom out there about the millennials and the Z generation not being as into wines as the boomer generation was. In our case, we had a phenomenal year last year — in the broad market. But in DTC (direct-to-consumer sales), we saw significant double-digit growth.

I know that sounds kind of surprising. Some of that attests to, frankly, the strength of the brands, particularly Far Niente and Nickel & Nickel. They performed very well for us. We grew significantly last year in all channels, even after having taken some significant price increases.

Historically, this portfolio of wineries suffered only because of lack of supply, to some degree. As we were able to come into supply, we find that the lift we need to sell is there.

A CEO would be concerned with our ability to take price. Napa Valley cabernet (grape prices) in particular has been going up astronomically for so many years. Which, obviously, puts pressure on (vintner)’s margins, and the ability to take price is always challenging, particularly in the broad market.

In DTC, we don’t see the resistance to price increase as we do in three-tier (distribution, from producer to wholesaler to retailer).

Why is that?

We’re in the middle of some consumer research as we speak. And that’s one of the many questions we’re asking ourselves. The experience that your consumers have when they’re on site is critical to that. It’s just more difficult than three tier, (where) you have different avenues to sell to.

If you can take reasonable price in a reasonable time frame and it doesn’t negatively affect the velocity of sales in your point of distribution, you probably then can demonstrate stronger brand strength. We focus on that; we question that. You always want to test that, because it can change very quickly on you. …

Everybody that buys fruit feels the pressure on their margins, and feels the inclination to try to take price. It’s just difficult to do. And you have to be very, very careful about it.

There are some doom and gloom stories from people who play at the lower price points. The distributors we all deal with have their algorithms now for managing distributor inventories, and that’s become very difficult for some of the larger brands.

Wine business insights

These key players on the California North and Central coast and in Oregon talk about what’s coming for the industry and layout of the marketplace now.

David Duncan, proprietor, chairman and CEO, Silver Oaks Cellars

Corey Beck, CEO and winemaking chief, Francis Ford Coppola Winery

Bob Torkelson, president and CEO, Trinchero Family Estates

Alex Ryan, president and CEO, Duckhorn Wine Company

Dan Baker, executive vice president, Korbel

Michelle Benvenuto, executive director, Winegrowers of Napa County

Ron Denner, Denner Vineyards

Cam Baker, proprietor, Larkmead Vineyards

Tom Bonomi, president and CEO, Price Family Vineyards & Winery

Steven W. Spadarotto, Far Niente Wine Estates

Sarah House, director and senior economist, Wells Fargo

They are set to speak at North Bay Business Journal’s Wine Industry Conference in Santa Rosa on April 18.

I understand the language behind the doom and gloom and the impending recession, but my sense is the market still strong. And if you pay attention to the fundamentals, and really question your brand equity, your brand strength, and you do everything you can to (allocate) resource(s) into that, it still feels like a healthy wine market to me. And I hope I feel that way at the end of this year as well.

Does premiumization, taking a brand’s bottle pricing upward, still have legs to it?

It’s certainly something we’ve chatted about in the last five years. And I think it was a very active trend. Some of the data that’s come out from Silicon Valley Bank and others shows that the growth has slowed. I think that’s probably true.

As I love to say, no tree grows at the sun. We may be in a sophomore slump. We all hope that it continues, because I think it’s very healthy for the wine business.

A lot of times, the upper-end wineries feel that they’re somewhat shielded from trends; I don’t think that’s really true. We still plan to take price in a very judicious way in the future. I don’t believe we can just take price every year and not erode our brand.

When we talk about premiumization, the spread of "upscale" is so broad to me. They say anything above $15, for example. If your lowest price was $40 and you go up to $200 and something, you’re talking about a very different set of premiumization. I don’t know how to feel about that, because the data (for those price points) is so sparce you get out of Nielsen.

What is the impact of the increasing prices for grapes and bulk wine?

The bumper harvest we had an ’18 was a great blessing. It was a tremendous benefit us to have not only a high-quantity harvest but have a very high-quality harvest as well. That’s been one of our nagging problems in the past, frankly, running out of wine for six months at a time. The ’18 harvest is going to make me look like a smart guy. It was the timing; it was just perfect.

Most of us at the supplier level would love to see the increase in grape pricing at least slow down a little bit. I don’t think it’s ever going to take a step back, to be honest. But it will be nice if it was slow down so we can all catch our breath and help correct our margin issues.

We don’t really play on the bulk-wine market. But back in the days when I as at Coppola and we did, if one was trying to do negotiant brands or launch a new product, this would be a truly opportune time to hit the bulk-wine market, both in terms of quality but also in terms of cost.

These things come and go. So who knows with this rather cold weather (at the beginning of this year) what ’19 is going to look like. I would see the ’18 harvest as an opportunity for those who want to come into the market, for those who want to line-extend. It’s fairly inexpensive.

If you’re out trying to sign up new (grape) contracts for cabernet in either the (Napa) Valley here or in Sonoma (County), it might be a little easier than it’s been in the past. But it’s always going to be hard to find the good grapes, and they’re always going to be expensive.

On the vineyard acquisition front, I think a number of companies, ourselves included, would love to be able to pick up some some premier vineyards. But vineyard prices have been steadily increasing as well. I don’t think large vintages change that dynamic. There are so few vineyards that are available, and virtually nothing is being planted.

I remember getting into business back in the late ’80s. Gosh, it was such a different world, so much easier so many respects. The barriers to entry were almost nil, your ability to gain distribution back in the day. You launched a brand, like Clos Pegase where I started, (and) the distributors were pounding at your door to take your brand. Those days are long gone.

So when you talk about the interest in finding new vineyard acreage and and supply, has that prompted you to look outside the North Coast, such as the Central Coast or in Oregon?

A little bit, yes. If you look at our portfolio, the thing that jumps out at you is Napa Valley cabernet is what we do a lot of. Even the Far Niente Napa Valley chardonnay, arguably the most iconic chardonnay in Napa Valley, it’s $70. There’s a lot of chardonnay in this program, and it does sells very well. We’re very protective of that SKU (inventory item), very protective of the Oakville cabernet as well.

With Nickel & Nickel, are always on the lookout for vineyard acquisitions for that brand. We're producing around 20 different single-vineyard cabernets.

So to the degree to which we can control that supply footprint, we generally see that as a benefit to us.

We had picked up a few (vineyards). DeCarle Ranch Vineyard we picked up the year before last. We have notionally talked about Oregon, but we haven’t jumped on that bandwagon like many other companies have.

Strategically, you have to stand back and look at it and say, What white space, what would be an acquisition or a new brand that would actually accentuate the existing portfolio, rather than just clutter it up?

We just can’t run around buying stuff and hoping that it makes sense in the future. It really has to be very well thought through, because we’re very protective of the image of the portfolio. We don’t bite easily.

Show Comment

Our Network

Santa Rosa Press Democrat
Sonoma Index-Tribune
Petaluma Argus Courier
Sonoma Magazine
Bite Club Eats
La Prensa Sonoma
Emerald Report
Spirited Magazine