Home Wine Business Editorial Buying Brand Only and Building on an Asset Light Wine Business

Buying Brand Only and Building on an Asset Light Wine Business

274
0
Advertisement

News of large mergers or acquisitions in the wine industry seem to arrive at an increasing clip, and those involving large swaths of land in premium appellations, like Gallo’s purchase of the 600 acre Stagecoach Vineyard in Napa, send reverberations through the industry with worries of grape supply, but other companies, like WX Brands, have taken the different tack of investing in brands rather than lands.

Earlier this month, WX Brands announced their acquisition of Bread & Butter, an 80,000-case national wine brand, and the 70,000-case Jamieson Ranch portfolio, which includes Double Lariat, Reata, Whiplash and Light Horse brands. Neither of these purchases included vineyards or facilities, though WX Brands did assume existing contracts.

“We are leasing the tasting room and office space at the Jamieson Ranch,” says Oren Lewin, WX Brands SVP Marketing, “we will also continue to make the same wines that are being made there today, and we have assumed vineyard contracts, so we’ll maintain the same grape supply. But we’re not owning the actual facility or owning any vineyards, and that’s part of our company strategy, we’ve always been an asset light business.”

Lewin recognizes that their approach is different than the high profile land purchases of Gallo and Jackson Family Wines, but points out that they’re not alone investing in premium brands. Constellation Brands also bought brand only when they acquired the Prisoner, and WX Brands’ strategy is based on playing to their strengths in building brands and bringing them to market. However, they’re not blind to the issue of grape supply.

“A big part of our analysis of these brands prior to buying them was confirming that we can scale them to our growth expectations,” explains Lewin, “For the fine wines like the Double Lariat Napa Valley Cab from the Jamieson Ranch portfolio, we actually assumed the grape contracts, and ensured they’d give us enough supply for the future. Whereas for the brands that are not as narrowly appellated, more California appellated wines, we also wanted to make sure there was enough supply, and we were able to confirm that those grape sources are expandable.”

Even with the this large recent acquisition, over 80% of WX Brands business is still in producing private label wine, beer, and spirits at custom wineries and contract productions, but WX Brands carefully selected these brands based on their experience with previous brand acquisitions beginning with the Echelon brand they purchased from Diageo several years ago.

“We’ve learned from each acquisition we’ve made,” says Lewin. “The first one we did was Echelon, and it was already in a downward stage of its lifecycle, what we learned is that it is very difficult to turn around a brand like that. Since then, especially with Chronic Cellars, we have a better understanding of what kind of brand we’re looking for, and those are brands that are showing tremendous performance in a very limited geography or channel.”

When WX Brands started looking at Chronic Cellars, the brand was performing very well on California’s Central Coast, but not much outside of the region. WX Brands did their research, talked to sellers and retailers, and came to the conclusion that the brand could scale and would do well across the country with the backing of their sales organization and resources.

Lewin believes that the new brands that they have recently acquired have similar characteristics and can grow nationally or even globally as part of WX Brands. “They’re just a little bigger, than Chronic Cellars was when we started,” He says.

Shawn Schiffer, WX Brands SVP Sales elaborates. “We’re looking to do two things, we’re looking to amplify the success that the brands already have, and secondly, we’re looking to optimize their long term performance, whether that’s operational or on the sales and marketing side.”

When WX Brands started out as Winery Exchange, they did private label wines exclusively, but they realized that their core expertise would extrapolate well to other beverage categories, such as beer and spirits; each having tremendous growth potential.

“The fundamentals in those categories are very similar, at least in route to market,” Schiffer explains. “We had built a growth engine for our company with our chain retail relationships and our route to market, and when the opportunity arose to expand into beer and spirits, we thought it was a natural fit with a lot of growth opportunity, and that has proven to be the case.”

“We’ve also found that there’s synergy on the brand development side,” says Lewin, “one of our strengths that continues today is our ability to create brands that really resonate with consumers and are tailored to the specific customer or channel. The skills needed to do that for a wine brand, beer brand, or spirits brand are very similar, and we’re able to adapt to make each brand successful.”

The same core expertise that has allowed the expansion into beer and spirits also works for moving from private label into national brands, and just like Gallo and Jackson Family Wines are investing in premium appellation vineyards, WX Brands is targeting their acquisitions at the premium end of brands.

“Premiumization is a long term trend in all three categories, we do not see that slowing down, and the acquisitions we’re making are within the price points that are growing more rapidly in the market,” says Schiffer.

WX Brands growing investment in national brands is still less than 20% of their business, and it shouldn’t be seen as a sign of moving away from their original private label model, but as an addition.

“Retailers in the US are realizing that they’re underdeveloped in private brands, comparing the US to almost any alcohol market in the world,” says Lewin. “The growth rate of the private label has been faster than the national brands, so our business is well aligned with where the growth in the categories is occurring.”

Costco, the nation’s largest wine retailer, has had great success with private label wines, and Wal-Mart owned competitor Sam’s Club is now launching their first ever Member’s Mark branded wines this year.

Asked if there are more acquisitions coming Schiffer says, “The acquisitions of brands we just made are very exciting for us as a company. It will be something for us to make sure we incorporate into WX Brands swiftly and effectively. It’s pretty substantial, so we’ll make sure we get that right and keep our eyes open for more good opportunities.”


By Kim Badenfort

Advertisement

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.