By Dawn Dolan
Globally, 2017 saw the lowest level of world-wide wine grape production in sixteen years, Glenn Proctor, Partner at Ciatti Company, told the audience in the opening minutes of the afternoon WIN Expo session Fires & Acquisition: Impact on the North Coast Grape Market. The hot summer affected overall yield, bringing in 3.85 million tons this year. Given the volatility of this agricultural product, Proctor said that “some buyers are changing strategies about how they source their crop.”
We’ve all read about the vineyard acquisitions going on of late. Joe Ciatti, of Zepponi & Company, confirmed that 2017 was “an unusual year.” According to Ciatti, “People are looking to buy vineyards. You have to have the supply to back up your labels.”
Any size vineyard over 20 acres may be of interest to a buyer, depending on what is planted. Wineries appear to be looking for clean properties, with only vineyard. “Non-grape assets are red flags, and not of interest,” Ciatti said (including other agricultural crops, guest houses, etc.), and he noted that his company expected 2018 to be an even bigger year for vineyard sales.
“The availability of grape supply has been challenging,” confessed Neil Bernardi, VP of Winemaking for Duckhorn Wine Company. “Recent acquisitions by larger players have taken a significant amount of custom crush off the market.”
For strong producers, motivating factors to buy vineyard properties can included a steady source stream of grapes, with the quality managed by the parent organization. “These purchases can provide more estate-owned fruit,” noted Bernardi.
Several motivators for the acquisition of new wineries or brands can also enter into play, perhaps especially if that brand comes with vineyard property. “Family wineries struggle to enter the wholesale market,” said Dan Leese, president and CEO of V2 Wine Group.
Generational changes in a family can also create a sale opportunity. “Consumers are still interested in luxury brands, and there is more marketplace opportunity at higher levels,” says Leese. For larger players who have a national distribution chain already established, they may use these channels to feed the upscale consumer market when smaller brands are purchased. In a stark moment of reality, it was noted that, as far as the wholesale market goes, “Most of the [small family] brands, if they went away from the marketplace tomorrow, no one would miss them.”
Part of that reality, according to Leese, is due to the consolidation of distributors, the consolidation of retail outlets, and the concentration of business among the top few wine producers in the country.
Statistics given showed that 61% of all wholesale distribution is done by the top three distribution companies, that the top ten retail grocery chains account for 50% of all grocery wine sold, and that the top nine wine producers in the country have a 77% share of wine business across the county. This system effectively excludes the small producer, of which there are, as of 2015, almost 6 times more of than ten years ago, but only twice as many distributors.
Some wineries with excess are selling bulk wine instead of bottling and selling their wines. “The market pulled back a bit,” said Proctor. “We haven’t seen the demand driving activity [in the grape market].” He noted that there was some back up in the bulk market now, but that might change.
“The larger independents are trying private label, which means higher margin for them and increased quality,” said Leese. As recently as August, the Wall Street Journal featured an article about this private label trend, with Big-box stores Sam’s Club and Costco the central figures in the piece. Large retailers like Kroger and Total Wines are now players, and “The retail consolidation is driving the private label business,” explained Leese.
Overall the wine industry market is up, though by a lower margin than previously. A 4% increase industry-wide was cited, with higher growth in the higher echelons; luxury, ultra-premium, super premium, and premium tiers with the lower levels showing less growth, but some.
Happily for the industry, Leese believes that wine is inextricably integrated into our society. “Part of the American fabric now includes wine on the table,” he asserted. But unless you live in wine country, it appears that your choices may be limited to what the large producers give to the distributor that feeds your local channels.