So many wineries are changing hands that it’s difficult to keep up with them, but moves by some of the biggest companies are particularly interesting. They show strikingly varied strategies.
The biggest wine company in the world, E & J Gallo, has been mostly buying vineyards and production facilities, while public Constellation likes to buy brands with few, if any, hard assets like real estate and buildings. There’s a simple reason for that.
Public companies look to short-term results to increase stock prices; though in truth, Constellation is getting more and more of its revenue from Corona and other beer, which is much cheaper to produce than wine.
Family-owned companies like Gallo, the Jackson family (Kendall-Jackson and Delicato) are buying vineyards to ensure they’ll have a source of grapes—partly because Gallo and other family firms are buying vineyards.
Two recent deals in Napa Valley that illustrate the trends set the wine business buzzing. Gallo spent more than $180 million for renowned Stagecoach Vineyards, a 600-acre vineyard in a mountainous area of Napa County. The vineyard was supplying high-quality grapes to almost 100 wine brands including Chateau Montelena, Duckhorn, Hess Collection and Cardinale. Gallo plans to eventually use the grapes for its brands like Louis Martini, William Hill and Orin Swift.
That leaves the other wineries scrambling for grapes.
Gallo also bought one of the largest custom wineries in Napa Valley and another large custom winery near Paso Robles. And, Gallo bought 642-acres in Pope Valley, a less expensive part of the Napa Valley appellation, 800-acre Snows’ Lake Vineyard in the Red Hills of Lake County 8, and 230-acre Ledgewood Creek Vineyard, and the 70-acre Winterhawk winery in the Suisun Valley of Solano County next to Napa. All produce quality grapes but the land can cost as little as $15,000 per acre versus $300,000 in Napa County.
Constellation recently bought the Schrader wine portfolio, a cult group of wines that has been rated 100 by top wine critics and bottles sell for $250 and up, way up.
Gallo didn’t buy any vineyard or a winery, but many of the expensive Schrader wines come from part of the famed To Kalon Vineyard in Oakville in Napa Valley owned by Andy Beckstoffer. But Constellation owns most of the To Kalon Vineyard, which it inherited when it bought Robert Mondavi Winery.
Beckstoffer is now charging his To Kalon grape customers 175 times the bottle price per ton of grapes—and a minimum of $18,000 per ton. The average price for Napa Valley Cabernets is already more than $6,000 per ton (It can be less than $600 for grapes from less desirable locations in California.).
Everyone expects Constellation to start using its own cheaper but comparable grapes for Schrader wines.
For average wine drinkers, that’s irrelevant, but the recent trend means that the wines from companies like Gallo, Jackson, Trinchero and Delicato will likely get better and better, but some less fortunate wineries may struggle to find grapes.
Paul Franson lives in Napa Valley, CA.