Saturday, May 31, 2014

What Will The Wine Business Be in 20 Years?

Its been pretty amazing to see the changes in the wine business in the past 20 or so years. The ways in which the business is different today would make today's business unrecognizable to someone pulling a Rip Van Winkle and waking to see what the business has become. No longer the pioneering slow-moving cottage industry, today the business is moving forward at an ever quickening pace.
One thing that was unimaginable even a decade ago would have been 'for sale' signs on a winery. Today its not that uncommon to find real estate professionals handling smaller winery and estate transactions, or straight vineyard sales. Similarly, a decade ago there wasn't much in the way of dedicated M&A advisors handling winery transactions. Silicon Valley Bank made an early attempt at it but couldn't really make it into a business. Today depending on how you count, there are between 3 - 5 dedicated practices selling winery properties. Makes you wonder where the business will be twenty years from now?
Last week SVB put out a white paper that followed up on a paper we'd released in 2008 looking at future winery transitions and sales. Its an interesting read if you've not yet taken a look.
The major finding of the report was 10.5% of wineries are strongly considering a sale, and a total of 31% would consider a sale with the right price.
As I worked on the paper I was thinking through the people who have sold and transitioned to the next generation over the past 20 years. It seems to me the early pioneers who founded the modern business thirty to forty years ago have already largely transitioned and the wineries next selling will be the ones started in the middle 1990's. That makes me a little verklempt thinking about that because those owners are people I've known since they started. Sometime its not easy thinking about the folks that have gone on, the personal assets that they brought and changes they helped foster. 
But the reality is that the new blood that is entering the business is helping move the ball forward, in more buttoned down business practices and by bringing new capital. The cottage industry that seemed so fresh-faced and in its real infancy when I started in the biz, has now become a far more mature business. Its not all grown up yet - but it is a teenager.
I had a discussion with an industry professional the other day where we talked about where this business will be in the next twenty years. My crystal ball sees that we will be far more international in our sales efforts, the Millennials will be the dominant consumer with the Boomers an afterthought, there will be more roll-ups of wineries to deliver great quality wines in larger volumes, we'll apply unimaginable technology to production and management, there will be more hedge fund and family office ownership, the AVA's outside the West Coast will find their stride with some being recognized internationally for their high quality unique wine production, and far from label consolidation, I expect to see double the number of wineries and labels. There are a few forward guesses.
What do you see when you look out 20 years? Where will be with sales, distribution, vineyards practices, consumption, etc.
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  1. Underscores these observations by Charles Banks:

    “West Coast Wineries Are Up for Sale -- Quietly”

    A wave of recent deals show investors see opportunities in wine, while owners see an exit strategy.



    “… While small wineries can succeed by selling most of their inventory direct to consumers and large producers have muscle with wholesalers, those in the middle -- annual production of 5,000 to 15,000 cases, for example -- can’t get much attention from distributors unless the brand is hot.”


    “… ‘I’ve never seen more wineries for sale in California than there are today,’ [said Charles Banks, who through investment groups such as Terroir Selections purchased Santa Barbara Syrah specialist Qupé in October and Napa veteran Mayacamas Vineyards in April.] … Banks … estimates that between 30 to 50 percent of California wineries are either in financial difficulty or aren’t as profitable as they could be.”


    “Over the last year there have been more than $335 million in sales of vineyards, vineyard estates and plantable land in Napa and Sonoma Counties. This doesn’t even take into account confidential sales or wineries.” .” -- David Ashcroft Real Estate


  2. We recently left the wine club of an Eldorado County, California winery. The reason for leaving is that the ownership literally changed generations as the founder is deceased and the next generation took over. I have usually taken part in the barrel tastings at the winery and then bought futures. This year when I did there was a significant drop off in the wine, I did not buy any futures. There were some business decisions made which reflected poor judgment so we left.

    We found two new wineries, one just started and one with a new wine maker from the same family which has owned and operated it for several generations. Both have excellent facilities and great wines. In both cases I found wines which I had not experienced before at any other area winery.

    Viva la change!

    1. Anon 9:56 - thanks for the feet on the street response.

      Interesting that I was speaking to a Barron's writer today and had the conversation about transition to the next generation. Stats prove consistently that businesses don't make it to the third generation. The same may or may not hold true in this business. The transition to nex generation is well underway with several notable successes. That said, its not going to be a universal success.

      I wouldnt be too hard on your El Dorado winery. None of us came to our jobs ready to act. In the case you describe - the death of the founder, it could be the next generation wasn't ready to be put in charge and is learning some hard lessons today. My hope is they learn quickly and find success. Check back in with them every so often. Having a rememberance of the patriarch and history will someday be of value to new management.

  3. Adding to the discussion on multi-generational wine dynasties . . .

    From The Wall Street Journal “Main News” Section
    (July 1-2, 2006, Page A1ff):

    “A Successful Vintner Pours His Passion Into Dynastic Dream;
    Europe's Wine Clans Inspire Mr. Harlan's Grand Plan;
    Grooming a Teenage Son”


    By Julia Flynn
    Staff Reporter

    -- AND --

    From The Wall Street Journal “Main News” Section
    (April 5, 2008, Page A6):

    “A Vintage Strategy Faces Modernity;
    The Antinori family wine business has thrived for six centuries.
    Here's how they did it.”


    By Gabriel Kahn
    Staff Reporter


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