How Much is Your Winery Worth Today?

Change Creates Opportunity

The 2019 SVB State of the Industry Report helped change the narrative in the wine business this year. While the industry remained focused on premiumization, I had to report in January that the positive elements that created the industry's astounding success over the past 25 years were hitting a wall. We predicted that M&A would slow this year and thus far, that appears to be a good call, notwithstanding the massive sale of about thirty of Constellation's wine brands to Gallo for $1.7BN.

There is plenty of activity still. Probably once a week both buyers and sellers ask me, "what are average winery multiples?" What they are really asking is "how much is my winery worth?" But there is more to the question. They also want some color on the business environment.

As a banker, I love those questions because it means there might be a financing opportunity (...yes I do have a day job making loans, as boring as that might sound.). 

The short answer to the headline question for today is there are still plenty of buyers but overall they are being a little more selective, and your winery and vineyard are probably not worth more than they were last year.

Without going into details on a long topic, we are presently oversupplied with grapes and bulk wine from most regions, and the upside to higher sales is for today - more limited than in the past when the rising tide of higher boomer incomes along with the belief in the health benefits of moderate wine consumption lifted all boats. Today millennial consumers are spirits and beer consumers and are trying to cut their alcohol consumption for health reasons.

There are activities that with certainty will return the growth rate in demand that we've been used to,  but that is another VERY long topic for another day. Buyers believe in the strength of the product and know there is upside given time, expertise, and focus.

As it stands, shrewd buyers and sellers are still finding agreement on price and repurposing valuable assets for tomorrow. Investors with a long view recognize the opportunity this current market change is creating. But with any sale, there has to be an offer, and an answer to the question, "How much is my winery or vineyard worth today?"

Annual DtC Videocast Tomorrow - Last Chance Signup

I'm not fond of looking at pictures of myself. It's even worse when I try and grab a screen shot like the above from last year's Tasting Room videocast. Blech. Makes me sick. That looks like I'm getting ready to spit! Actually it's the end of a sentence where I'm saying 'tasting roooommmmm.' That's what I look like when I say 'm,' and it's the best I could do - I'm sad to say. But looks aren't everything. 

SVB Direct to Consumer Live VideoCast

 

Live Video Conference:

 

Tuesday, May 12, 2015

9:30 a.m. – 10:30 a.m. Pacific Time

 

Please join us for an interactive video discussion of Silicon Valley Bank's 2015 Tasting Room Survey. This promises to be a lively conversation as SVB's Rob McMillan reviews survey results and interprets industry trends in the Tasting Room and the larger Direct To Consumer chanel along with a panel of experts.
 
Sign up for the presentation and receive a link to the replay and the complete results of the Silicon Valley Bank 2015 Tasting Room Survey after the webinar.

Speakers:

• Sonyia Grabski   Vice President of Sales & Marketing, Sullivan Vineyards
• Rob McMillan   EVP & Founder, SVB Wine Division
• Cyril Penn  Editor in Chief, Wine Business Monthly 
• Craig Root  Founder, Craig Root and Associates 

Join Us On Twitter:

Follow Rob (@SVBWine) on Twitter and join the conversation before, during, and after the webinar by using #SVBWine.



Should You Ever Discount Your Wine?

 

I'm betting nobody knows who Thorstein Veblen is. Like this picture, you have to be a little cockeyed to know him; be a Jeopardy Champion, enjoy thumbing through pictures of people who look like axe murderers, or maybe you are an economist with little to do with your free time except refresh your memory about a Veblen good?

 

One on-going debate in the wine business where Veblen's theories play a role is price discounts. Should you discount, and if so when and by how much? To get at an answer we'll review some economic basics. (... I know how exciting that sounds but stick with it. I won't kill you with math.)

Oversupply and a Bubble Forming. Now What?

Somewhere early in the year 2000 my mother-in-law was moving things out of a vacation home in Mariposa CA. I volunteered my help. So together with Anthony; a young and fit assistant from the Starving Students Movers we started lumping furniture. During a coffee break where we enjoyed delicious Starbucks Latte, Anthony started sharing his stock investment strategy. Wait...what? Investment strategy? (Disclaimer: I'm invested in Starbucks at this moment.)

Anthony couldn't have been much more than 21 and it turns out he really was a student - a student taking a videotape course in "How To Retire BeforeYou're Thirty" and was day trading. He explained his trading philosophy: high growth Internet stocks. He had amassed a small fortune already and he did it all with credit cards and margin debt.

I started to wonder if I was missing out and perhaps being too cautious with my own investments. After a little more thought on my drive home, I called my broker and cashed completely out of the market. With the Tech Crash hitting just weeks later, I had discovered a new technical indicator that would define my investing strategy from then on. I called it, "the Starving Students Bubble Indicator (SSBI):

"When a Starving Student gives you stock tips, get the hell out of the market because it’s overbought."

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?

2014 Secrets of A Successful Tasting Room

 

 

Over the last couple of months we've discussed some of the results from the SVB/WBM tasting room survey. There have been some fascinating discoveries and the ensuing discussion has been equally rich and enlightening. Wine Business Monthly published an article in the May Edition of their publication discussing some of the findings.

 

To finish that up, On May 15th we presented a live video telecast from the SVB Studios in Santa Clara California discussing findings of the survey. To improve the dialogue and give it added color, in addition to me and Cyril Penn, Sr. Editor of Wine Business Monthly, we also included two front line people: Mary Jo "M.J." Dale, VP of Marketing and Consumer Sales at Crimson Wine Group, along with Lesley Berglund, Co-Founder and Chairwoman of WISE Academy.

 

While biased, I think you'll agree the added content of the live video chat presented a wealth of current information and advice for the direct wine business. If you're interested, a reply of that event is available by pressing play in the above widow.

 

There we're a lot of questions from the 650 people who tuned into the event. The chat also contained a lot of exchanges between people who attended the live event. As is common in the wine business, there was a lot of winery helping winery. The full version of that chat can be found [here].

 

As promised, the panel took on many of those questions in the following redacted transcript. We hope you find the Replay, Tasting Room Slide deck, and the follow up questions below helpful in developing your own club and direct programs.

The Highest Return on Your Time Invested

Each year I get to write a State of the Industry report that's pretty well received in the wine business. Its even used as part of the curriculum in several U.S. Colleges and Universities which my mom thinks is really cool. She thinks I should be given an honorary PhD by one of the Universities but I haven't been able to donate enough money to a place of higher learning so as to receive that kind of recognition. Der Weinerschnitzel is considering offering me a fellowship, but thats still in early discussions.

Millennials Aren't All That

Louis B Shrimperton III "LB3"

I have a large degree of respect for Tom Wark's dog Louis B. Shrimperton III. "LB3" as he likes to be called, serves as Tom's sounding board when Tom writes his daily blog and he's also a Millennial with a distinctive opinion. Having descended from the Flying Nun as you can clearly see by the above resemblance, he's able to give Tom a high-level perspective on things.

On rare occasions Tom writes an interesting blog and he did so this last week writing "Unsubstantiated: Millennials, Wine & the Meme." Tom addresses a pet peeve of mine when reporters and writers repeat equine excrement in what I've referred to as the Millennial Myths. That's the notion that Millennials are driving the wine business. Here's one quote from a newspaper article I cited in a recent blog I penned:

"the U.S. ranks third in total wine consumption, and is gaining rapidly on the leaders. Much of the (3.3% ~ 850,000 case) increase can be attributed to the Millennial generation"

The problem with this quote and an unending string of others ..... they just aren't real or helpful in describing wine business opportunity.

Experiment or Die

Stupid mistakes and do-overs. Come on. Admit it. You've made your share. I made a similar mistake to the lumberjack in the above video. Trying to save a couple hundred bucks by not hiring a professional, I cut a tree limb away from my sliding glass door. Cutting straight down with a chain saw the limb cracked and held together by the fibrous bark. Like a hinge it pivoted down, perfectly connecting with the glass door below shattering it to pieces. It cost me $1,200 to replace the door and I've never made the same mistake since.