Highs and wine critics might not like them, but bold great wines remain consumer favorites.
By W. Blake Gray | Posted Thursday 25-Nov-2021
What is the near term future for the US wine market? Two companies that did big deals last week have shown what they think: buttery chardonnay and affordable great red wines.
This is of course an oversimplification: the US market is huge and diverse. There’s room for 16 percent Zinfandel and Pinot Gris fermented with apples and beer hops. But these are niches for small businesses.
Large companies want to sell wine by truck, which means they want to make or acquire wine that sells by truck. And Americans still drink the wines that trendy drinkers declared dead years ago.
I admit I’m baffled by the price Treasury Wine paid for Frank Family Vineyards: $ 315 million! Frank Family produces around 150,000 cases of wine per year; it has good reviews from critics but has yet to score 100 points in an area where it is commonplace (there were 36 awarded by the Wine Advocate in Napa Valley for the 2016 vintage alone) . I like Frank Family for its Zinfandel and its sparkling red; Chardonnay is not my style so I didn’t pay attention to it, and therefore didn’t recognize it as a juggernaut. But the Treasury announcement specifically mentioned “a key portfolio gap in luxury Chardonnay”.
In Wine & Spirits magazine’s annual restaurant survey for 2019, the last year before the pandemic, Frank Family Vineyards Chardonnay was tied for seventh most popular chardonnays. Rombauer, king of buttery chardonnays, was number one, followed by his malolactic colleagues Sonoma-Cutrer, Kistler and Cakebread. There is Chablis on the list, but let me quote from the article: “When diners are looking for Chardonnay, they largely go for the American, who has passed the Frenchman by nearly two to one.”
Wine & Spirits couldn’t resist a style dig, even in the tiny two paragraph article that accompanies the Chardonnay grading, quoting a sommelier peddling Burgundy as saying, “Now we have people coming and going. ask for ‘real’ Chardonnay. ” In other words, not like those Chardonnays on our own list of the most popular Chardonnays. The wine media hate it! I am the wine media: I hate it too! American diners can’t get enough of this buttery stuff.
Frank Family also arrived with the ninth most popular cabernet sauvignon in the same issue, so maybe there’s some real branding value there. I just wonder why Treasury couldn’t create its own brand of buttery chardonnay, like it created 19 Crimes. Did the launch of this worldwide hit cost $ 315 million? Snoop Dogg isn’t free, so maybe.
Earlier this month, the Treasury freed up money by selling its Provenance Vineyards in Napa to Far Niente and the Provenance brand to a producer in Lodi. So Treasury is going to need a place to make shipments of butter chardonnay, because the Frank family facility is already at maximum. That’s what you do with a brand acquisition: take a name that people know and do a lot more. The Frank family deal includes the Benjamin Ranch vineyard in Rutherford, which has received permits to build a winery. But Treasury also has a huge winery at the foot of Napa Valley and maybe he’ll just turn on the taps there.
(I must point out that in one of my favorite articles for Wine-Searcher, a profile of Rombauer, winemaker Richie Allen explained to me that getting that much richness in Chardonnay is very hard work, starting with the vines, so Treasury might not be able to ramp up as quickly as it hopes. But Treasury has a lot of experience in large-scale winemaking, so its leaders know it.)
The other big sales news is just a completion, this private equity firm Sycamore Partners, which primarily owns clothing stores, now also owns Washington’s largest winery, Ste Michelle Wine Estates. It cost $ 1.2 billion, which is over 10% of Sycamore’s value, according to Market Watch, so it’s a big bet.
Market Watch’s analysis included an interview with the banker who led the funding. His reasoning was interesting: Washington makes high quality wines, and the land is cheaper than California. He believes millennials will spend less money on wine than their parents, even as they age. Indeed, California wineries like Duckhorn and Cakebread have invested in Washington lands to produce similar wines – rich red wines, especially Cabernet – for less.
It is not known whether consumers will continue to pay extra for “California” and in particular “Napa Valley” on the label. The Treasury is betting they will; Sycamore is betting that no, or that the absence of a “Napa bonus” will not prevent Sycamore from raising the bar.
Someone told me of an interesting rumor last week: that Sycamore is already looking to sell its share of Stag’s Leap Wine Cellars, a joint venture with Antinori that has formed in the Ste. Michelle’s deal, and that he’s looking for $ 1 billion (it’s unclear if that’s half or all of the company). I laughed: a billion dollars for Stag’s Leap? That’s crazy.
Then I came back to the Wine & Spirits Restaurant 2019 Survey. Guess which brand was the absolute, number one and most popular restaurant brand in the country? Stag’s Leap, based on the popularity of its Artemis Cabernet Sauvignon, which ranked first among Cabernets.
Is it possible for a company to come and inflate the production of Stag’s Leap to make $ 1 billion? One would think that Ste. Michelle would have tried this, but one thing we have learned over the past few years is that Chateau Ste Michelle was not as good at selling wine as we thought.
Selling the building blocks of a business is what private equity firms do. Ste Michelle also owns Erath in Oregon and Patz & Hall in California, and it wouldn’t be surprising to see them on the market soon. In reality, it wouldn’t be bad for Ste Michelle’s core business. Washington wines are great and maybe focusing on selling these will help.
Additionally, Sycamore might use their brand expertise to come up with some sort of label concept like The Prisoner, a huge hit that people never care about what grapes are in or where they come from.
It’s just telling that when we talk about big bucks in American wine, we’re not talking about vineyards. It’s still about brands and marketing, and last week’s offers are a reminder. Also, you and I might not drink buttery chardonnay, and wine posts may treat it as a nuisance, but consumers who love it know what they like and they don’t listen to us. I don’t blame them: they’ve been telling us for years that they like this kind of wine and we don’t listen to them either. But the Treasury did.