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The Berger Merger Report

As small wineries gets gobbled up by consolidating corporations, the wines they sell often become less individually distinctive. What a shame.

America (Country Appellation)

The Berger Merger Report

How Corporate Consolidation of the Wine Business Is Affecting What’s in the Bottle.

by Dan Berger
November 12, 2007

Here's news of the latest example:
The Largest Wine Corporation Just Got Larger


DropCap N36 ewspaper reports of winery buyouts, mergers, consolidations, and initial public offerings that we have seen reported over the years have appeared mainly on the business pages. They rarely appear on the news pages, because of the journalistic theory that such news does not affect wine consumers.

This was certainly the case more than a dozen years ago when the Robert Mondavi Winery went public in what I considered pretty big news. I was the wine editor at the Los Angeles Times at the time and the editors declined to run my exclusive story on this development in the news section. My story ran (days late) in the business section.

Wine consumers may not realize it, but such business dealings in wine may actually have a dramatic impact on the wines they have come to know. Most cynics would suggest that corporations only ruin wine, but that’s not always the case. There are examples where corporate ownership has saved a wine company and improved the caliber of the wines.

But in any case, mergers almost always have huge consequences for wine lovers - even those who don’t care that a winery is no longer owned by the founders.

As a starter, look at those wine industry acquisitions that have nothing to do with wine quality since quality was never the primary name of the game in the first place. We are talking here about wine brands that don’t stir wine collectors’ hearts.

grape-stain-152-text.jpgWhen E&J Gallo bought the Barefoot name not long ago, it acquired no vineyards, no wine making facility, and no particularly unique character in the line of wines. It was merely getting a name that it could use for yet another shelf facing.

At the time, the Barefoot wines already had strong placements in many retail outlets. So Gallo was acquiring a bit of real estate - that four inches of shelf space in wine shops or grocery stores. The same goes for such acquisitions as Heublein’s 1993 acquisition of Glen Ellen and Wine Group’s recent buyout of two Bonny Doon brands, Big House and Cardinal Zin.

Industry old-timers say this tactic is linked to the decades-old Jack Daniels Strategy of putting out multiple products that can use up precious shelf space and thus keep out competing brands.

There are other kinds of wine brands worth acquiring. One represents the unique, terroir-driven brand that offers wine of a distinctive message. Such brands include Chateau St. Jean (now with Foster's), Matanzas Creek (now with Jess Jackson’s Artisans and Estates), and Gary Farrell (now with Beam Wine Estates). Private parties once owned these three Sonoma County wineries.

George Rose, a vice president for Kendall-Jackson, has been in the wine business for decades and has seen many of the major acquisitions that have shaped the current image of the wine game in California. Included are Constellation’s billion-dollar buyout of Robert Mondavi; the Chateau Ste. Michelle/Antinori recent acquisition of Stag’s Leap Wine Cellars, Gallo’s buyout of William Hill Estate and the sale of the Davis Bynum brand to Rodney Strong owner Tom Klein.

Acquire and Conquer

A key question in all of these buyouts, as well as many others from the past, is: will the acquiring winery do the right thing for the brand image that was acquired?

It’s one thing to take over a vineyard-based operation such as Stag’s Leap, and to continue to make the same sort of
Broken-Glass-250.jpg
Broken Glass: Is the wine industry’s consolidation breaking down wine quality or individual distinctiveness of wines?
wine that made the project famous at the start. It’s quite another if a new parent company comes in and uses the same fruit, but farms it in a manner inconsistent with the legacy of the former wine maker.

We at APPELLATION AMERICA would be saddened if not temporarily made insane (that is, angered to the point of short-term insanity) were such a thing to happen to a truly classic, terroir-sensitive property; if the new owners chose to make wines that ignored the very regionality that had made the winery's reputation.

Indeed, one could make a pretty good case for a loss of identity with some of the Robert Mondavi line of wines over the last two years – though a careful reading of that sad scenario could also lead to an equally good case that the Mondavi wines had already lost their soul in the late 1990s after some unfair (and, in my view, inaccurate) criticism of the former Mondavi style of wines.

There are so many case examples in this area where a winery’s quality was compromised or improved after an acquisition. A book probably could be written about this, though the subject is somewhat esoteric; I doubt it would sell more than a few copies. Let’s take a look at just a few examples:

[ ] Matanzas Creek: Bill and Sandra MacIver did brilliant work with this Bennett Valley property, notably with Chardonnay and Merlot. After its sale to Artisans and Estates (A&E), the new company appointed French-trained Francois Cordesse and the improvement in the wines has been notable. Much of the success of Matanzas Creek is due to Jess Jackson’s commitment to making each of his A&E projects regionally distinctive.

[ ] Davis Bynum: The longtime Russian River Valley producer had been on the market for some time (albeit quietly), and when the Kleins of Rodney Strong decided to buy the brand, it got none of the actual vineyard land that the Bynum family had owned. But Robert Larsen of Rodney Strong said, “We have maintained a share of the contracts that they had, and our people will assess the quality of what’s come in [this harvest] and determine if we want to maintain those contracts.” He said wine maker Gary Patzwald will assess the style of wines put out over the years by the Davis Bynum brand. He assured me that Bynum will continue to use only Russian River Valley Chardonnay and Pinot Noir for the project.

[ ] Chateau St. Jean: The founders, raisin growers from the central San Joaquin Valley, sold out to a Japanese company, which then sold the Sonoma Valley winery to Foster’s. Over the last few years, aided by a benign corporate owner, wine maker Margo Van Staaveren has made some superb wines, bringing the winery back to its glory days when Dick Arrowood helped launch the winery as a superstar in the 1970s.

[ ] Gary Farrell: With the recent departure of the founder, Beam gave the position of chief wine maker to Susan Reed, once at Simi and later at Matanzas Creek. Reed worked with Gary himself for three years and knows the style of wine he pioneered. [ED. NOTE: Of course all bets are off with the recent announ

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Reader Feedback

Reader Comments... [14]

[1]
Mike Lynch
Big Bang Communications, Northern California
Dan's piece is clear and well reasoned, as usual. We work with both independent and corporate wineries around the world. It might be fashionable to slam corporate wineries, but over the years I've found company structure has little effect on wine quality. Instead, quality is almost always a direct result of the resources available and passion of the people involved.


[2]
Ross Battersby , Winemaker
Limerick Lane Cellars, Healdsburg, RRV, Sonoma, CA
Dan,
Another masterpiece, balanced and well integrated, lots of exposure for our buddy Nick! Thanks for being more sage and experienced than the lifestyle number mag.
Cheers, Ross


[3]
Bill Watson , State Marketing Manager
Glazers Distributors, Dallas, TX
Great article! I was with Robert Mondavi Winery from 1982 thru 1996, as it transitioned from family owned and managed to publicly traded and family managed, leaving just prior to publicly traded and no family involvement. Wow! Thank you.


[4]
Thomas Matthews , Executive Editor
Wine Spectator, New York, NY
I consider it shoddy journalism to use a blind quote from an unidentified "wine marketing executive" to attack Wine Spectator. It's nonsense to say that Wine Spectator "stopped being about wine years ago." Why otherwise sensible people like Dan Berger, or Ross Battersby in his comment on this article, feel the need to criticize our passion for and commitment to wine, remains a mystery to me.


[5]
Peter W. Le Fort , Owner
Winefax, California
I totally agree with your concern regarding mega merges in the industry. However, I do feel Constellation is doing a superb job of shuffling their brand resources. Probably due to the influence of Jose Fernandez.


[6]
Tim Dwight , Retailer
Green Turtle Market, Florida
So... what's the point of this article, Dan? (other than to sneak in a sideswipe at the Wine Spectator). I suppose your "conclusion" stating "It’s hard to generalize about corporate ownership, but it’s clear that, for better or worse, wine quality can be affected by a corporation’s acquisition of a privately owned winery." Come on, dude, if that's the best you can do... get off the pot! There's NO question in MY mind that when a winery operation gets sold (repeatedly), ala the recent Fortune-Constellation deal... there just ain't no soul left!


[7]
Tony Caffrey
USA
Please adhere to higher journalistic standards. I didn't even read all the piece. It seemed to read so ideologically driven, I bailed about halfway down. I want facts, and I want opinion, and I want each clearly distinguished. I do not want opinion masquerading as fact. For example: Dan Berger writes: "Most cynics would suggest that corporations only ruin wine, but that is not always the case. There are examples where corporate ownership has saved a wine company and improved the caliber of the wines." The wording of these sentences suggests that most who oppose corporatization are cynics. Whoa, there Dan! That's Hilary Clinton style triangulation. Memo to Dan Berger. NOW would be a very good time to cite some examples of the theory you expound. But no, Dan Berger chooses not to follow up his sweeping claim with any facts. Instead he writes in the very next sentence. "BUT IN ANY CASE, (meaning, ignore what I just said, in the previous sentence), mergers almost always have huge consequences for wine lovers-even those who don't care that a winery is no longer owned by the founders. I could deconstruct that sentence to death, but I won't, and I'll save someone embarrassment. Bottom Line. Better analysis and sharper perception are required. Bring it on please.


[8]
Mark V Marino , Wine Educator
Limos America, Sonoma County, CA
Just an excellent article, Dan! Really pulls together a lot of aspects of the wine business in one article. I see many people touring Napa and Sonoma and thus get a feeling of trends with consumers. Number ratings are just over the hill. At this point there far too many 90 pt wines out there and people are realizing the lack of credibility, not to mention the subjective nature. The consumer is becoming more astute and quality and price are important, I think many of these cult wines have reached a point of being way overpriced and there is far too much room for a competitor to make a better product at a lower price. Big corporations are still bound by the market. Opus is a typical example of what can happen when they get off track, the quality can return and the collector does not. I agree this trend toward overripe fruit has threatened long term stability and aging potential of many wines, which has been encouraged by these rating people! Thanks for the article!


[9]
Jason Ohmann , Salesman
Carolina Wine Source, South Carolina
This is a great and well-written article, as has been said already. As a rep for a small fine-wine distributor I think often about how this affects us and our business. We are generally the front line troops representing small quality-oriented wineries and we are the ones that generally feel the shelf-gobbling tactics of the bigger firms first.


[10]
Brad Asmus
SmallWineryMarketing.com, California
The oft repeated notion that most wine is purchased based on price, here voiced George Rose of K-J, is certainly not true. Contained within Rose’s caveat "almost always," lies the truth that purchase decisions are always more complex. Brand matters. The corporate marketers recognize this and that's why they're hiring from PG, J&J and others. Their goal is to develop recognizable brands for every price point so that they can keep the shelves at Safeway, Kroger and Costco stocked with something consumers can feel confident buying. The corporate takeover of wine brands has as much to do with the corporate food retailer's need for constant supply of branded product as anything else.

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