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Sell the wine or sell the winery

Sell the wine or sell the winery

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Paradoxically, developments in the last few years have made it easier for some winery owners to sell their winery than it is to sell their wine. These effects are common throughout the American wine industry, but particularly salient in the Napa Valley.

Small- to modest-sized wineries have difficulty getting the attention and interest of the major wine distribution companies, which do not want to be bothered with handling comparatively small amounts of wine, preferring the economics of distributing the larger volumes from the larger producers. This has increasingly forced smaller producers to rely on Direct to Consumer (DTC) sales, primarily through tasting rooms and wine clubs. The proliferation of new DTC dependent wineries has lead to pressure on county government in its regulation and approval of new wineries and enlargement of existing tasting rooms, viewed by the public as “event centers,” which impact the already strained roads and employee housing problems of Napa Valley.

And, of course, each new tasting room increases the competition for the wine-buying visitors’ attention and dollars.

Additionally, the perception (or fact) that Napa Valley has essentially no additional unplanted acreage suitable for development of additional high-quality vineyards also adds to pressure on wineries in general, and smaller ones in particular. If they try to increase their production volume, they have to bid away vineyard acreage, or sourced fruit, from a growing number of competitors. Doing that raises costs and forces per-bottle price increases. Higher prices in a market filled with a growing number of competing brands raises obvious marketing problems.

Hampered by their size driving them to a DTC business model, unable to grow significantly without raising their prices to bid away incremental fruit sources from competitors, faced with increased regulatory pressure on their “event center” tasting rooms, facing new tasting room competitors almost monthly, and a small, but growing hostility of the local populace over the increased traffic and housing pressure they engender, the business of selling wine grows more difficult all the time.

Meanwhile, there are a number of larger wine enterprises able and interested in taking these problems off the DTC vintner’s hands. Transactions for whole wineries, or just brands, have become more frequent and sometimes eye-popping in the last couple of years. Also transactions involving significant Napa Valley premium vineyard acreage are part of this picture. Not all DTC wineries are candidates for such acquisitions. But if yours has even a borderline “cult status” reputation, or coveted prime acreage, it might well be attractive to one or more of the active buyers in an increasingly hot market. Not all the buyers have the same goals and strategies, so what does not attract one does not necessarily prevent other buyers from being interested.

Whether selling the winery, instead of selling the wine, is attractive to any particular winery owner depends on the circumstances, goals and the capabilities the owner has to deal with the current and foreseen challenges of the business. The point is that an active market for selling the whole winery has developed recently and it is presently an interesting option to be weighed against the alternative of pressing on as a DTC vintner. I have worked in several industries where such conditions came in to being and resulted in a number of lucrative transactions.

Ross Workman

Napa

Pop the cork on Napa Valley wine!

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