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Analysis: E&J Gallo's Purchase of Columbia Seen Raising Profile of Washington Wine

by Cyril Penn
June 04, 2012

E&J Gallo’s purchase the Columbia Winery and Covey Run wine brands, which was announced today, (you read it here first) is expected to boost the profile of Washington wines. To the extent E&J Gallo expands shelf space for Columbia in major restaurant chains or retail outlets going forward, it will be a plus for other Washington wineries that have struggled to gain out-of-state distribution.

Washington Wine Commission president and CEO Steve Warner said Gallo’s move reflects the distinct and important place that Washington holds in the greater wine world. “It shows that Washington is really a rising star globally,” he said. “We’re very proud of the fact that Gallo has recognized that as well.”

As the largest U.S. wine producer, E&J Gallo’s national accounts group will have an ability to place the newly acquired brands in key accounts, getting the name of the region out there. On the other hand, it will be interesting to see how the company’s presence in Washington affects grape supply. Gallo can be expected to rev up the Columbia brand but will need grapes to do it, possibly putting some short-term pressure on other producers. There isn’t much of a bulk market for wine or grapes in Washington and non-bearing acreage has declined.

Gallo purchased the brands and inventories, and took on the responsibility for leasing the Columbia site in Woodinvale and the Covey Run site in Sunnyside. Not surprisingly, the company is taking over many of the grape contracts that existed with the previous owner, Ascentia.

In announcing the purchase, a news release quoted Roger Nabedian, Senior Vice President and General Manager of Gallo’s Premium Wine Division saying, “We have been watching the Washington wine industry grow for a number of years and consider these wine brands to be a key part of our premium wine strategy moving forward. This purchase will help us expand our footprint and offer our customers wines from the Columbia Valley and Yakima Valley Appellations.”

I spoke with Nabedian briefly. He said Gallo had been looking at Washington for the past few years in hopes of finding the right opportunity and believes this is it. He said the company had been anxious to find the right opportunity and timing. “Our objective is to expand Columbia nationally over a period of time where it can be a recognized brand leader from the state of Washington,” he confirmed.

I asked if Gallo would be planting grapes to fuel the growth of Columbia. For now, he said, Gallo is developing its relationships with growers in Washington. “Is it possible we would develop our own vineyards? Sure, but it’s not something we’ve planned for.”

Columbia currently sells more Riesling than any other varietal, so I asked about Riesling, but Nabedian said Riesling won’t be the top priority. “Our focus will be on Chardonnay, Cabernet, Merlot, and red blends,” he said.

Changes in the winemaking team can be expected but have not yet been determined.

“The first priority is Columbia,” Nabedian said. “Columbia was founded in 1962, is recognized as the first premium winery in state of Washington, and has a pedigree with a track record based on the wines produced by David Lake in the 1980s and early 1990s. We see a real opportunity to re-establish that brand with wines in the very vibrant price category of $10-$15.”

Nabedian said the strategy with Covey Run will be to promote it in the Northwest, where it has been most successful. I asked him about pricing for the brand, which typically is $7 or $8 per bottle. He said there aren’t any plans to change (i.e. raise) pricing dramatically. “I think it’s a matter of managing promotion carefully,” he said.

Finally, I asked how Washington compares to California in terms of quality. Nabedian noted that every winegrowing area has its strengths and weaknesses. “We’re particularly excited about the reds - the Merlot, Syrah and Cabernet,” he said. “And in the white wines the combination of soil and growing conditions brings out a different fruit characteristic. I’m not going to say its better or worse, but wines from Washington State offer the consumer a different opportunity.”

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